<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
Commission file number 0-13523
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CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
- -----------------------------------------------------------------------
(Name of small business issuer in its charter)
Maryland 52-1328767
- ----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 468-9200
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE N/A
- ----------------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNER UNITS
- ------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year $2,644,110.
The limited partner interests of the Registrant are not traded in any
market. Therefore, the limited partner interests had neither a market selling
price nor an average bid or asked price within the 60 days prior to the date of
this filing.
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
(a limited partnership)
1998 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Page
----
PART I
------
Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-7
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . II-1
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-2
Item 7. Financial Statements . . . . . . . . . . . . . . II-10
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-10
PART III
--------
Item 9. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . III-2
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-2
Item 12. Certain Relationships and Related Transactions . III-3
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . III-4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . III-6
Financial Statements . . . . . . . . . . . . . . . . . . . III-7
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Capital Realty Investors-IV Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on December 7, 1983. On June 13, 1984, the Partnership
commenced offering 75,000 limited partner interests through a public offering
which was managed by Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill
Lynch). The Partnership closed the offering on August 31, 1984 when 73,500
units of limited partner interests became fully subscribed.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI. The
Initial Limited Partner of the Partnership is Rockville Pike Associates Limited
Partnership-IV, a limited partnership which includes certain officers and former
employees of CRI or its affiliates. The Special Limited Partner of the
Partnership is Two Broadway Associates-III, a limited partnership comprised of
an affiliate and employees of Merrill Lynch, Pierce, Fenner and Smith,
Incorporated. Services for the Partnership are performed by CRI, as the
Partnership has no employees of its own.
The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships). The Partnership
originally made investments in 47 Local Partnerships. As of December 31, 1998,
the Partnership held investments in 35 Local Partnerships. Each of these Local
Partnerships owns and operates a federal or state government-assisted or
conventionally financed apartment complex, which provides housing principally to
the elderly or to individuals and families of low or moderate income. The
original objectives of these investments, not necessarily in order of
importance, were to:
(1) preserve and protect the Partnership's capital;
(2) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners may use to offset income from other sources;
(3) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(4) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.
See Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.
The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, and applied
for applicable mortgage insurance and/or subsidies, and remained as the local
general partners in the Local Partnerships. The Partnership became the
principal limited partner in 44 (32 as of December 31, 1998) of these Local
Partnerships. However, in the event of non-compliance with the Local
Partnerships' partnership agreements, the local general partner may be removed
and replaced with another local general partner or with an affiliate of the
Partnership's Managing General Partner. As a limited partner, the Partnership's
legal liability for obligations of the Local Partnership is limited to its
investment. In three Local Partnerships which are general partnerships, the
Partnership has invested as a limited partner in intermediary partnerships
which, in turn, have invested as general partners in the Local Partnerships. In
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
most cases, an affiliate of the Managing General Partner of the Partnership is
also a general partner of the 32 Local Partnerships and the three intermediary
partnerships. In most cases, the local general partners of the Local
Partnerships retain responsibility for developing, constructing, maintaining,
operating and managing the project. The local general partners and affiliates
of the Managing General Partner may operate other apartment complexes which may
be in competition for eligible tenants with the Local Partnerships' apartment
complexes.
Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex which must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the Managing
General Partner believes there to be no material risk of market competition in
the operations of the apartment complexes described below which would adversely
impact the Partnership, except in specific circumstances as described in Part
II, Item 6, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
A schedule of the apartment complexes owned by Local Partnerships in which
the Partnership has an investment as of December 31, 1998 follows.
I-2
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Asbury Tower $ 6,864,089 New Jersey Housing and 350 139 01/01/02
Asbury Park, NJ Mortgage Finance Agency
(NJHMFA)/236
Campbell Terrace 9,327,417 Illinois Housing Development 249 249 05/31/15
Chicago, IL Authority (IHDA)
Cannonsburg House 2,359,755 Pennsylvania Housing Finance 104 104 01/31/18
Cannonsburg, PA Agency (PHFA)
Cedar Point 2,323,844 IHDA/236 160 0 --
Springfield, IL
Char House 2,515,493 PHFA 104 104 06/30/19
Charleroi, PA
Chippewa County 1,625,785 Wisconsin Housing and Economic 109 109 07/14/02
Chippewa Falls, WI Development Authority (WHEDA)
Clearfield Hills II 1,473,042 Conventional Mortgage 76 0 --
Clearfield, UT
Cottonwood Park 1,659,091 HUD/236 126 6 06/30/99
Shawnee Mission, KS
Crescent Gardens 1,671,227 GMAC/FHA 100 100 01/09/01
Wilson, NC
De Angelis Manor 1,079,129 Rhode Island Housing and 96 96 11/30/08
West Warwick, RI Mortgage Finance Corporation
(RIHMFC)
Fairway Park Apts. 7,621,718 IHDA 210 42 06/30/04
Naperville, IL
Glenridge Gardens 2,176,798 HUD/236 120 24 05/31/99
Augusta, ME
Hale Ohana 1,478,407 USDA-Rural Development 30 29 12/12/16
Koloa, Kauai, HI (USDA-RD)/515
Harborview 4,589,071 HUD/101 300 299 06/01/00
St. Croix,
U.S. Virgin Islands
Highland Village 1,448,472 Massachusetts Housing Finance 111 58 06/05/12
Ware, MA Agency (MHFA)/236
</TABLE>
(continued)
I-3
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Holiday Village $ 927,661 USDA-RD/515 80 6 06/01/03 (4)
Park City, UT
Hometown Villages 1,584,574 WHEDA 178 178 06/01/05
Various cities, WI
Jewish Federation 3,960,043 NJHMFA/236 145 144 11/28/18
Cherry Hill, NJ
Lakes of Northdale 9,610,000 Florida Housing Finance 216 0 --
Tampa, FL Authority
Liberty Tower 2,265,457 PHFA 104 104 12/10/10
California, PA
Madison Square 3,899,268 Michigan State Housing Devel- 133 133 06/30/14
Grand Rapids, MI opment Authority
Mary Allen West Tower 2,515,000 City of Galesburg 154 153 03/01/09
Galesburg, IL
Matthew XXV 1,082,050 RIHMFC 95 95 06/18/03
Warwick, RI
Northridge Park 5,246,483 California Housing Finance 104 0 --
Salinas, CA Agency (CHFA)
Pilgrim Tower East 5,479,933 CHFA 158 158 10/17/24
Pasadena, CA
Pilgrim Tower North 4,262,438 FHA/236 258 205 02/29/00
Pasadena, CA
Redden Gardens 2,109,343 HUD 150 29 09/30/99 (4)
Dover, NH
Riverview Manor 1,162,203 WHEDA 76 76 08/15/12
Fort Atkinson, WI
Scoville Center 2,915,302 WHEDA 151 151 08/31/03
Beloit, WI
Thornwood House 3,484,523 IHDA/236 183 73 01/31/16
University Park, IL
Tradewinds Terrace 1,533,177 FHA/236 122 44 09/30/99 (4)
Traverse City, MI
</TABLE>
(continued)
I-4
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Valley View Apts. $ 2,502,941 IHDA/236 179 0 --
Rockford, IL
Wellington Woods 1,961,860 USDA-RD/515 109 73 10/19/99
Clarkson, NY
Westport Village 1,674,042 IHDA/236 121 12 05/01/16
Freeport, IL
Wollaston Manor 3,597,603 MHFA/236 164 41 04/01/11
Quincy, MA
- -------------------- ------------ -------- ------
Totals 35 $109,987,239 5,125 3,034
============ ======== ======
</TABLE>
I-5
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asbury Tower 97% 86% 94% 94% 92% $ 5,843 $ 5,486 $ 5,373 $ 5,272 $ 5,053
Asbury Park, NJ
Campbell Terrace 100% 100% 100% 100% 100% 11,868 11,704 11,294 10,989 10,816
Chicago, IL
Cannonsburg House 96% 97% 99% 96% 97% 8,536 8,583 8,631 8,600 8,357
Cannonsburg, PA
Cedar Point 96% 82% 96% 97% 95% 4,678 4,384 4,446 4,477 4,340
Springfield, IL
Char House 100% 100% 99% 100% 99% 8,364 8,380 8,287 8,181 8,073
Charleroi, PA
Chippewa County 96% 94% 94% 92% 94% 5,372 5,109 5,097 5,063 5,059
Chippewa Falls, WI
Clearfield Hills II 90% 86% 93% 100% 97% 5,154 5,451 5,535 5,173 5,128
Clearfield, UT
Cottonwood Park 100% 100% 98% 99% 99% 4,432 4,210 4,207 4,213 4,218
Shawnee Mission, KS
Crescent Gardens 100% 100% 99% 100% 100% 4,992 4,980 4,980 4,980 4,873
Wilson, NC
De Angelis Manor 100% 100% 100% 100% 100% 8,443 8,446 8,457 8,838 8,335
West Warwick, RI
Fairway Park Apt. 97% 83% 96% 94% 99% 9,066 9,079 8,933 8,758 8,581
Naperville, IL
Glenridge Gardens 95% 95% 91% 86% 93% 4,651 4,352 4,040 4,324 4,229
Augusta, ME
Hale Ohana 100% 100% 96% 93% 97% 9,099 8,919 8,970 8,837 8,290
Koloa, Kauai, HI
Harborview 100% 100% 98% 99% 100% 8,415 8,391 8,329 8,411 7,791
St. Croix,
U.S. Virgin Islands
Highland Village 95% 91% 95% 99% 100% 5,761 5,522 5,442 5,313 5,245
Ware, MA
</TABLE>
(continued)
I-6
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Village 99% 98% 96% 99% 95% $ 3,421 $ 3,334 $ 3,340 $ 3,414 $ 3,282
Park City, UT
Hometown Villages 96% 96% 97% 91% 95% 5,768 5,852 5,677 5,601 5,608
Various cities, WI
Jewish Federation 100% 100% 100% 100% 97% 9,399 9,472 9,475 8,929 8,813
Cherry Hill, NJ
Lakes of Northdale 95% 94% 92% 89% 95% 7,636 7,075 6,949 7,486 7,151
Tampa, FL
Liberty Tower 97% 100% 99% 99% 96% 8,301 8,252 8,324 8,270 8,077
California, PA
Madison Square 95% 95% 98% 98% 97% 7,344 7,256 7,397 7,170 7,115
Grand Rapids, MI
Mary Allen West Tower 100% 100% 99% 100% 100% 6,115 6,156 6,165 6,170 6,142
Galesburg, IL
Matthew XXV 100% 97% 100% 100% 100% 8,876 8,913 8,775 8,724 8,874
Warwick, RI
Northridge Park 93% 94% 90% 91% 94% 9,465 8,553 8,038 7,576 7,244
Salinas, CA
Pilgrim Tower East 100% 100% 99% 100% 100% 8,737 8,744 8,734 8,717 8,661
Pasadena, CA
Pilgrim Tower North 100% 99% 98% 100% 100% 4,647 4,601 4,625 4,663 4,321
Pasadena, CA
Redden Gardens 100% 100% 100% 97% 100% 5,151 4,689 4,694 4,717 4,560
Dover, NH
Riverview Manor 85% 97% 100% 97% 100% 5,316 5,588 5,668 5,639 5,599
Fort Atkinson, WI
Scoville Center 91% 95% 98% 95% 99% 5,262 5,333 5,303 5,220 5,131
Beloit, WI
Thornwood House 95% 99% 100% 100% 100% 5,028 4,905 4,832 4,665 4,496
University Park, IL
</TABLE>
(continued)
I-7
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tradewinds Terrace 93% 96% 96% 95% 99% $ 4,671 $ 5,167 $ 4,198 $ 4,096 $ 4,095
Traverse City, MI
Valley View Apts. 94% 99% 98% 100% 100% 4,393 4,389 4,265 4,071 3,877
Rockford, IL
Wellington Woods 100% 100% 100% 97% 100% 3,142 2,986 2,895 2,854 2,645
Clarkson, NY
Westport Village 95% 96% 98% 98% 97% 4,772 4,905 4,783 4,595 4,406
Freeport, IL
Wollaston Manor 100% 99% 100% 99% 100% 5,975 5,818 5,819 5,791 5,634
Quincy, MA
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 35 97% 96% 97% 97% 98% $ 6,517 $ 6,428 $ 6,342 $ 6,280 $ 6,118
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</TABLE>
I-8
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
(1) All properties are multifamily housing complexes. No single
tenant/resident rents 10% or more of the rentable square footage.
Residential leases are typically one year or less in length, with varying
expiration dates, and substantially all rentable space is for residential
purposes.
(2) The amounts provided are the balances of first mortgage loans payable by
the Local Partnerships as of December 31, 1998.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
(4) The Section 8 contract expiration date reflects an extension from the
original expiration date, in accordance with Federal legislation.
On July 2, 1997, New Second Lakewood Associates Limited Partnership sold
Second Lakewood. See the notes to the consolidated financial statements for
additional information pertaining to the sale.
Effective December 1, 1997, the Partnership assigned its partnership
interest in Valley Vista to the local managing general partner and withdrew from
the Local Partnership. See the notes to the consolidated financial statements
for more information pertaining to the transfer of partnership interest.
On December 31, 1998, the local managing general partner sold the property
held by Garden Court Associates Limited Partnership (Garden Court). See the
notes to the consolidated financial statements for more information pertaining
to the sale. No other sales of investments in partnerships were contemplated as
of March 31, 1999.
ITEM 2. PROPERTIES
----------
Through its ownership of limited partner interests in Local Partnerships,
Capital Realty Investors-IV Limited Partnership indirectly holds an interest in
the underlying real estate. See Part I, Item 1 for information pertaining to
these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
I-9
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) On December 23, 1998, Equity Resource Boston Fund (Boston Fund), a
Massachusetts Limited Partnership which is affiliated with Equity
Resources Group, the general partner of various partnerships that are
additional limited partners in the Partnership, initiated a tender
offer to purchase 1,470 additional units in the Partnership at a price
of $25 per Additional Limited Partner unit. Boston Fund, which is
unaffiliated with CRI, Inc., stated that it made the offer for the
express purpose of holding the limited partnership units for
investment purposes and not with a view to resale. The price offered
was determined solely at the discretion of Boston Fund and did not
necessarily represent the fair market value of each Additional Limited
Partner unit. The Boston Fund offer expired on January 23, 1999, and
as of March 31, 1999, Boston Fund held approximately 2.8% of the
Additional Limited Partner units of the Partnership. Other than the
Boston Fund tender offer, or any others of the same type, it is not
anticipated that there will be any formal market for resale of
interests in the Partnership. As a result, investors may be unable to
sell or otherwise dispose of their interests in the Partnership.
(b) As of March 31, 1999, there were approximately 7,000 registered
holders of limited partner interests in the Partnership.
(c) On November 20, 1998, the Partnership made a cash distribution of
$733,970 ($10.00 per Additional Limited Partner Unit) to the
Additional Limited Partners. The distribution was a result of cash
resources accumulated from operations and distributions from
partnerships. On November 18, 1997, the Partnership distributed
$1,469,300 ($20.00 per Additional Limited Partner unit) to the
Additional Limited Partners. The distribution was a result of the
sale of the property relating to the Partnership's investment in
Second Lakewood.
The Partnership received distributions of $1,098,649 and $3,204,192
from Local Partnerships during 1998 and 1997, respectively. Some of
the Local Partnerships operate under restrictions imposed by the
government agencies that limit the cash return available to the
Partnership.
II-1
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors-IV Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.
General
-------
The Partnership has invested, through Local Partnerships, principally in
federal or state government-assisted apartment properties (the "properties")
intended to provide housing to low and moderate income tenants. In conjunction
with such governmental assistance, which includes federal and/or state financing
at below-market interest rates and rental subsidies, the Local Partnerships
agreed to regulatory limitations on (i) cash distributions, (ii) use of the
properties and (iii) sale or refinancing. These limitations typically were
designed to remain in place for the life of the mortgage.
The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties, through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.
The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction or the sale of existing low income housing properties
by limiting the use of passive loss deductions. Therefore, the Managing General
Partner continues to concentrate on transferring the source of investment yield
from tax benefits to cash flow wherever possible, and on potentially enhancing
the ability of the Partnership to share in the appreciated value of the
properties.
The acquisition of interests in certain Local Partnerships was paid for in
part by purchase money notes of the Partnership. The purchase money notes are
nonrecourse obligations of the Partnership which typically mature 15 years from
the date of acquisition of the interest in the particular Local Partnership, and
are generally secured by the Partnership's interest in the respective Local
Partnership.
The Managing General Partner has been working to develop a strategy to sell
certain properties by utilizing opportunities presented by federal affordable
housing legislation, favorable financing terms and preservation incentives
available to nonprofit purchasers. The Managing General Partner intends to
utilize part or all of the Partnership's net proceeds (after a partial
distribution to limited partners) received from the sales of properties to fund
II-2
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
reserves for paying at maturity, prepaying or purchasing prior to maturity, at a
discount where possible, currently outstanding purchase money notes. The
Managing General Partner believes that this represents an opportunity to reduce
the Partnership's long-term obligations.
Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers. These programs may
include opportunities to sell a property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in perpetuity,
or to refinance a property, or to obtain supplemental financing. The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties
would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.
Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based Section 8 Rental Housing Assistance Payments
(HAP) provided by the U.S. Department of Housing and Urban Development (HUD)
pursuant to Section 8 HAP contracts. President Clinton signed the Fiscal Year
1998 HUD appropriations bill into law, effective October 1, 1997. The
legislation allowed all Section 8 contracts with rents at less than 120% of fair
market rents which expired between October 1997 and September 1998 to be renewed
for one year. In the event that these rents exceeded 120% of fair market rents,
these rents were reduced to 120% of fair market rents. At the beginning of
Fiscal Year 1999 (October 1, 1998), all expiring contracts with rents exceeding
comparable market rents and whose mortgages are insured by the Federal Housing
Administration (FHA) are subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage will be
converted to a non-performing but accruing (soft) second mortgage.
Under current law, the write down of an FHA-insured mortgage under Mark-to-
Market would trigger cancellation of indebtedness income to the partners, a
taxable event, even though no actual cash is received. Additionally, the newly
created second mortgage will accrue interest at a rate below market; however,
the Internal Revenue Service issued a ruling in July 1998 that concluded that
the below-market rate of interest will not generate additional ordinary income.
Each property subject to Mark-to-Market will be affected in a different manner,
and it is very difficult to predict the exact form of restructuring, or
potential tax liabilities to the limited partners, at this time.
The Managing General Partner is considering new strategies to deal with the
ever changing environment of affordable housing policy. The mortgage loans on
Section 236 and Section 221(d)(3) properties that are in the 18th year of their
mortgage may be eligible for pre-payment. Properties with expiring Section 8
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
HAP contracts may become convertible to market-rate apartment properties.
Currently there are few lenders that will provide financing either to prepay the
existing mortgage or provide additional funds to allow a property to convert to
market-rate units. Where opportunities exist, the Managing General Partner will
continue to work with the Local Partnerships to develop strategies that make
economic sense for all parties involved.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1998, the Partnership had approximately 7,000 investors
who subscribed to a total of 73,500 units of limited partner interests in the
original amount of $73,500,000. The Partnership originally made investments in
47 Local Partnerships, of which 35 remain as of December 31, 1998. The
Partnership's liquidity, with unrestricted cash resources of $10,765,753 as of
December 31, 1998, along with anticipated future cash distributions from the
Local Partnerships, is expected to meet its current and anticipated operating
cash needs. As of both December 31, 1998 and 1997, $50,400 of cash was
restricted for future interest payments on one of the purchase money notes.
During 1998 and 1997 the Partnership received cash distributions of $1,098,649
and $3,204,192, respectively, from the Local Partnerships. As of March 31,
1999, there were no material commitments for capital expenditures.
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$42,011,391 (exclusive of unamortized discount on purchase money notes of
$5,035,168) plus accrued interest of $96,821,772 as of December 31, 1998, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. Purchase money notes in the
aggregate principal amounts of $1,370,000 and $1,330,000 matured on July 27,
1994 and August 31, 1997, respectively, but have not been paid or extended, as
discussed in the notes to the consolidated financial statements.
Purchase money notes mature during 1999, as follows.
Aggregate
Principal Amount Maturity
---------------- ------------
$ 5,204,310 July, 1999
13,897,081 August, 1999
4,000,000 September, 1999
5,975,000 October, 1999
7,570,000 December, 1999
-----------
$36,646,391
===========
The remaining two purchase money notes mature in 2000 and 2025. See the notes
to the consolidated financial statements for additional information pertaining
to these purchase money notes.
The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Partnerships. There is no assurance that the underlying properties will have
sufficient appreciation and equity to enable the Partnership to pay the purchase
money notes' principal and accrued interest when due. If a purchase money note
is not paid in accordance with its terms, the Partnership will either have to
renegotiate the terms of repayment or risk losing its partnership interest in
the respective Local Partnership. The Partnership's inability to pay certain of
the purchase money note principal and accrued interest balances when due, and
the resulting uncertainty regarding the Partnership's continued ownership
interest in the related Local Partnerships, does not adversely impact the
Partnership's financial condition because the purchase money notes are
nonrecourse and secured solely by the Partnership's interest in the related
Local Partnerships. Therefore, should the investment in any of the Local
Partnerships with maturing purchase money notes not produce sufficient value to
satisfy the related purchase money notes, the Partnership's exposure to loss is
limited because the amount of the nonrecourse indebtedness of each of the
maturing purchase money notes exceeds the carrying amount of the investment in
and advances to each of the related Local Partnerships. Thus, even a complete
loss of one of these Local Partnerships would not have a material adverse impact
on the financial condition of the Partnership. See further discussion of
certain purchase money notes in the notes to consolidated financial statements.
The following chart presents information related to purchase money notes,
which mature through December 31, 1999, or which have matured and remain unpaid
or unextended as of March 31, 1999.
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Carrying Amount
of Partnership's
Investment in Aggregate
and Advances to Principal Aggregate
Number of Underlying Local Balance Interest
Underlying Partnerships as as of Balance as of
Purchase Money Local Percentage of December Percentage December Percentage December Percentage
Note Maturity Partnerships of Total 31, 1998 of Total 31, 1998 of Total 31, 1998 of Total
- ---------------- ------------ ---------- ---------------- ---------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,285,950 4% $ 1,370,000 3% $ 5,576,224 6%
3rd Quarter 1997 1 3% 876,340 3% 1,330,000 3% 3,281,081 3%
3rd Quarter 1999 16 46% 16,972,029 53% 23,101,391 55% 45,098,175 47%
4th Quarter 1999 10 29% 7,437,586 23% 13,545,000 32% 31,493,300 33%
---- ----- ----------- ----- ----------- ----- ----------- -----
28 81% $26,571,905 83% $39,346,391 93% $85,448,780 89%
==== ===== =========== ===== =========== ===== =========== =====
Total 35 100% $31,835,072 100% $42,011,391 100% $96,821,772 100%
==== ===== =========== ===== =========== ===== =========== =====
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes,
refinancing the respective properties' underlying debt, or selling the
underlying real estate and using the Partnership's share of the proceeds to pay
or buy down certain purchase money note obligations. Although the Managing
General Partner has had some success applying these strategies in the past, the
Managing General Partner cannot assure that these strategies will be acceptable
to all of the noteholders. Based on preliminary discussions with the holders of
purchase money notes maturing through December 31, 1999, the Managing General
Partner anticipates that, at least in some instances, the noteholders may not be
willing to accept anything less than payment in full on the maturity date. In
such instances, upon maturity of the purchase money notes, if the purchase money
notes remain unpaid, the noteholders have the right to foreclose on the
Partnership's interest in the related Local Partnerships. In the event of a
foreclosure, the excess of the nonrecourse indebtedness over the carrying amount
of the Partnership's investment in the related Local Partnership would result in
cancellation of indebtedness income which would be taxable to Limited Partners
at a federal tax rate of up to 39.6%. Additionally, in the event of a
foreclosure, the Partnership would lose its investment in the Local Partnership
and, likewise, its share of the future cash flow distributed by the Local
Partnership from rental operations, sales or refinancings. Of the 35 and 36
Local Partnerships in which the Partnership is invested as of December 31, 1998
and December 31, 1997, respectively, the 28 Local Partnerships with associated
purchase money notes which mature through December 31, 1999 and remain unpaid or
unextended as March 31, 1999, represent the following percentages of the
Partnership's total distributions received from Local Partnerships, and share of
income from Local Partnerships.
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
Distributions Received Income from
For Periods Ending from Local Partnerships Local Partnerships
------------------ ----------------------- ----------------------
<S> <C> <C>
December 31, 1998 85% $ 879,537
December 31, 1997 30% 625,893
</TABLE>
The Managing General Partner continues to address the impending maturity of
its debt obligations and to seek strategies which will provide the most
favorable outcome to the Limited Partners. However, there can be no assurance
that these strategies will be successful.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1998 and 1997, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
increased during 1998 primarily as a result of distributions from partnerships.
Results of Operations
---------------------
1998 Versus 1997
- ----------------
The Partnership's net loss for 1998 increased from 1997 primarily due to
the gain on disposition of investment in the Second Lakewood property in 1997
and a decrease in share of income from partnerships primarily due to the
receipt, in 1997, of proceeds from the Valley Vista refinancing which were in
excess of the Partnership's investment in that Local Partnership. Contributing
to the increase in the Partnership's net loss was the extraordinary gain from
extinguishment of the Valley Vista purchase money notes in 1997, and an increase
in interest expense due to an increase in amortization of discount on purchase
money notes.
The purchase money notes originated from 1984 through 1985. When they were
issued, the market interest rate was approximately 15%, while the stated
interest rates ranged from 8.17% to 15%. The notes were discounted as required
by Generally Accepted Accounting Principles, and a simple/compound method was
used at the stated interest rate for tax purposes and the compound method at the
market interest rate was used for book purposes. As the book interest is being
compounded, the interest expense for book purposes will eventually surpass the
interest expense for tax purposes, thereby reducing the discount and increasing
the interest expense. In fiscal year 1998, all properties with purchase money
notes had book interest which exceeded the tax interest. This increase in
interest expense and the resulting reduction in the discount are expected to
continue in future years.
II-7
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's share of income from Local Partnerships for the
years ended December 31, 1998 and 1997 did not include losses of $849,661 and
$1,348,436, respectively. The Partnership's net loss recognized from the Local
Partnerships is generally expected to decrease in subsequent years as the
Partnership's investments in the Local Partnership are reduced to zero.
Accordingly, excludable losses are generally expected to increase.
Distributions of $155,312 and $2,003,385, received from four Local Partnerships
during both 1998 and 1997, were offset against the respective years' recorded
losses because these amounts were in excess of the Partnership's investment.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which real property
investments were purchased. Future inflation could allow for appreciated values
of the Local Partnerships' properties over an extended period of time as rental
revenues and replacement values gradually increase.
The following table reflects the combined rental revenues of the
Partnership's remaining 35 properties for the five years ended December 31,
1998. Combined rental revenue amounts for all years have been adjusted to
reflect property sales and interests transferred during 1998 and prior years,
as discussed in the notes to the consolidated financial statements.
II-8
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $33,898,709 $33,343,184 $32,850,992 $32,568,136 $31,616,516
Annual Percentage
Increase 1.7% 1.5% 0.9% 3.0%
</TABLE>
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November, 1998. Under the next phase, the Assessment Phase, all applications
and functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999. Additionally, the
Managing General Partner is currently working with third party vendors, service
providers, Local Partnership managing general partners, and Local Partnership
property managers to verify their Y2K compliance, with completion expected by
June 1999. The Testing Phase, which will include testing of internal
applications as well as some third party systems, began during January 1999 and
II-9
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
will continue throughout 1999. Contingency planning commenced during the fourth
quarter 1998 and will be completed by year-end 1999. The Managing General
Partner does not expect the expense associated with the Y2K Project to be
material.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-10
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and (c)
The Partnership has no directors, executive officers or significant
employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the
Partnership, are as follows:
William B. Dockser, 62, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 52, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Ronald W. Thompson, 52, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan. During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in
London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Susan R. Campbell, 40, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
Melissa Cecil Lackey, 43, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required in these sections is incorporated herein by
reference to Notes 3 and 4 of the notes to the consolidated financial
statements contained in Part III.
(h) Termination of employment and change in control arrangements.
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding partner
units at December 31, 1998.
(b) Security ownership of management.
The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1998, by each director
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
and by all directors and officers as a group of the Managing General
Partner of the Partnership.
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
<S> <C> <C>
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (5 persons) None 0%
</TABLE>
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 10 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to the consolidated financial statements, which contains disclosure of
related party transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
12(a).
(c) Indebtedness of management.
None.
III-3
<PAGE>
PART III
--------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(d) Transactions with promoters.
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants - Capital Realty Investors-IV
Limited Partnership III-7
Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors-IV Limited Partnership
has invested III-8
Consolidated Balance Sheets as of December 31,
1998 and 1997 III-9
Consolidated Statements of Operations for the
years ended December 31, 1998 and 1997 III-10
Consolidated Statements of Changes in Partners'
Deficit for the years ended December 31,
1998 and 1997 III-11
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 III-12
Notes to Consolidated Financial Statements III-13
III-4
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - Continued
--------------------------------
(a) Index of Exhibits (Listed according to the number assigned in
----------------- the table in Item 601 of Regulation S-B.)
Exhibit No. 3 - Articles of Incorporation and bylaws.
a. Certificate of Limited Partnership of Capital Realty
Investors-IV Limited Partnership. (Incorporated by reference
from Exhibit No. 3 to Registrant's Registration Statement on
Form S-11, as amended, dated June 7, 1984.)
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. Limited Partnership Agreement of Capital Realty Investors-IV
Limited Partnership. (Incorporated by reference from Exhibit
No. 4 to Registrant's Registration Statement on Form S-11, as
amended, dated June 7, 1984.)
Exhibit No. 10 - Material Contracts.
a. Management Services Agreement between CRI and Capital Realty
Investors-IV Limited Partnership. (Incorporated by reference
from Exhibit No. 10(b) to Registrant's Registration Statement
on Form S-11, as amended, dated June 7, 1984.)
Exhibit No. 27 - Financial Data Schedule.
a. Filed herewith electronically.
Exhibit No. 99 - Additional Exhibits.
a. Prospectus of the Partnership, dated June 12, 1985.
(Incorporated by reference to Registrant's Registration
Statement on Form S-11, as amended, dated June 7, 1984.)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1998.
III-5
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
-----------------------------------------------
(Registrant)
by: C.R.I., Inc.
-------------------------------------------
Managing General Partner
March 31, 1999 by: /s/ William B. Dockser
- ----------------- ---------------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
and Treasurer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
March 31, 1999 by: /s/ H. William Willoughby
- ----------------- ---------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 31, 1999 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Partners
Capital Realty Investors-IV Limited Partnership
We have audited the consolidated balance sheets of Capital Realty
Investors-IV Limited Partnership (a Maryland limited partnership) as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in partners' deficit and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain Local Partnerships. The Partnership's share of income
from these Local Partnerships constitutes $1,653,283 and $1,342,157 of income in
1998 and 1997, respectively, included in the Partnership's net loss. The
financial statements of these Local Partnerships were audited by other auditors
whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to the amounts included for these Local
Partnerships, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-IV
Limited Partnership as of December 31, 1998 and 1997, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Vienna, VA
March 23, 1999
III-7
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-IV Limited Partnership has
invested were filed in paper format under Form SE on March 29, 1999, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted March 5, 1999.
III-8
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Investments in and advances to partnerships $ 31,835,072 $ 30,902,384
Cash and cash equivalents 10,765,753 10,197,871
Restricted cash 50,400 50,400
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $396,806 and $368,785,
respectively 708,083 751,413
Property purchase costs, net of accumulated amortization
of $365,258 and $339,819, respectively 652,206 677,643
Other assets 58,378 937,386
------------- -------------
Total assets $ 44,069,892 $ 43,517,097
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 36,976,223 $ 30,843,912
Accrued interest payable 96,821,772 86,434,915
Accounts payable and accrued expenses 147,537 216,960
Consulting fees payable to related parties -- 8,869
------------- -------------
Total liabilities 133,945,532 117,504,656
------------- -------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid in:
General Partners 2,000 2,000
Limited Partners 73,501,500 73,501,500
------------- -------------
73,503,500 73,503,500
Less:
Accumulated distributions to partners (7,654,870) (6,921,002)
Offering costs (7,562,894) (7,562,894)
Accumulated losses (148,161,376) (133,007,163)
------------- -------------
Total partners' deficit (89,875,640) (73,987,559)
------------- -------------
Total liabilities and partners' deficit $ 44,069,892 $ 43,517,097
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-9
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 2,031,338 $ 3,733,232
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 578,082 556,329
------------ ------------
Expenses:
Interest 17,072,761 15,361,971
Management fee 375,000 375,000
General and administrative 180,101 166,558
Professional fees 116,902 102,382
Amortization 53,457 56,916
------------ ------------
17,798,221 16,062,827
------------ ------------
Total other revenue and expenses (17,220,139) (15,506,498)
------------ ------------
Loss before gain on disposition of investments in partnerships (15,188,801) (11,773,266)
------------ ------------
Gain on disposition of investments in partnerships 34,690 2,749,556
------------ ------------
Loss before extraordinary gain from extinguishment of debt (15,154,111) (9,023,710)
Extraordinary gain from extinguishment of debt -- 410,117
------------ ------------
Net loss $(15,154,111) $ (8,613,593)
============ ============
Net loss allocated to General Partners (1.51%) $ (228,827) $ (130,065)
============ ============
Net loss allocated to Initial and Special Limited Partners (1.49%) $ (225,796) $ (128,343)
============ ============
Net loss allocated to Additional Limited Partners (97%) $(14,699,488) $ (8,355,185)
============ ============
Net loss per unit of Additional Limited Partner
Interest based on 73,500 units outstanding $ (199.99) $ (113.68)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-10
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit,
January 1, 1997 $(1,893,505) $(1,868,899) $(60,142,262) $(63,904,666)
Distribution of $20.00
per Additional Limited
Partner Interest -- -- (1,469,300) (1,469,300)
Net loss (130,065) (128,343) (8,355,185) (8,613,593)
----------- ----------- ------------ ------------
Partners' deficit
December 31, 1997 (2,023,570) (1,997,242) (69,966,747) (73,987,559)
Distribution of $10.00
per Additional Limited
Partner Interest -- -- (733,970) (733,970)
Net loss (228,827) (225,796) (14,699,488) (15,154,111)
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1998 $(2,252,397) $(2,223,038) $(85,400,205) $(89,875,640)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-11
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,154,111) $ (8,613,593)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Share of income from partnerships (2,031,338) (3,733,232)
Amortization of discount on purchase money notes 6,168,424 5,137,417
Amortization of deferred costs 53,457 56,916
Payment of purchase money note interest (517,479) (365,614)
Gain on disposition of investments in partnerships (34,690) (2,749,556)
Extraordinary gain from extinguishment of debt -- (410,117)
Changes in assets and liabilities:
Decrease in accrued interest receivable
on advances to partnerships -- 2,738
Decrease (increase) in other assets 879,008 (900,229)
Increase in accrued interest payable 10,904,337 10,223,652
(Decrease) increase in accounts payable and accrued expenses (69,423) 117,898
Decrease in consulting fees payable to related parties (8,869) --
------------ ------------
Net cash provided by (used in) operating activities 189,316 (1,233,720)
------------ ------------
Cash flows from investing activities:
Net proceeds from disposition of investments in partnerships 50,000 2,860,737
Receipt of distributions from partnerships 1,098,649 3,204,192
Repayment of advances to partnerships -- 80,740
Investment released from escrow -- 535,410
------------ ------------
Net cash provided by investing activities 1,148,649 6,681,079
------------ ------------
Cash flows from financing activities:
Pay-off of purchase money notes and related interest -- (2,608,746)
Payment of purchase money note principal (36,113) (42,739)
Distributions to Additional Limited Partners (733,970) (1,469,300)
------------ ------------
Net cash used in financing activities (770,083) (4,120,785)
------------ ------------
Net increase in cash and cash equivalents 567,882 1,326,574
Cash and cash equivalents, beginning of year 10,197,871 8,871,297
------------ ------------
Cash and cash equivalents, end of year $ 10,765,753 $ 10,197,871
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 517,480 $ 1,258,260
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-12
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-IV Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on
December 7, 1983 and shall continue until December 31, 2038 unless sooner
dissolved in accordance with the Partnership Agreement. The Partnership
was formed to invest in real estate by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships) which own and
operate federal or state government-assisted or conventionally financed
apartment properties located throughout the United States, which provide
housing principally to the elderly and to individuals and families of low
or moderate income.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, and current and former shareholders of
CRI. The Initial Limited Partner is Rockville Pike Associates Limited
Partnership-IV, a limited partnership which includes certain officers and
former employees of CRI or its affiliates. The Special Limited Partner is
Two Broadway Associates-III, a limited partnership comprised of an
affiliate and employees of Merrill Lynch, Pierce, Fenner and Smith,
Incorporated.
The Partnership sold 73,500 units at $1,000 per unit of Additional
Limited Partner Interest through a public offering. The offering period
was terminated on August 31, 1984.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Principles of consolidation
---------------------------
These financial statements include the accounts of three intermediary
limited partnerships which have invested in three Local Partnerships which
own and operate government-assisted or conventionally financed apartment
properties. All activity between the three intermediary limited
partnerships and the Partnership has been eliminated in consolidation.
d. Investments in and advances to partnerships
-------------------------------------------
The investments in and advances to Local Partnerships (see Note 2) are
accounted for by the equity method because the Partnership is a limited
partner in the Local Partnerships. Under this method, the carrying amount
of the investments in and advances to Local Partnerships is (i) reduced by
distributions received and (ii) increased or reduced by the Partnership's
share of earnings or losses, respectively, of the Local Partnerships. As
of December 31, 1998 and 1997, the Partnership's share of cumulative losses
of nine and ten, respectively, of the Local Partnerships exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $12,157,676 and $13,044,976, respectively. Since the
III-13
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Partnership has no further obligation to advance funds or provide financing
to these Local Partnerships, the excess losses have not been reflected in
the accompanying consolidated financial statements. As of December 31,
1998 and 1997, cumulative cash distributions of $2,409,258 and $2,253,946,
respectively, have been received from the Local Partnerships for which the
Partnership's carrying value is zero. These distributions are recorded as
increases in the Partnership's share of income from partnerships.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
e. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreements and commercial paper with original
maturities of three months or less.
f. Restricted cash
---------------
Restricted cash consists of future interest payments on one of the
purchase money notes. The Partnership has determined that the carrying
amount of its restricted cash approximates fair value.
g. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of limited partner interests. Such costs were recorded as a
reduction of partners' capital when incurred.
h. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these consolidated financial
statements.
i. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
III-14
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
j. Fair value of financial instruments
-----------------------------------
The financial statements include estimated fair value information as
of December 31, 1998, as required by Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
Instruments." Such information, which pertains to the Partnership's
financial instruments (primarily cash and cash equivalents and purchase
money notes), is based on the requirements set forth in SFAS No. 107 and
does not purport to represent the aggregate net fair value of the
Partnership.
The balance sheet carrying amounts for cash and cash equivalents
approximate estimated fair values of such assets.
The Partnership has determined that it is not practicable to estimate
the fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of December 31, 1998 and 1997, the Partnership held limited partner
interests in 35 and 36 Local Partnerships, respectively, which were
organized to develop, construct, own, maintain and operate rental apartment
properties which provide housing principally to the elderly and to
individuals and families of low or moderate income. The remaining
principal amounts due on investments in the Local Partnerships follow.
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Purchase money notes due in:
1994 $ 1,370,000 $ 1,370,000
1997 1,330,000 1,330,000
1999 36,646,391 36,682,504
2000 2,165,000 2,165,000
Thereafter 500,000 500,000
------------ ------------
Subtotal 42,011,391 42,047,504
Less: unamortized discount (5,035,168) (11,203,592)
------------ ------------
Total $ 36,976,223 $ 30,843,912
============ ============
</TABLE>
III-15
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
The purchase money notes have stated interest rates ranging from 8.17%
to 15%, certain of which are compounded annually. Unamortized discounts
are based on an imputed interest rate of 15% to reflect market interest
rates which prevailed when the notes were issued. The resulting discount
has been recorded by the Partnership and is being amortized to interest
expense over the life of the respective purchase money notes using the
effective interest method. The purchase money notes are payable upon the
earliest of: (1) sale or refinancing of the respective Local Partnership's
rental property; (2) payment in full of the respective Local Partnership's
permanent loan; or (3) maturity. Purchase money notes in the aggregate
principal amounts of $1,370,000 and $1,330,000 matured on July 27, 1994 and
August 31, 1997, respectively, but have not been paid or extended, as
discussed below.
Purchase money notes mature during 1999, as follows.
Aggregate
Principal Amount Maturity
--------------- -------------
$ 5,204,310 July, 1999
13,897,081 August, 1999
4,000,000 September, 1999
5,975,000 October, 1999
7,570,000 December, 1999
-----------
$36,646,391
===========
The remaining two purchase money notes mature in 2000 and 2025.
The purchase money notes, which are nonrecourse to the Partnership,
are generally secured by the Partnership's interest in the respective Local
Partnerships. There is no assurance that the underlying properties will
have sufficient appreciation and equity to enable the Partnership to pay
the purchase money notes' principal and accrued interest when due. If a
purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the respective Local Partnership. The
Partnership's inability to pay certain of the purchase money note principal
and accrued interest balances when due, and the resulting uncertainty
regarding the Partnership's continued ownership interest in the related
Local Partnerships, does not adversely impact the Partnership's financial
condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with
maturing purchase money notes not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
because the amount of the nonrecourse indebtedness of each of the maturing
purchase money notes exceeds the carrying amount of the investment in and
advances to each of the related Local Partnerships. Thus, even a complete
loss of one of these Local Partnerships would not have a material adverse
impact on the financial condition of the Partnership. See further
discussion of certain purchase money notes below.
III-16
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
The following chart presents information related to purchase
money notes, which mature through December 31, 1999, or which have matured
and remain unpaid or unextended as of March 31, 1999.
<TABLE>
<CAPTION>
Carrying Amount
of Partnership's
Investment in Aggregate
and Advances to Principal Aggregate
Number of Underlying Local Balance Interest
Underlying Partnerships as as of Balance as of
Purchase Money Local Percentage of December Percentage December Percentage December Percentage
Note Maturity Partnerships of Total 31, 1998 of Total 31, 1998 of Total 31, 1998 of Total
- ---------------- ------------ ---------- ---------------- ---------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,285,950 4% $ 1,370,000 3% $ 5,576,224 6%
3rd Quarter 1997 1 3% 876,340 3% 1,330,000 3% 3,281,081 3%
3rd Quarter 1999 16 46% 16,972,029 53% 23,101,391 55% 45,098,175 47%
4th Quarter 1999 10 29% 7,437,586 23% 13,545,000 32% 31,493,300 33%
---- ----- ----------- ----- ----------- ----- ----------- -----
28 81% $26,571,905 83% $39,346,391 93% $85,448,780 89%
==== ===== =========== ===== =========== ===== =========== =====
Total 35 100% $31,835,072 100% $42,011,391 100% $96,821,772 100%
==== ===== =========== ===== =========== ===== =========== =====
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These
alternatives include, among others, retaining the cash available for
distribution to meet the purchase money note requirements, buying out
certain purchase money notes at a discounted price, extending the due dates
of certain purchase money notes, refinancing the respective properties'
underlying debt, or selling the underlying real estate and using the
Partnership's share of the proceeds to pay or buy down certain purchase
money note obligations. Although the Managing General Partner has had some
success applying these strategies in the past, the Managing General Partner
cannot assure that these strategies will be acceptable to all of the
noteholders. Based on preliminary discussions with the holders of purchase
money notes maturing through December 31, 1999, the Managing General
Partner anticipates that, at least in some instances, the noteholders may
not be willing to accept anything less than payment in full on the maturity
date. In such instances, upon maturity of the purchase money notes, if the
purchase money notes remain unpaid, the noteholders have the right to
foreclose on the Partnership's interest in the related Local Partnerships.
In the event of a foreclosure, the excess of the nonrecourse indebtedness
over the carrying amount of the Partnership's investment in the related
Local Partnership would result in cancellation of indebtedness income which
would be taxable to Limited Partners at a federal tax rate of up to 39.6%.
Additionally, in the event of a foreclosure, the Partnership would lose its
investment in the Local Partnership and, likewise, its share of the future
cash flow distributed by the Local Partnership from rental operations,
sales or refinancings. Of the 35 and 36 Local Partnerships in which the
Partnership is invested as of December 31, 1998 and December 31, 1997, the
28 Local Partnerships with associated purchase money notes which mature
III-17
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
through December 31, 1999 and remain unpaid or unextended as of March 31,
1999, represent the following percentages of the total distributions
received from Local Partnerships, and share of income from Local
Partnerships.
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
Distributions Received Income from
For Periods Ending from Local Partnerships Local Partnerships
------------------ ----------------------- ----------------------
<S> <C> <C>
December 31, 1998 85% $ 879,537
December 31, 1997 30% 625,893
</TABLE>
The Managing General Partner continues to address the impending
maturity of its debt obligations and to seek strategies which will provide
the most favorable outcome to the Limited Partners. However, there can be
no assurance that these strategies will be successful.
Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1998 and 1997 was $17,072,761 and $15,361,971,
respectively. The accrued interest on the purchase money notes of
$96,821,772 and $86,434,915 as of December 31, 1998 and 1997, respectively,
is due on the respective maturity dates of the purchase money notes or
earlier, in some instances, if the pertinent Local Partnership has
distributable net cash flow, as defined in the relevant Local Partnership
agreement.
Highland Village
----------------
The Managing General Partner is currently negotiating an extension on
the purchase money notes related to Highland Village Associates (Highland
Village). The purchase money notes, the aggregate principal amount of
which is $1.1 million, mature on October 31, 1999. In connection with the
proposed extension of the purchase money notes, the Managing General
Partner, the local managing general partner and the noteholders are jointly
exploring various options to refinance the Massachusetts Housing Finance
Agency (MHFA) and HUD Section 236 interest rate subsidized mortgage loan
related to this property. There is no assurance that the noteholders will
agree to an extension of the purchase money notes, or that a refinancing of
the mortgage loan will be obtained.
Holiday Village
---------------
The Partnership defaulted on its purchase money note relating to
Holiday Village Apartments (Holiday Village) on July 27, 1994 when the note
matured and was not paid. The default amount included principal and
accrued interest of $1,370,000 and $2,862,342, respectively. As of March
31, 1999, principal and accrued interest of $1,370,000 and $5,666,275,
respectively, were due. The Managing General Partner and the noteholders
continue to negotiate settlement options, and as of March 31, 1999,
III-18
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
negotiations between the Managing General Partner and the noteholders were
ongoing. There is no assurance that any agreement will be reached. Should
the noteholders begin foreclosure proceedings on the Partnership's interest
in the related Local Partnership, the Partnership intends to vigorously
defend against any action by the noteholders. However, there is no
assurance that the Partnership will be able to retain its interest in the
Local Partnership. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnership does not impact the
Partnership's financial condition, as discussed above.
Jewish Federation
-----------------
The purchase money notes relating to Jewish Federation Apartments
Associates (Jewish Federation), the aggregate principal amount of which is
$1.350 million, are due to mature October 31, 1999. In 1997, the Managing
General Partner entered into an agreement with the noteholders to extend
the maturity date for five years, subject to the donation and transfer by
the Local Partnership of an unimproved portion of the property to an entity
affiliated with the local managing general partner. The Local Partnership
had entered into an agreement to make such donation and transfer, but the
transaction was denied by HUD in January 1998. In April 1998, the local
managing general partner indicated that it had received verbal approval
from HUD and intended to reapply for financing with HUD. There is no
assurance that such financing will be obtained. The Managing General
Partner will continue to work with the local managing general partner to
attempt to work out an agreement relating the purchase money notes. There
is no assurance that such an agreement will be reached.
Redden Gardens
--------------
The Partnership defaulted on its purchase money note relating to
Redden Development Company (Redden Gardens) on August 31, 1997 when the
note matured and was not paid. The default amount included principal and
accrued interest of $1,330,000 and $2,783,593, respectively. As of March
31, 1999, principal and accrued interest of $1,330,000 and $3,368,703,
respectively, were due. The noteholders and the Partnership have agreed
in principle to an extension of the maturity date of the purchase money
note to January, 2000. The parties are presently formalizing this
agreement. Additionally, the Managing General Partner has commissioned a
rental market study and is evaluating the feasibility of converting the
property to market-rate; no conclusion has been reached as of March 31,
1999. There is no assurance that the property will be converted nor is
there any assurance that a final agreement will be reached with the
noteholders. Accordingly, there can be no assurance that the Partnership
will be able to retain its interest in the Local Partnership. The
uncertainty about the continued ownership of the Partnership's interest in
the related Local Partnership does not impact the Partnership's financial
condition, as discussed above.
Valley Vista
------------
The purchase money note related to Valley Vista Associates (Valley
Vista) was retired, at a discount, on August 22, 1997 with proceeds from
the refinancing of the first mortgage loan secured by the property. The
III-19
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
proceeds from the refinancing used to retire the Partnership's purchase
money note obligation were in excess of the Partnership's basis in Valley
Vista and were included in share of income from partnerships. See further
information below regarding the refinancing of the first mortgage loan
secured by this property.
b. Interests in profits, losses and cash distributions made by
-----------------------------------------------------------
Local Partnerships
------------------
The Partnership has a 89.99% to 98.99% interest in profits, losses and
cash distributions (as restricted by various federal and state housing
agencies) of each Local Partnership. An affiliate of the General Partners
of the Partnership is also a general partner of each Local Partnership or
the intermediary limited partnership which invests in the Local
Partnership. The Partnership received cash distributions from rental
operations and mortgage refinancings (in 1997) of the Local Partnerships
totaling $1,098,649 and $3,204,192 during the years ended December 31, 1998
and 1997, respectively. As of December 31, 1998 and 1997, 27 and 30,
respectively, of the Local Partnerships had surplus cash, as defined by
their respective regulatory agencies, in the amount of $2,750,780 and
$3,215,613, respectively, which may be available for distribution in
accordance with their respective regulatory agencies' regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by HUD regulations. Such regulations
limit annual cash distributions to a percentage of the owner's equity
investment in a rental property. Funds in excess of those which may be
distributed to owners are generally required to be placed in a residual
receipts account held by the governing state or federal agency for the
benefit of the property.
Upon sale or refinancing of a property owned by a Local Partnership,
or upon liquidation of a Local Partnership, the proceeds from such sale,
refinancing or liquidation shall be distributed in accordance with the
respective provisions of each Local Partnership's partnership agreement.
In accordance with such provisions, the Partnership would receive from such
proceeds its respective percentage interest of any remaining proceeds,
after payment of (1) all debts and liabilities of the Local Partnership and
certain other items, (2) the Partnership's capital contributions plus
certain specified amounts as outlined in each partnership agreement, and
(3) certain special distributions to the general partners and related
entities of the Local Partnership.
III-20
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
c. Advances to Local Partnerships
------------------------------
The advances made to the Local Partnerships were as follows.
<TABLE>
<CAPTION>
December 31,
-------------------------------------
Local Partnership 1998 1997
----------------- ------------ ------------
<S> <C> <C>
Lakes of Northdale:
Principal amount of funds advanced $ 54,500 $ 54,500
------------ ------------
Total $ 54,500 $ 54,500
============ ============
</TABLE>
Lakes of Northdale
------------------
To cover operating deficits incurred in prior years by Lakes of
Northdale, Limited (Lakes of Northdale), the Partnership advanced funds
totaling $54,500 as of both December 31, 1998 and 1997. No advances have
been made to Lakes of Northdale since September 1989. These non-interest
bearing advances are payable from cash flow of Lakes of Northdale after
payment of first mortgage debt service and after satisfaction by the
Partnership of certain other interest obligations on the purchase money
notes relating to the Local Partnership. For financial reporting purposes,
these advances have been reduced to zero by the Partnership as a result of
losses at the Local Partnership level during prior years.
d. Property matters
----------------
Garden Court
------------
The report of the auditors on the financial statements of Garden Court
Associates Limited Partnership (Garden Court) for the year ended December
31, 1997 indicated that substantial doubt existed about the ability of the
Local Partnership to continue as a going concern due the negative cash flow
resulting from decreasing occupancy levels.
On December 31, 1998, the local managing general partner sold the
property. The net proceeds to the Partnership of $50,000 were received on
March 2, 1999. The sale resulted in a net financial statement gain of
approximately $35,000 in 1998. The federal tax gain was approximately
$6,163,000 in 1998.
Second Lakewood
---------------
On July 2, 1997, Second Lakewood, a 219 unit apartment complex located
in Schaumberg, Illinois was sold. The sale of the property generated cash
III-21
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
proceeds to the Partnership of approximately $1.7 million at closing.
Subsequent to closing, the Partnership received additional funds totaling
$253,385 related to the Partnership's share of the release of funds held in
security deposits, insurance accounts, real estate tax escrows and other
accounts. Also subsequent to closing, the Partnership paid $42,008 related
to outstanding expense invoices of the Local Partnership. The sale
resulted in a net financial statement gain of approximately $1.9 million.
The federal tax gain was approximately $10.7 million.
Valley Vista
------------
On August 22, 1997, Valley Vista closed on the refinancing of its
mortgage loan. Proceeds of approximately $2.1 million generated from the
refinancing were used to retire, at a discount, the remaining purchase
money note obligation of the Partnership with respect to such property,
resulting in an extraordinary gain from extinguishment of debt of
approximately $410,000. The proceeds from the refinancing used to retire
the Partnership's purchase money note obligation were in excess of the
Partnership's basis in Valley Vista and are included in share of income
from partnerships. Additionally, effective December 1, 1997, the
Partnership assigned its partnership interest in Valley Vista to the local
managing general partner and withdrew from the Local Partnership. On
January 13, 1998, the Partnership received $910,000 related to the
assignment of its interest in Valley Vista. These proceeds were in excess
of the Partnership's basis in Valley Vista, resulting in financial
statement gain of $834,000 during 1997. The federal tax gain was
approximately $5.3 million.
e. Affordable Housing Legislation
------------------------------
President Clinton signed the Fiscal Year 1998 HUD appropriations bill
into law, effective October 1, 1997. The legislation allowed all Section 8
HAP contracts with rents at less than 120% of fair market rents which
expired between October 1997 and September 1998 to be renewed for one year.
In the event that these rents exceeded 120% of fair market rents, these
rents were reduced to 120% of fair market rents (Mark-to-Market). As of
the beginning of Fiscal Year 1999 (October 1, 1998), all expiring contracts
with rents exceeding comparable market rents and whose mortgages are
insured by FHA will be subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties
which are currently subsidized at higher-than-market rental rates, and will
therefore lower cash flow available to meet mortgage payments and operating
expenses. Each affected property will undergo debt restructuring according
to terms determined by an individual property and operations evaluation.
This will involve reducing the first mortgage loan balance to an amount
supportable by the property, taking into account the property's operating
expenses and reduced income. The balance of the amount written down from
the first mortgage will be converted to a non-performing but accruing
(soft) second mortgage.
The Section 8 HAP contracts for the following properties have expired
or will expire during the government's fiscal year 1998 or 1999 and have
been renewed as indicated.
III-22
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Units Original Renewed
Authorized for Expiration of Expiration of
Number of Rental Assistance Section 8 Section 8
Property Rental Units Under Section 8 HAP Contract HAP Contract
-------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Cottonwood Park 126 6 06/30/98 06/30/99
Glenridge Gardens 120 24 05/31/99 (1)
Holiday Village 80 6 06/01/98 06/01/03
Pilgrim Tower North 258 205 10/31/98 02/29/00
Redden Gardens 150 29 09/30/98 09/30/99
Tradewinds Terrace 122 44 09/30/98 09/30/99
Westport Village 121 12 01/01/98 05/01/16
---- ---
Total 977 326
==== ===
</TABLE>
(1) The Managing General Partner expects that these Section 8 HAP Contracts
will be/were renewed for one year upon expiration.
With the uncertainty of continued project-based Section 8 subsidies
for properties with expiring HAP contracts, there is no assurance that
these rental properties will be able to maintain the rental income and
occupancy levels necessary to pay operating costs and debt service. As a
result, it is not possible to predict the impact on the Local Partnerships
and the resulting impact on the Partnership at this time.
f. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1998 and 1997 and for the years ended December 31, 1998 and
1997 follows.
III-23
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $95,165,069 and $90,172,043, respectively $ 98,251,738 $106,742,080
Land 13,144,151 13,686,895
Other assets 34,085,738 32,904,569
------------ ------------
Total assets $145,481,627 $153,333,544
============ ============
Mortgage notes payable $109,987,239 $119,077,331
Other liabilities 15,654,701 15,855,840
------------ ------------
Total liabilities 125,641,940 134,933,171
Partners' capital 19,839,687 18,400,373
------------ ------------
Total liabilities and partners' capital $145,481,627 $153,333,544
============ ============
</TABLE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
For the years ended
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 34,676,705 $ 36,006,190
Other, principally interest 2,411,782 2,527,768
------------ ------------
Total revenue 37,088,487 38,533,958
------------ ------------
Expenses:
Operating and other 22,541,519 23,748,801
Interest 6,414,944 7,672,201
Depreciation 7,323,620 7,466,998
Amortization 110,346 119,654
------------ ------------
Total expenses 36,390,429 39,007,654
------------ ------------
Net income (loss) before extraordinary gain from extinguishment of debt 698,058 (473,696)
Extraordinary gain from extinguishment of debt -- 3,739,360
------------ ------------
Net income $ 698,058 $ 3,265,664
============ ============
</TABLE>
III-24
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
g. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net income to taxable (loss) income
-----------------------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded when
received rather than when earned; (2) certain costs are expensed when paid
or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation on the
property as permitted by Internal Revenue Service (IRS) regulations. These
returns are subject to examination and, therefore, possible adjustment by
the IRS.
A reconciliation of the Local Partnerships' financial statement net
income reflected above to the taxable (loss) income follows.
III-25
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION> For the years ended
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net income $ 698,058 $ 3,265,664
Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (1,730,860) (2,465,138)
Miscellaneous, net (542,743) 543,455
------------ ------------
Taxable (loss) income $ (1,575,545) $ 1,343,981
============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships. The fee amounted to $1,470,000, which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership. The
acquisition fee was capitalized and is being amortized over a 40-year period
using the straight-line method.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership. For the years ended December 31, 1998 and 1997,
the Partnership paid $116,943 and $89,997, respectively, as direct reimbursement
of expenses incurred on behalf of the Partnership. Such expenses are included
in the consolidated statements of operations as general and administrative
expenses.
Additionally, in accordance with the terms of the Partnership Agreement,
the Partnership is obligated to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. The
amount of the Management Fee shall not exceed 0.25% of invested assets, as
defined in the Partnership Agreement, and shall be payable from the
Partnership's cash available for distribution, as defined in the Partnership
Agreement, as of the end of each calendar year, as follows:
a. First, on a monthly basis as an operating expense before any
distributions to limited partners in an annual amount equal to
$375,000, and
b. Second, after distributions to the limited partners in the amount of
1% of the gross proceeds of the offering, the balance of such 0.25% of
invested assets.
For each of the years ended December 31, 1998 and 1997, the Partnership
paid the Managing General Partner a Management Fee of $375,000.
III-26
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
The Managing General Partner and/or its affiliates may receive a fee in an
amount of not more than 2% of the sales price of the investment in a Local
Partnership or the property it owns, payable under certain conditions upon the
sale of the investment in a Local Partnership or the property it owns. The
payment of the fee is subject to certain restrictions, including achievement of
a certain level of sales proceeds and making certain minimum distributions to
limited partners. No such fees were earned by the Managing General Partner
and/or its affiliates during the years ended December 31, 1998 and 1997. During
the year ended December 31, 1996, the Managing General Partner and/or its
affiliates earned net fees of $26,606 for services performed in connection with
the sale of the property relating to the Partnership's investment in River Run.
As of December 31, 1997, $8,869 of these fees had not been paid and were
accordingly classified as consulting fees payable to related parties in the
accompanying financial statements. On March 25, 1998, these fees were paid.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partner and
1.51% to the General Partners. Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited Partner
was reduced to 0.49%. The interest of the Additional Limited Partners is 97%
and the interest of the Special Limited Partner is 1%.
The net proceeds resulting from the liquidation of the Partnership or the
Partnership's share of the net proceeds from any sale of a Local Partnership
interest or sale or refinancing of the Local Partnership's rental properties
which are not reinvested shall be distributed and applied as follows:
(i) to the payment of debts and liabilities of the Partnership
(including all expenses of the Partnership incident to the sale
or refinancing) other than loans or other debts and liabilities
of the Partnership to any partner or any affiliates; such debts
and liabilities, in the case of a non-liquidating distribution,
to be only those which are then required to be paid or, in the
judgment of the Managing General Partner, required to be provided
for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership;
(iii) except in the case of a refinancing, to each partner in an amount
equal to the positive balance in his capital account as of the
date of the sale, adjusted for operations and distributions to
that date, but before allocation of any profits for tax purposes
realized from such sale and allocated pursuant to the Partnership
Agreement;
(iv) to the limited partners (A) an aggregate amount of proceeds from
sale or refinancing and all prior sales or refinancings equal to
their capital contributions, without reduction for prior cash
distributions other than prior distributions of sale and
refinancing proceeds, plus (B) an additional amount equal to a
cumulative non-compounded 6% return on each limited partner's
capital contribution, reduced, but not below zero, by (1) an
annual amount equal to 50% of the losses for tax purposes plus
tax credits allocated to such limited partner and (2)
distributions of net cash flow to each limited partner, such
III-27
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
return, losses for tax purposes and net cash flow distributions
commencing on the first day of the month in which the capital
contribution was made;
(v) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate of the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital
contributions;
(vii) thereafter, for their services to the Partnership, in equal
shares to certain general partners, (or their designees) an
aggregate fee of 1% of the gross proceeds resulting from (A) such
sale (if the proceeds are from a sale rather than a refinancing)
and (B) any prior sales from which such 1% fee was not paid to
the General Partners or their designees; and,
(viii) the remainder, 12% in the aggregate to the General Partners (or
their assignees), 3% to the Special Limited Partner and 85% in
the aggregate to the Initial Limited Partner and the Additional
Limited Partners (or their assignees) in accordance with their
respective partner interests.
Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment properties, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment properties.
The Managing General Partner and/or its affiliates may receive a fee in an
amount of not more than 2% of the sales price of the investment in a Local
Partnership or the property it owns. The fee would only be payable upon the
sale of the investment in a Local Partnership or the property it owns and would
be subject to certain restrictions, including achievement of a certain level of
sales proceeds and making certain minimum distributions to limited partners. No
such fees were earned by the Managing General Partner and/or its affiliates
during the year ended December 31, 1998. During the year ended December 31,
1996, the Managing General Partner and/or its affiliates earned net fees of
$26,606 for services performed in connection with the sale of the property
relating to the Partnership's investment in River Run. As of December 31, 1997,
$8,869 of these fees had not been paid and were accordingly classified as
consulting fees payable to related parties in the accompanying financial
statements. On March 25, 1998, these fees were paid.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, 0.49% to the
Initial Limited Partner and 1.51% in the aggregate to the General Partners after
payment of the Management Fee, (see Note 3), as specified in the Partnership
Agreement. As defined in the Partnership Agreement, prior to the establishment
of any reserves deemed necessary by the Managing General Partner and after
payment of the Management Fee, the Partnership's cash available for distribution
was approximately $432,000 and $783,000, for the years ended December 31, 1998
and 1997, respectively.
On November 20, 1998, the Partnership made a cash distribution of $733,970
($10.00 per Additional Limited Partner Unit) to the Additional Limited Partners.
The distribution was a result of cash resources accumulated from operations and
distributions from Partnerships. On November 18, 1997, the Partnership
III-28
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
distributed $1,469,300 ($20.00 per Additional Limited Partner Unit) to the
Additional Limited Partners from the proceeds of the sale of Second Lakewood.
The Managing General Partner intends to retain all of the Partnership's
undistributed cash for the possible repayment, prepayment or purchase of the
Partnership's outstanding purchase money notes related to Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
LOSS TO TAXABLE (LOSS) INCOME
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2.g.), including
losses in excess of related investment amounts. In addition, adjustments
arising from the amortization of discount on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2.a.). These returns are subject to audit and, therefore, possible
adjustment by the IRS.
III-29
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
LOSS TO TAXABLE (LOSS) INCOME - Continued
A reconciliation of the Partnership's financial statement net
loss to taxable (loss) income follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net loss $ (15,154,111) $ (8,613,593)
Adjustments:
Difference between the income tax losses and
financial statement losses related to the
Partnership's equity in the Local Partnerships'
losses 354,593 4,661,607
Costs amortized over a shorter period for income
tax purposes (107,935) (17,754)
Difference in interest expense due to interest
for consolidated partnerships and amortization of discount 6,636,344 5,257,516
Difference between the income tax interest
income and financial statement interest income 1,158,011 1,076,459
------------ ------------
Taxable (loss) income $ (7,113,098) $ 2,364,235
============ ============
</TABLE>
III-30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,816,153
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,069,892
<CURRENT-LIABILITIES> 0
<BONDS> 133,797,995
0
0
<COMMON> 0
<OTHER-SE> (89,875,640)
<TOTAL-LIABILITY-AND-EQUITY> 44,069,892
<SALES> 0
<TOTAL-REVENUES> 2,644,110
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 725,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,072,761
<INCOME-PRETAX> (15,154,111)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,154,111)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,154,111)
<EPS-PRIMARY> (199.99)
<EPS-DILUTED> (199.99)
</TABLE>
