<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, 1999
-----------------
Commission file number 0-13523
-----------------
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 PARTNERSHIP INTERESTS
- ------------------------------------------------------------------------
(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 $2,233,062.
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
1999 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-5
Financial Statements . . . . . . . . . . . . . . . . . . . III-8
<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, 1999,
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. As a result of its investment in
Local Partnerships, the Partnership became the principal limited partner in 44
(32 as of December 31, 1999) 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
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
the Local Partnerships. In 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 projects. 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.
I-2
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
A schedule of the apartment complexes owned by Local Partnerships in
which the Partnership has an investment follows.
SCHEDULE OF APARTMENT COMPLEXES 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 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Asbury Tower $ 6,688,308 New Jersey Housing and 350 139 01/01/02
Asbury Park, NJ Mortgage Finance Agency
(NJHMFA)/236
Campbell Terrace 9,048,323 Illinois Housing Development 249 249 05/31/15
Chicago, IL Authority (IHDA)
Cannonsburg House 2,307,843 Pennsylvania Housing Finance 104 104 01/31/18
Cannonsburg, PA Agency (PHFA)
Cedar Point 2,260,836 IHDA/236 160 0 --
Springfield, IL
Char House 2,459,316 PHFA 104 104 06/30/19
Charleroi, PA
Chippewa County 1,584,460 Wisconsin Housing and Economic 109 109 07/14/17
Chippewa Falls, WI Development Authority (WHEDA)
Clearfield Hills II 1,457,728 Conventional Mortgage 76 0 --
Clearfield, UT
Cottonwood Park 1,599,703 HUD/236 126 6 12/31/99 (5)
Shawnee Mission, KS
Crescent Gardens 1,636,331 GMAC/FHA 100 100 01/09/01
Wilson, NC
De Angelis Manor 898,671 Rhode Island Housing and 96 96 11/30/08
West Warwick, RI Mortgage Finance Corporation
(RIHMFC)
Fairway Park Apts. 7,404,035 IHDA 210 42 06/30/04
Naperville, IL
Glenridge Gardens 2,121,815 HUD/236 120 24 05/01/00 (4)
Augusta, ME
</TABLE>
(Continued)
I-3
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
SCHEDULE OF APARTMENT COMPLEXES 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 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Hale Ohana $ 1,474,806 USDA-Rural Development 30 0 --
Koloa, Kauai, HI (USDA-RD)/515
Harborview 4,429,022 HUD/101 300 299 06/01/00
St. Croix,
U.S. Virgin Islands
Highland Village 1,410,379 Massachusetts Housing Finance 111 58 06/05/12
Ware, MA Agency (MHFA)/236
Holiday Village 934,498 USDA-RD/515 80 6 06/01/03 (4)
Park City, UT
Hometown Villages 1,421,098 WHEDA 178 178 06/01/05
Various cities, WI
Jewish Federation 3,858,612 NJHMFA/236 144 144 11/28/18
Cherry Hill, NJ
Lakes of Northdale 9,610,000 Florida Housing Finance 216 0 --
Tampa, FL Authority
Liberty Tower 2,147,431 PHFA 104 104 12/10/10
California, PA
Madison Square 3,805,633 Michigan State Housing Devel- 133 133 06/30/04
Grand Rapids, MI opment Authority
Mary Allen West Tower 2,355,000 City of Galesburg 154 153 03/01/09
Galesburg, IL
Matthew XXV 897,761 RIHMFC 95 95 06/18/03
Warwick, RI
Northridge Park 5,205,079 California Housing Finance 104 0 --
Salinas, CA Agency (CHFA)
Pilgrim Tower East 5,384,039 CHFA 158 158 10/17/24
Pasadena, CA
Pilgrim Tower North 4,113,777 FHA/236 258 205 02/29/00 (4)
Pasadena, CA
</TABLE>
(Continued)
I-4
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
SCHEDULE OF APARTMENT COMPLEXES 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 12/31/99 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Redden Gardens $ 2,032,511 HUD 150 30 09/01/00 (4)
Dover, NH
Riverview Manor 1,132,173 WHEDA 76 76 08/15/12
Fort Atkinson, WI
Scoville Center 2,841,693 WHEDA 151 151 08/31/18
Beloit, WI
Thornwood House 3,378,753 IHDA/236 183 0 --
University Park, IL
Tradewinds Terrace 1,468,335 FHA/236 122 44 09/30/00 (4)
Traverse City, MI
Valley View Apts. 2,436,908 IHDA/236 179 0 --
Rockford, IL
Wellington Woods 1,906,518 USDA-RD/515 109 73 10/19/00 (4)
Clarkson, NY
Westport Village 1,622,782 IHDA/236 121 0 --
Freeport, IL
Wollaston Manor 3,505,785 MHFA/236 164 41 04/01/11
Quincy, MA
- -------------------- ------------ -------- ------
Totals 35 $106,839,962 5,124 2,921
============ ======== ======
</TABLE>
I-5
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES 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 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asbury Tower 97% 97% 86% 94% 94% $ 6,299 $ 5,843 $ 5,486 $ 5,373 $ 5,272
Asbury Park, NJ
Campbell Terrace 100% 100% 100% 100% 100% 12,311 11,868 11,704 11,294 10,989
Chicago, IL
Cannonsburg House 99% 96% 97% 99% 96% 8,574 8,536 8,583 8,631 8,600
Cannonsburg, PA
Cedar Point 95% 96% 82% 96% 97% 4,674 4,678 4,384 4,446 4,477
Springfield, IL
Char House 96% 100% 100% 99% 100% 8,387 8,364 8,380 8,287 8,181
Charleroi, PA
Chippewa County 87% 96% 94% 94% 92% 5,219 5,372 5,109 5,097 5,063
Chippewa Falls, WI
Clearfield Hills II 100% 90% 86% 93% 100% 5,204 5,154 5,451 5,535 5,173
Clearfield, UT
Cottonwood Park 100% 100% 100% 98% 99% 4,581 4,432 4,210 4,207 4,213
Shawnee Mission, KS
Crescent Gardens 100% 100% 100% 99% 100% 4,976 4,992 4,980 4,980 4,980
Wilson, NC
De Angelis Manor 100% 100% 100% 100% 100% 8,460 8,443 8,446 8,457 8,838
West Warwick, RI
Fairway Park Apt. 95% 97% 83% 96% 94% 9,736 9,066 9,079 8,933 8,758
Naperville, IL
Glenridge Gardens 97% 95% 95% 91% 86% 4,893 4,651 4,352 4,040 4,324
Augusta, ME
Hale Ohana 100% 100% 100% 96% 93% 8,633 9,099 8,919 8,970 8,837
Koloa, Kauai, HI
Harborview 98% 100% 100% 98% 99% 8,338 8,415 8,391 8,329 8,411
St. Croix,
U.S. Virgin Islands
Highland Village 96% 95% 91% 95% 99% 6,048 5,761 5,522 5,442 5,313
Ware, MA
</TABLE>
(Continued)
I-6
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES 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 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holiday Village 100% 99% 98% 96% 99% $ 7,431 $ 3,421 $ 3,334 $ 3,340 $ 3,414
Park City, UT
Hometown Villages 94% 96% 96% 97% 91% 5,801 5,768 5,852 5,677 5,601
Various cities, WI
Jewish Federation 97% 100% 100% 100% 100% 9,566 9,399 9,472 9,475 8,929
Cherry Hill, NJ
Lakes of Northdale 98% 95% 94% 92% 89% 7,904 7,636 7,075 6,949 7,486
Tampa, FL
Liberty Tower 99% 97% 100% 99% 99% 8,266 8,301 8,252 8,324 8,270
California, PA
Madison Square 93% 95% 95% 98% 98% 7,262 7,344 7,256 7,397 7,170
Grand Rapids, MI
Mary Allen West Tower 99% 100% 100% 99% 100% 6,101 6,115 6,156 6,165 6,170
Galesburg, IL
Matthew XXV 100% 100% 97% 100% 100% 8,949 8,876 8,913 8,775 8,724
Warwick, RI
Northridge Park 90% 93% 94% 90% 91% 10,123 9,465 8,553 8,038 7,576
Salinas, CA
Pilgrim Tower East 100% 100% 100% 99% 100% 8,748 8,737 8,744 8,734 8,717
Pasadena, CA
Pilgrim Tower North 99% 100% 99% 98% 100% 4,764 4,647 4,601 4,625 4,663
Pasadena, CA
Redden Gardens 100% 100% 100% 100% 97% 5,264 5,151 4,689 4,694 4,717
Dover, NH
Riverview Manor 86% 85% 97% 100% 97% 5,033 5,316 5,588 5,668 5,639
Fort Atkinson, WI
Scoville Center 92% 91% 95% 98% 95% 5,264 5,262 5,333 5,303 5,220
Beloit, WI
</TABLE>
(Continue)
I-7
<PAGE>
SCHEDULE OF APARTMENT COMPLEXES 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 1999 1998 1997 1996 1995 1999 1998 1997 1996 1995
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thornwood House 100% 95% 99% 100% 100% $ 5,017 $ 5,028 $ 4,905 $ 4,832 $ 4,665
University Park, IL
Tradewinds Terrace 95% 93% 96% 96% 95% 4,920 4,671 5,167 4,198 4,096
Traverse City, MI
Valley View Apts. 94% 94% 99% 98% 100% 4,374 4,393 4,389 4,265 4,071
Rockford, IL
Wellington Woods 100% 100% 100% 100% 97% 3,173 3,142 2,986 2,895 2,854
Clarkson, NY
Westport Village 83% 95% 96% 98% 98% 4,609 4,772 4,905 4,783 4,595
Freeport, IL
Wollaston Manor 99% 100% 99% 100% 99% 5,857 5,975 5,818 5,819 5,791
Quincy, MA
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 35 97% 97% 96% 97% 97% $ 6,707 $ 6,517 $ 6,428 $ 6,342 $ 6,280
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</TABLE>
(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, 1999.
(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.
(5) The Section 8 HAP contract was not renewed at the election of the Managing
General Partner.
On December 31, 1998, the local managing general partner sold the property
held by Garden Court. See the notes to the consolidated financial statements
for additional information concerning the sale.
In January 2000, a contract for the sale of Wollaston Manor was signed.
See the notes to the consolidated financial statements for additional
information concerning the sale.
I-8
<PAGE>
PART I
-------
ITEM 1. BUSINESS - Continued
--------
The Managing General Partner of Holiday Village and the noteholder have
reached an agreement on a discounted payoff of the note in connection with, and
contingent upon, a potential sale of the property. The sale is anticipated to
close by June 2000. See the notes to the consolidated financial statements for
additional information concerning the sale.
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 concerning these
properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
On November 17, 1999, the Partnership was sued for payment on purchase
money notes related to Valley View and Westport Village, and for confirmation of
the transfer of the collateral to the noteholders. On January 7, 2000, and
February 9, 2000, the Partnership filed motions to dismiss the suits. See the
notes to the consolidated financial statements for additional information
concerning the purchase money notes.
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 1999.
I-9
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) On November 1, 1999, Odd Lot Liquidity Fund, LLC (Odd Lot), an
affiliate of an additional limited partner of the Partnership,
initiated an unregistered tender offer to purchase no more than 4.9%
of the outstanding units of additional limited partnership interest
(Units) of CRI-IV at a price of $30 per Unit. Odd Lot, which is
unaffiliated with the Partnership, stated that it made the offer for
the express purpose of holding the Units for investment purposes and
not with a view to resale. The price offered was determined solely at
the discretion of Odd Lot and did not necessarily represent the fair
market value of each Unit. The Odd Lot offer expired on December 3,
1999, and as of March 29, 2000, the entity to which Odd Lot assigned
its newly acquired Units held 1.2% of the Units in the Partnership.
Other than any other tender offers, it is not anticipated that there
will be any formal market for resale of Units. As a result, investors
may be unable to sell or otherwise dispose of the Units in the
Partnership.
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 an
unregistered tender offer to purchase 1,470 Units at a price of $25
per Unit. Boston Fund, which is unaffiliated with the Partnership,
stated that it made the offer for the express purpose of holding the
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 Unit.
The Boston Fund offer expired on January 23, 1999, and as of March 29,
2000, Boston Fund held approximately 3.5% of the Units in the
Partnership.
(b) As of March 29, 2000, there were approximately 6,500 registered
holders of limited partnership interests in the Partnership.
(c) On November 5, 1999, the Partnership made a cash distribution of
$733,670 ($10.00 per additional limited partnership interest) to the
Additional Limited Partners out of available cash flow.
On November 20, 1998, the Partnership made a cash distribution of
$733,970 ($10.00 per additional limited partnership interest) to the
Additional Limited Partners. The distribution was a result of cash
resources accumulated from operations and distributions from
partnerships.
The Partnership received distributions of $1,158,508 and $1,098,649
from the Local Partnerships during 1999 and 1998, respectively. Some
of the Local Partnerships operate under restrictions imposed by
certain federal and/or state 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, governmental
regulations affecting 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, primarily in
federal or state government-assisted apartment complexes (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 a particular Local Partnership, and
are generally secured by the Partnership's interest in the respective Local
Partnership.
C.R.I., Inc. (the Managing General Partner) has sold, and will continue to
sell, certain properties by utilizing opportunities presented by federal
affordable housing legislation, favorable financing terms and preservation
incentives available to not-for-profit purchasers. The Managing General Partner
intends to utilize all or part of the Partnership's net proceeds (after a
partial distribution to limited partners) received from the sales of properties
to fund reserves for paying at maturity, prepaying or purchasing prior to
II-2
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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 sold or refinanced,
and will continue to sell or refinance, certain properties pursuant to programs
developed by these agencies. 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 the 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. Current legislation allows all expired
Section 8 HAP contracts with rents at less than 100% of fair market rents to be
renewed for one year. Expiring Section 8 HAP contracts with rents that exceed
100% of fair market rents could be renewed for one year, but at rents reduced to
100% of fair market rents (Mark-to-Market). All expiring Section 8 HAP
contracts with rents exceeding comparable market rents, and properties with
mortgage loans insured by the Federal Housing Administration (FHA), became
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 may undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This may
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 loan
will be converted to a non-performing but accruing (soft) second mortgage loan.
Seven properties in which the Partnership is invested may be affected by
the Mark-to-Market program since they have Section 8 HAP contracts which have
already expired, or which will expire in 2000. Of these seven properties, rent
studies for five properties indicate that the current HAP rents are below fair
market rents, and therefore these properties should not be subject to a Mark-to-
Market restructuring. A rent study is being performed for the sixth property.
The seventh property did not renew its Section 8 HAP contract when it expired in
June 1999. Properties with expiring HAP contract rents greater than 100% of
fair market rents in the area where each property is located may be affected
immediately by the legislation. All seven properties have related purchase
money notes which have matured, as discussed in the notes to the consolidated
financial statements.
In many instances, the Mark-to-Market rental rate restructuring may require
the write down of an FHA-insured mortgage loan, which would trigger cancellation
of indebtedness income to the partners, a taxable event, even though no actual
cash is received. Additionally, if the existing first mortgage loan is
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
bifurcated into a first and second mortgage loan, the newly created second
mortgage loan will accrue interest at a below-market rate; 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.
There is a new HUD-sponsored program generally referred to as "Mark-up-to-
Market." Under this program, properties with expiring Section 8 contracts that
are located in high-rent areas as defined by HUD are eligible for rent increases
which would be necessary to bring Section 8 rents in line with market rate
rents. For properties with subsidized FHA loans, the rents are adjusted to take
into account the benefits the property is already receiving from the below-
market interest rate by means of a HUD determined Interest Subsidy Adjustment
Factor. The purpose of this program is to incentivize owners of properties with
expiring Section 8 contracts not to convert these properties to market rate
housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract with
HUD, subject to the annual availability of funding by Congress. In addition,
property owners who enter into the Mark-up-to-Market program will receive a
waiver from the cash flow restriction imposed on the property by the limited
dividend limitation.
The Managing General Partner is considering new strategies to deal with the
ever changing environment of affordable housing policy. The Section 236 and
Section 221(d)(3) mortgage loans may be eligible for pre-payment in their 18th
year or later. Properties with expiring Section 8 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 loans
of these types 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, 1999, the Partnership had approximately 6,500 investors
who subscribed to a total of 73,500 units of limited partnership 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, 1999. The
Partnership's liquidity, with unrestricted cash resources of $7,607,687 as of
December 31, 1999, along with anticipated future cash distributions from the
Local Partnerships, is expected to be adequate to meet its current and
anticipated operating cash needs. As of both December 31, 1999 and 1998,
$50,400 of cash was restricted for future interest payments on one of the
purchase money notes. During 1999 and 1998 the Partnership received cash
distributions of $1,158,508 and $1,098,649, respectively, from the Local
Partnerships. As of March 29, 2000, there were no material commitments for
capital expenditures.
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$39,410,081 (exclusive of unamortized discount on purchase money notes of
$42,968) plus accrued interest of $107,616,493 as of December 31, 1999, 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 amount of $1,370,000 matured on July 27, 1994 but have not
been paid or extended, as discussed below. Purchase money notes in the
aggregate principal amount of $1,330,000 matured on August 31, 1997 and were
extended to January 3, 2000, but have not been paid or further extended.
Purchase money notes in the aggregate principal amount of $2,035,000 and
$434,000 matured on July 1, 1999 and July 31, 1999, respectively, and have not
been paid or extended. A purchase money note in the principal amount of
$434,000 matured on July 31, 1999, and has been extended to July 31, 2004. A
purchase money note in the principal amount of $2,301,310 matured on July 31,
1999, and was paid in full on July 30, 1999. A purchase money note in the
principal amount of $3,732,081 matured on August 31, 1999, was partially paid
down, and was extended to August 31, 2004. Purchase money notes in the
aggregate principal amount of $12,665,000 matured during August and September,
1999, and have not been paid or extended. Purchase money notes in the aggregate
principal amount of $12,195,000 matured during the fourth quarter of 1999, and
have not been paid or extended. Purchase money notes in the principal amounts
of $1,500,000 and $1,350,000 were due to mature on September 27, 1999 and
October 31, 1999, respectively, and were extended to September 27, 2002 and
April 30, 2000, respectively. The remaining two purchase money notes mature in
April 2000 ($2,165,000) and October 2025 ($500,000). See the notes to the
consolidated financial statements for additional information concerning 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
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 the Partnership's interest in 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.
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The following chart presents information related to purchase money notes
which have matured, have been extended to mature, or are scheduled to mature
through December 31, 2000, and which remain unpaid or unextended as of March 29,
2000. Excluded from the following chart are purchase money notes which matured
through December 31, 1999, and which have been paid off, cancelled, or extended
on or before March 29, 2000.
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investment in
Principal Interest and Advances to
Number of Balance Balance Underlying Local
Purchase Underlying as of as of Partnerships as
Money Note Local Percentage December Percentage December Percentage of December Percentage
(PMN) Maturity Partnerships of Total 31, 1999 of Total 31, 1999 of Total 31, 1999 of Total
- ---------------- ------------ ---------- ----------- ---------- ------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,370,000 3% $ 6,395,919 6% $ 1,512,366 4%
3rd Quarter 1999 13 37% 15,134,000 39% 35,742,754 33% 15,578,585 48%
4th Quarter 1999 9 25% 12,195,000 31% 29,742,044 28% 6,831,520 21%
1st Quarter 2000 1 3% 1,330,000 3% 3,570,801 3% 879,748 3%
2nd Quarter 2000 2 6% 3,515,000 9% 17,330,077 16% 3,186,239 10%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
12/31/2000 26 74% $33,544,000 85% $ 92,781,595 86% $27,988,458 86%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 35 100% $39,410,081 100% $107,616,493 100% $32,436,728 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
</TABLE>
(1) Includes $2,381,700 for two partnerships reported as investment in
partnerships held for sale on the consolidated balance sheet at December
31, 1999, and $879,749 for one partnership reported as partnership interest
held in escrow on the consolidated balance sheet at December 31, 1999.
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, paying off 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 successful
in the future. Based on preliminary discussions with the holders of purchase
money notes maturing through December 31, 2000, the Managing General Partner
anticipates that, at least in some instances, the noteholders may not be willing
to negotiate any extension or discounted payoff. In such instances, upon
maturity of the purchase money notes, if the purchase money notes remain unpaid,
the noteholders may 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 be deemed 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,
II-7
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
its share of any future cash flow distributed by the Local Partnership from
rental operations, mortgage debt refinancings, or the sale of the real estate.
Of the 35 Local Partnerships in which the Partnership is invested as of December
31, 1999, the 26 Local Partnerships with associated purchase money notes which
mature through December 31, 2000 and which remain unpaid or unextended as of
March 29, 2000, represent the following percentages of the Partnership's 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 Years Ending from Local Partnerships Local Partnerships
----------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 74% $995,085
December 31, 1998 85% $879,537
</TABLE>
The Managing General Partner continues to address the maturity and
impending maturity of its debt obligations and to seek strategies which will
provide the most favorable outcome to the Additional 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 1999 and 1998, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
decreased during 1999, as net cash used in operating activities and to pay off
one purchase money note exceeded receipt of distributions from partnerships.
The Partnership made a cash distribution of $733,670 ($10.00 per additional
limited partnership interest) to the Additional Limited Partners from cash
resources accumulated from operations and distributions from partnerships on
November 5, 1999, to holders of record as of October 1, 1999. The Managing
General Partner intends to reserve all of the Partnership's remaining
undistributed cash for the possible repayment, prepayment or retirement of the
Partnership's outstanding purchase money notes related to the Local
Partnerships.
Results of Operations
---------------------
1999 Versus 1998
- ----------------
The Partnership's net loss for the year ended December 31, 1999 decreased
by only $11,000 from the year ended December 31, 1998. Of the income components
of net loss, share of income from partnerships in 1999 decreased from 1998
generally due to an increase in operating expenses at the properties; interest
income in 1999 decreased from 1998 due to decreased cash and cash equivalent
balances; and gain on disposition of investment in partnership decreased to $0
II-8
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
in 1999, as there was no such disposition during the year. Of the expense
components of net loss, interest expense in 1999 decreased from 1998 due to less
amortization of discount on purchase money notes during 1999; general and
administrative expenses in 1999 increased from 1998 due to higher reimbursed
payroll costs during 1999; and professional fees in 1999 decreased from 1998
primarily due to lower legal fees and costs in 1999.
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, 1999 and 1998 did not include losses of $671,407 and
$849,661, 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 Partnerships are reduced to zero.
Accordingly, excludable losses are generally expected to increase.
Distributions of $162,284 and $155,312, received from four Local Partnerships
during both 1999 and 1998, 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 the Partnership's 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
properties for the five years ended December 31, 1999. Combined rental revenue
amounts for years prior to 1999 have been adjusted to exclude rental revenues
from those properties in which the Partnership no longer is invested at December
31, 1999.
II-9
<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,
-----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $34,795,898 $33,898,709 $33,343,184 $32,850,992 $32,568,136
Annual Percentage
Increase 2.6% 1.7% 1.5% 0.9%
</TABLE>
Year 2000 Computer Issue
------------------------
The Partnership experienced little to no interruption in its computer
operations, or otherwise, as a result of the transition from the year 1999 to
2000. The Partnership's expenses associated with upgrading and testing its
internal hardware and software systems, data interfaces, business operations and
non-information technology functions which could have been affected by the
transition were not 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, 63, 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, 53, 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.
Susan R. Campbell, 41, 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, 44, 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.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
(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.
The following table sets forth certain information concerning any
person (including any "group") who is known to the Partnership to be
the beneficial owner of more than five percent of the issued and
outstanding units of additional limited partnership interest (Units)
at March 29, 2000.
Name and Address of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
------------------- ----------------------- -----------
Equity Resources Group, 4,694 units 6.4%
Incorporated, et. al.
14 Story Street
Cambridge, MA 02138
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
(b) Security ownership of management.
The following table sets forth certain information concerning all
Units beneficially owned, as of March 29, 2000, by each director and
by all directors and officers as a group of the Managing General
Partner of the Partnership.
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (4 persons) None 0%
(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).
III-3
<PAGE>
PART III
--------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(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, 1999.
III-4
<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 29, 2000 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 29, 2000 by: /s/ H. William Willoughby
- ----------------- ---------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 29, 2000 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-5
<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, 1999 and 1998, and the related consolidated statements of operations,
changes in partners' deficit and cash flows for the years ended December 31,
1999 and 1998. 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 $1,471,637 and $1,653,283 of income in
1999 and 1998, 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States.
Grant Thornton LLP
Vienna, VA
March 29, 2000
III-6
<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 30, 2000, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted January 14, 2000.
III-7
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Investments in and advances to partnerships $ 29,175,280 $ 31,835,072
Investment in partnerships held for sale 2,476,204 --
Partnership interest held in escrow 928,160 --
Cash and cash equivalents 7,607,687 10,765,753
Restricted cash equivalents 50,400 50,400
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $371,870 and $389,111,
respectively 609,184 708,083
Property purchase costs, net of accumulated amortization
of $348,713 and $365,258, respectively 559,966 652,206
Other assets -- 58,378
------------- -------------
Total assets $ 41,406,881 $ 44,069,892
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 39,367,113 $ 36,976,223
Accrued interest payable 107,616,493 96,821,772
Accounts payable and accrued expenses 175,592 147,537
------------- -------------
Total liabilities 147,159,198 133,945,532
------------- -------------
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 (8,388,540) (7,654,870)
Offering costs (7,562,894) (7,562,894)
Accumulated losses (163,304,383) (148,161,376)
------------- -------------
Total partners' deficit (105,752,317) (89,875,640)
------------- -------------
Total liabilities and partners' deficit $ 41,406,881 $ 44,069,892
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-8
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 1,763,705 $ 2,031,338
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 469,357 578,082
------------ ------------
Expenses:
Interest 16,590,968 17,072,761
Management fee 375,000 375,000
General and administrative 254,436 180,101
Professional fees 104,570 116,902
Amortization of deferred costs 51,095 53,457
------------ ------------
17,376,069 17,798,221
------------ ------------
Total other revenue and expenses (16,906,712) (17,220,139)
------------ ------------
Loss before gain on disposition
of investment in partnership (15,143,007) (15,188,801)
------------ ------------
Gain on disposition of investment in partnership -- 34,690
------------ ------------
Net loss $(15,143,007) $(15,154,111)
============ ============
Net loss allocated to General Partners (1.51%) $ (228,659) $ (228,827)
============ ============
Net loss allocated to Initial and Special Limited
Partners (1.49%) $ (225,631) $ (225,796)
============ ============
Net loss allocated to Additional Limited
Partners (97%) $(14,688,717) $(14,699,488)
============ ============
Net loss per unit of Additional Limited Partner
Interest based on 73,500 units outstanding $ (199.85) $ (199.99)
============ ============
</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 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, 1998 $(2,023,570) $(1,997,242) $ (69,966,747) $ (73,987,559)
Distribution of $10.00
per Additional Limited
Partnership 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)
Distribution of $10.00
per Additional Limited
Partnership Interest (733,670) (733,670)
Net loss (228,659) (225,631) (14,688,717) (15,143,007)
----------- ----------- ------------- -------------
Partners' deficit,
December 31, 1999 $(2,481,056) $(2,448,669) $(100,822,592) $(105,752,317)
=========== =========== ============= =============
</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 CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(15,143,007) $(15,154,111)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Share of income from partnerships (1,763,705) (2,031,338)
Amortization of discount on purchase money notes 4,992,869 6,168,424
Amortization of deferred costs 51,095 53,457
Gain on disposition of investment in partnership -- (34,690)
Changes in assets and liabilities:
Decrease in other assets 58,378 879,008
Increase in accrued interest payable 11,598,099 10,904,337
Payment of purchase money note interest (803,378) (517,479)
Increase (decrease) in accounts payable and accrued expenses 28,055 (69,423)
Decrease in consulting fees payable to related parties -- (8,869)
------------ ------------
Net cash (used in) provided by operating activities (981,594) 189,316
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 1,158,508 1,098,649
Net proceeds from disposition of investment in partnership -- 50,000
------------ ------------
Net cash provided by investing activities 1,158,508 1,148,649
------------ ------------
Cash flows from financing activities:
Payment of purchase money note principal (2,601,310) (36,113)
Distributions to Additional Limited Partners (733,670) (733,970)
------------ ------------
Net cash used in financing activities (3,334,980) (770,083)
------------ ------------
Net (decrease) increase in cash and cash equivalents (3,158,066) 567,882
Cash and cash equivalents, beginning of year 10,765,753 10,197,871
------------ ------------
Cash and cash equivalents, end of year $ 7,607,687 $ 10,765,753
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 803,378 $ 517,479
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
III-11
<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 or 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 Partnership 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 conformity with accounting principles
generally accepted in the United States.
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, 1999 and 1998, the Partnership's share of cumulative losses
of eight and nine, respectively, of the Local Partnerships exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $12,520,832 and $12,157,676, respectively. Since the
III-12
<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,
1999 and 1998, cumulative cash distributions of $2,571,542 and $2,409,258,
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 partnership 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 credit has
been made for income taxes in these consolidated financial statements.
i. Use of estimates
----------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States, 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-13
<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, 1999, 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 both December 31, 1999 and 1998, the Partnership held limited
partner interests in 35 Local Partnerships which were organized to develop,
construct, own, maintain and operate rental apartment properties which
provide housing principally to the elderly or 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,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Purchase money notes due in:
1994 $ 1,370,000 $ 1,370,000
1997 -- 1,330,000
1999 27,329,000 36,646,391
2000 4,845,000 2,165,000
Thereafter 5,866,081 500,000
------------ ------------
Subtotal 39,410,081 42,011,391
Less: unamortized discount (42,968) (5,035,168)
------------ ------------
Total $ 39,367,113 $ 36,976,223
============ ============
</TABLE>
III-14
<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 5.82%
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 amount of $1,370,000 matured on July 27, 1994 but have not been
paid or extended, as discussed below. Purchase money notes in the
aggregate principal amount of $1,330,000 matured on August 31, 1997 and
were extended to January 3, 2000, but have not been paid or further
extended. Purchase money notes in the aggregate principal amount of
$2,035,000 and $434,000 matured on July 1, 1999 and July 31, 1999,
respectively, and have not been paid or extended. A purchase money note in
the principal amount of $434,000 matured on July 31, 1999, and has been
extended to July 31, 2004. A purchase money note in the principal amount
of $2,301,310 matured on July 31, 1999, and was paid in full on July 30,
1999. A purchase money note in the principal amount of $3,732,081 matured
on August 31, 1999, was partially paid down, and was extended to August 31,
2004. Purchase money notes in the aggregate principal amount of
$12,665,000 matured during August and September, 1999, and have not been
paid or extended. Purchase money notes in the aggregate principal amount
of $12,195,000 matured during the fourth quarter of 1999, and have not been
paid or extended. Purchase money notes in the principal amounts of
$1,500,000 and $1,350,000 were due to mature on September 27, 1999 and
October 31, 1999, respectively, and were extended to September 27, 2002 and
April 30, 2000, respectively. The remaining two purchase money notes
mature in April 2000 ($2,165,000) and October 2025 ($500,000).
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 the Partnership's interest in 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-15
<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 have matured, have been extended to mature, or are scheduled to
mature through December 31, 2000, and which remain unpaid or unextended as
of March 29, 2000. Excluded from the following chart are purchase money
notes which matured through December 31, 1999, and which have been paid
off, cancelled, or extended on or before March 29, 2000.
III-16
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investment in
Principal Interest and Advances to
Number of Balance Balance Underlying Local
Purchase Underlying as of as of Partnerships as
Money Note Local Percentage December Percentage December Percentage of December Percentage
(PMN) Maturity Partnerships of Total 31, 1999 of Total 31, 1999 of Total 31, 1999 of Total
- ---------------- ------------ ---------- ----------- ---------- ------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,370,000 3% $ 6,395,919 6% $ 1,512,366 4%
3rd Quarter 1999 13 37% 15,134,000 39% 35,742,754 33% 15,578,585 48%
4th Quarter 1999 9 25% 12,195,000 31% 29,742,044 28% 6,831,520 21%
1st Quarter 2000 1 3% 1,330,000 3% 3,570,801 3% 879,748 3%
2nd Quarter 2000 2 6% 3,515,000 9% 17,330,077 16% 3,186,239 10%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
12/31/2000 26 74% $33,544,000 85% $ 92,781,595 86% $27,988,458 86%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 35 100% $39,410,081 100% $107,616,493 100% $32,436,728 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
</TABLE>
(1) Includes $2,381,700 for two partnerships reported as investment in
partnerships held for sale on the consolidated balance sheet at December
31, 1999, and $879,749 for one partnership reported as partnership interest
held in escrow on the consolidated balance sheet at December 31, 1999.
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, paying off
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 successful in the future.
Based on preliminary discussions with the holders of purchase money notes
maturing through December 31, 2000, the Managing General Partner
anticipates that, at least in some instances, the noteholders may not be
willing to negotiate any extension or discounted payoff. In such
instances, upon maturity of the purchase money notes, if the purchase money
notes remain unpaid, the noteholders may 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 be deemed 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
III-17
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
the Local Partnership and, likewise, its share of any future cash flow
distributed by the Local Partnership from rental operations, mortgage debt
refinancings, or the sale of the real estate. Of the 35 Local Partnerships
in which the Partnership is invested as of December 31, 1999, the 26 Local
Partnerships with associated purchase money notes which mature through
December 31, 2000 and which remain unpaid or unextended as of March 29,
2000, represent the following percentages of the Partnership's 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 Years Ending from Local Partnerships Local Partnerships
----------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 74% $995,085
December 31, 1998 85% $879,537
</TABLE>
The Managing General Partner continues to address the maturity and
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, 1999 and 1998 was $16,590,968 and $17,072,761,
respectively. Amortization of discount on purchase money notes increased
interest expense for the years ended December 31, 1999 and 1998 by
$4,992,869 and $6,168,424, respectively. The accrued interest on the
purchase money notes of $107,616,493 and $96,821,772 as of December 31,
1999 and December 31, 1998, respectively, is due on the respective maturity
dates of the purchase money notes or earlier, in some instances, if (and to
the extent of a portion thereof) the related Local Partnership has
distributable net cash flow, as defined in the relevant Local Partnership
agreement.
Asbury Tower
------------
The Partnership defaulted on its purchase money note related to Asbury
Tower Associates Limited Partnership (Asbury Tower) on August 31, 1999 when
the note matured and was not paid. The default amount included principal
and accrued interest of $3,732,081 and $9,978,961, respectively. In
November 1999, the Partnership and the noteholder agreed, as of August 31,
1999, to extend the maturity date of the purchase money note until August
31, 2004, in exchange for a partial payment of principal.
III-18
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Cannonsburg House, Char House, and Liberty Tower
------------------------------------------------
The Partnership defaulted on its six purchase money notes related to
Cannonsburg Housing Associates Limited Partnership (Cannonsburg House),
Char House Highrise Association Limited Partnership (Char House), and
Liberty Tower Associates Limited Partnership (Liberty Tower) on December 1,
1999 when the notes matured and were not paid. The default amount included
aggregate principal and accrued interest of $4,510,000 and $12,951,810,
respectively. As of March 29, 2000, aggregate principal and accrued
interest of $4,510,000 and $13,514,302, respectively, were due. Pursuant
to the terms of the notes, the Partnership has 120 days to cure the
default, which period commenced on December 1, 1999. The Partnership is
currently negotiating to extend the maturity date of the purchase money
notes for up to five years. There is no assurance that an extension will
be obtained.
Cedar Point
-----------
The Partnership defaulted on its purchase money note related to
Southwest Development Company (Cedar Point) on August 30, 1999 when the
note matured and was not paid. The default amount included principal and
accrued interest of $1,320,000 and $2,460,115, respectively. As of March
29, 2000, principal and accrued interest of $1,320,000 and $2,565,246,
respectively, were due. The Partnership is currently negotiating to extend
the maturity date of the purchase money note for five years. There is no
assurance that an extension will be obtained.
Chippewa County
---------------
The Partnership defaulted on its purchase money note related to
Chippewa County Housing Partners (Chippewa County) on August 1, 1999 when
the note matured and was not paid. The default amount included principal
and accrued interest of $860,000 and $2,297,462, respectively. As of March
29, 2000, principal and accrued interest of $860,000 and $2,408,520
respectively, were due. The Partnership is currently negotiating a one
year extension of the maturity date of the purchase money note. There is
no assurance that an extension will be obtained.
Cottonwood Park
---------------
The Partnership defaulted on its purchase money note related to
Shawnee Heights Limited Partnership (Cottonwood Park) on August 1, 1999
when the note matured and was not paid. The default amount included
principal and accrued interest of $975,000 and $2,576,421, respectively.
As of March 29, 2000, principal and accrued interest of $975,000 and
$2,790,384, respectively, were due. The Partnership is currently
negotiating a five year extension of the maturity date of the purchase
money note, while also pursuing a possible sale of the property. There is
no assurance that an extension or sale will occur.
III-19
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Crescent Gardens
----------------
The Partnership defaulted on its two purchase money notes related to
Crescent Gardens Associates Limited Partnership (Crescent Gardens) on July
31, 1999 when the notes matured and were not paid. The default amount
included aggregate principal and accrued interest of $868,000 and
$2,033,388, respectively. As of March 29, 2000, aggregate principal and
accrued interest of $434,000 and $1,906,346, respectively, were due on one
of the notes. The Partnership successfully negotiated an agreement to
extend the maturity date of one of the purchase money notes (First Crescent
Note) in the principal amount of $434,000, effective October 15, 1999. In
connection with the terms of the extension agreement, the Partnership made
a payment to the noteholder, to be applied against accrued but unpaid
interest. The terms of the agreement extend the maturity date to July 31,
2004, require semi-annual interest payments and reduce the interest rate of
the First Crescent Note. The Partnership has not yet been contacted by the
holders of the Second Crescent Note, and thus cannot predict the course of
action with regard to the Second Crescent Note.
De Angelis Manor
----------------
The Partnership defaulted on its purchase money note related to Natick
Associates (De Angelis Manor) on July 1, 1999 when the note matured and was
not paid. The default amount included principal and accrued interest of
$1,015,000 and $2,670,689, respectively. As of March 29, 2000, principal
and accrued interest of $1,015,000 and $2,921,532, respectively, were due.
The Partnership is currently negotiating to extend the maturity date of the
purchase money note, or to pay it off at a discount. Further, the local
managing general partner is considering refinancing the first mortgage loan
on the property under a new program being proposed by the Rhode Island
Housing and Mortgage Finance Corporation, and is also evaluating offers to
sell the property at a later date. There is no assurance that an extension
or a discounted payoff of the purchase money note will be obtained, or that
a refinancing or sale of the property will occur.
Glenridge Gardens
-----------------
The Partnership defaulted on its purchase money note related to
Glenridge Development Company (Glenridge Gardens) on August 1, 1999 when
the note matured and was not paid. The default amount included principal
and accrued interest of $740,000 and $1,928,809, respectively. As of March
29, 2000, principal and accrued interest of $740,000 and $2,089,598,
respectively, were due. The Partnership has received a demand letter from
the noteholders, and is currently negotiating to extend the maturity date
of the purchase money note for up to two years. There is no assurance that
an extension will be obtained.
III-20
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Harborview Apartments
---------------------
The Partnership defaulted on its purchase money notes related to
Harborview Apartments Associates Limited Partnership (Harborview
Apartments) on August 1, 1999 when the notes matured and were not paid.
The default amount included principal and accrued interest of $3,000,000
and $5,342,321, respectively. As of March 29, 2000, principal and accrued
interest of $3,000,000 and $5,613,498, respectively, were due. The
Partnership is currently negotiating an extension of the maturity date or a
discounted payoff of the purchase money notes. There is no assurance that
an extension or a discounted payoff will occur.
Highland Village
----------------
The Partnership defaulted on its purchase money notes related to
Highland Village Associates (Highland Village) on October 31, 1999 when the
notes matured and were not paid. The default amount included principal and
accrued interest of $1,100,000 and $4,123,565, respectively. As of March
29, 2000, principal and accrued interest of $1,100,000 and $4,353,999,
respectively, were due. The Partnership is currently negotiating to extend
the maturity date of the purchase money notes. In connection with the
proposed extension of the maturity date, 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 an extension will be
obtained, or that a refinancing of the mortgage loan will occur.
Holiday Village
---------------
The Partnership defaulted on its purchase money note related 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
29, 2000, principal and accrued interest of $1,370,000 and $6,623,152,
respectively, were due. The Managing General Partner and the noteholder
have reached an agreement on a discounted payoff of the note in connection
with, and contingent upon, a potential sale of the property agreed to by
the Local Partnership and an unrelated third party. The sale is
anticipated to close by June 2000. There is no assurance that the sale
will be completed, and therefore, that the payoff of the note at a discount
will occur. Should the noteholder begin foreclosure proceedings on the
Partnership's interest in the related Local Partnership, the Partnership
intends to vigorously defend against any action by the noteholder.
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 adversely impact the Partnership's financial condition, as
discussed above.
Due to the impending and likely sale of the property related to the
Partnership's investment in Holiday Village, the Partnership's basis in the
Local Partnership, along with net unamortized acquisition fees and property
purchase costs, which totaled $1,562,844 as of December 31, 1999, have been
III-21
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
reclassified to investment in partnership held for sale in the accompanying
consolidated balance sheet at December 31, 1999.
Hometown Village
----------------
The Partnership defaulted on its purchase money note related to
Hometown Villages Limited Partnership (Hometown Village) on August 1, 1999
when the note matured and was not paid. The default amount included
principal and accrued interest of $1,495,000 and $5,010,398, respectively.
As of March 29, 2000, principal and accrued interest of $1,495,000 and
$5,459,827, respectively, were due. The Partnership is currently
negotiating a one year extension of the maturity date of the purchase money
note. There is no assurance that an extension will be obtained.
Jewish Federation
-----------------
The purchase money note related to Jewish Federation Apartments
Associates (Jewish Federation), in the principal amount of $1,350,000, was
due to mature on October 31, 1999. In 1997, the Managing General Partner
entered into an agreement with the noteholder 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 and the noteholder. 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. On May 21,
1999, the noteholder extended the maturity date of the purchase money note
to April 30, 2000, to allow time for the donation and transfer to occur.
Lakes of Northdale
------------------
The purchase money note related to Lakes of Northdale Limited
Partnership (Lakes of Northdale), in the principal amount of $1,500,000,
was due to mature on September 27, 1999. At the time of the refinancing of
the property's mortgage loan in 1996, the Partnership and the noteholder
agreed to extend the maturity date of the purchase money note to September
27, 2002, if the Local Partnership extended the letter of credit serving as
credit enhancement with respect to its first mortgage debt, which extension
occurred on June 28, 1999. Accordingly, the purchase money note for Lakes
of Northdale presently matures on September 27, 2002.
Mary Allen West Tower
---------------------
On July 30, 1999, the Partnership paid, in full, the purchase money
note related to Galesburg Housing Partners (Mary Allen West Tower). The
purchase money note was in the principal amount of $2,301,310.
III-22
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Matthew XXV
-----------
The Partnership defaulted on its purchase money note related to
Diakonia Associates (Matthew XXV) on July 1, 1999 when the note matured and
was not paid. The default amount included principal and accrued interest
of $1,020,000 and $2,695,752, respectively. As of March 29, 2000,
principal and accrued interest of $1,020,000 and $2,948,193, respectively,
were due. The Partnership is currently negotiating to extend the maturity
date or to pay off the purchase money note at a discount. Further, the
local managing general partner is considering refinancing the first
mortgage loan on the property under a new program being proposed by the
Rhode Island Housing and Mortgage Finance Corporation, and is also
evaluating offers to sell the property at a later date. There is no
assurance that an extension or a discounted payoff of the purchase money
note will be obtained, or that a refinancing or sale of the property will
occur.
Pilgrim Tower East
------------------
The Partnership defaulted on its purchase money note related to
Pilgrim Tower East Associates Limited Partnership (Pilgrim Tower East) on
December 1, 1999, when the note matured and was not paid. The default
amount included principal and accrued interest of $1,650,000 and
$2,719,372, respectively. As of March 29, 2000, principal and accrued
interest of $1,650,000 and $2,790,871, respectively, were due. The
Partnership is currently negotiating with the noteholder to extend the
maturity date of the purchase money note for five years, in exchange for a
partial payment. There is no assurance that an extension will be obtained.
Redden Gardens
--------------
The Partnership defaulted on its purchase money note related 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. The
noteholders have extended the maturity date of the purchase money note to
January 3, 2000, at which time the Partnership defaulted on the purchase
money note. As of March 29, 2000, principal and accrued interest of
$1,330,000 and $3,678,350, respectively, were due. In connection with the
extension, the Partnership placed in escrow documents transferring its
interest in Redden Gardens to the noteholders, to be released to the
noteholders upon a future default by the Partnership on the purchase money
note. As of March 29, 2000, the noteholders had not exercised their right
to have the escrowed documents released to them. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnership does not adversely impact the Partnership's financial
condition, as discussed above.
Due to the possible transfer of the Partnership's interest in the
Local Partnership to the noteholders, the Partnership's basis in the Local
Partnership, along with net unamortized acquisition fees and property
purchase costs, which totaled $928,160 as of December 31, 1999, has been
reclassified to partnership interest held in escrow in the accompanying
consolidated balance sheet at December 31, 1999.
III-23
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Riverview Manor
---------------
The Partnership defaulted on its purchase money notes related to
Riverview Manor Company Limited Partnership (Riverview Manor) on September
30, 1999 when the notes matured and were not paid. The default amount
included principal and accrued interest of $740,000 and $1,853,014,
respectively. As of March 29, 2000, principal and accrued interest of
$740,000 and $1,922,354, respectively, were due. The Partnership is
currently negotiating with the noteholders to extend the maturity date of
the purchase money notes for up to five years. There is no assurance that
an extension will be obtained.
Scoville Center
---------------
The Partnership defaulted on its purchase money notes related to
Beloit Housing Partners (Scoville Center) on October 1, 1999 when the notes
matured and were not paid. The default amount included principal and
accrued interest of $1,400,000 and $2,123,397, respectively. As of March
29, 2000, principal and accrued interest of $1,400,000 and $2,192,438,
respectively, were due. The Partnership is currently negotiating a one
year extension of the maturity date of the purchase money notes. There is
no assurance that an extension will be obtained.
Thornwood House
---------------
The Partnership defaulted on its purchase money notes related to
Thornwood House Associates (Thornwood House) on August 30, 1999 when the
notes matured and were not paid. The default amount included principal and
accrued interest of $1,775,000 and $3,218,691, respectively. As of March
29, 2000, principal and accrued interest of $1,775,000 and $3,358,704,
respectively, were due. The Partnership is currently negotiating to extend
the maturity date of the purchase money notes for five years. There is no
assurance that an extension will be obtained.
Valley View
-----------
The Partnership defaulted on its purchase money notes related to
Valley View Associates (Valley View) on September 1, 1999 when the notes
matured and were not paid. The default amount included principal and
accrued interest of $920,000 and $1,788,829, respectively. The Partnership
has been sued by the noteholders for payment and for confirmation of the
transfer of the collateral to the noteholders. On January 7, 2000, the
Partnership filed a motion to dismiss the suit. The noteholders
subsequently filed an amended complaint seeking confirmation of the
transfer of the collateral to the noteholders but not seeking payment. On
February 9, 2000, the Partnership filed a motion to dismiss the amended
complaint. As of March 29, 2000, principal and accrued interest of
$920,000 and $1,862,658, respectively, were due. The Partnership and the
noteholders are currently exploring various settlement options. There is
no assurance that any settlement will be reached.
III-24
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Wellington Woods
----------------
The Partnership defaulted on its purchase money note related to
Clarkson Associates of Wellington Woods Limited Partnership (Wellington
Woods) on December 1, 1999, when the note matured and was not paid. The
default amount included principal and accrued interest of $485,000 and
$2,169,679, respectively. As of March 29, 2000, principal and accrued
interest of $485,000 and $2,274,306, respectively, were due. The
Partnership is negotiating with the noteholder to extend the maturity date
of the purchase money note for five years. There is no assurance that an
extension will be obtained.
Westport Village
----------------
The Partnership defaulted on its purchase money notes related to
Westport Associates (Westport Village) on September 1, 1999 when the notes
matured and were not paid. The default amount included principal and
accrued interest of $840,000 and $1,615,644, respectively. The Partnership
has been sued by the noteholders for payment and for confirmation of the
transfer of the collateral to the noteholders. On January 7, 2000, the
Partnership filed a motion to dismiss the suit. The noteholders
subsequently filed an amended complaint seeking confirmation of the
transfer of the collateral to the noteholders but not seeking payment. On
February 9, 2000, the partnership filed a motion to dismiss the amended
complaint. As of March 29, 2000, principal and accrued interest of
$840,000 and $1,682,568, respectively, were due. The Partnership and the
noteholders are currently exploring various settlement options. There is
no assurance that any settlement will be reached.
Wollaston Manor
---------------
The Partnership defaulted on its purchase money notes related to
Wollaston Manor Associates (Wollaston Manor) on October 1, 1999 when the
notes matured and were not paid. The default amount included aggregate
principal and accrued interest of $2,125,000 and $4,111,380, respectively.
As of March 29, 2000, principal and accrued interest of $2,125,000 and
$4,183,132, respectively, were due. The Partnership is currently
negotiating a discounted payoff of the purchase money notes in conjunction
with a possible sale of the property. A contract for the sale of the
property was signed in January 2000, contingent upon, among other things, a
satisfactory agreement with the noteholders regarding the purchase money
note and the approval of the Managing General Partner. There is no
assurance that a sale of the property and a settlement with the noteholders
will occur.
Due to the impending and likely sale of the property related to the
Partnership's investment in Wollaston Manor, the Partnership's basis in the
Local Partnership, along with net unamortized acquisition fees and property
purchase costs, which totaled $913,360 as of December 31, 1999, have been
reclassified to investment in partnership held for sale in the accompanying
consolidated balance sheet at December 31, 1999.
III-25
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 Managing General
Partner 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 the
rental operations of the Local Partnerships totaling $1,158,508 and
$1,098,649 during the years ended December 31, 1999 and 1998, respectively.
As of December 31, 1999 and 1998, 29 and 27, respectively, of the Local
Partnerships had surplus cash, as defined by their respective regulatory
agencies, in the amount of $3,472,944 and $2,750,780, 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.
c. Advances to Local Partnerships
------------------------------
The advances made to the Local Partnerships were as follows.
<TABLE>
<CAPTION>
December 31,
--------------------------
Local Partnership 1999 1998
----------------- ------------ ------------
<S> <C> <C>
Lakes of Northdale:
Principal amount of funds advanced $ 54,500 $ 54,500
------------ ------------
Total $ 54,500 $ 54,500
============ ============
</TABLE>
III-26
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Lakes of Northdale
------------------
To cover operating deficits incurred in prior years by Lakes of
Northdale, the Partnership advanced funds totaling $54,500 as of both
December 31, 1999 and December 31, 1998. 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
------------
On December 31, 1998, Garden Court Associates Limited Partnership sold
the Garden Court property. The net proceeds to the Partnership of $50,000
were received on March 2, 1999.
e. Affordable Housing Legislation
------------------------------
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. Current
legislation allows all expired Section 8 HAP contracts with rents at less
than 100% of fair market rents to be renewed for one year. Expiring
Section 8 HAP contracts with rents that exceed 100% of fair market rents
could be renewed for one year, but at rents reduced to 100% of fair market
rents (Mark-to-Market). All expiring Section 8 HAP contracts with rents
exceeding comparable market rents, and properties with mortgage loans
insured by the Federal Housing Administration (FHA), became 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 may undergo debt restructuring according
to terms determined by an individual property and operations evaluation.
This may 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 loan will be converted to a non-performing but accruing
(soft) second mortgage loan.
Seven properties in which the Partnership is invested may be affected
by the Mark-to-Market program since they have Section 8 HAP contracts which
have already expired, or which will expire in 2000. Of these seven
properties, rent studies for five properties indicate that the current HAP
rents are below fair market rents, and therefore these properties should
not be subject to a Mark-to-Market restructuring. A rent study is being
III-27
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
performed for the sixth property. The seventh property did not renew its
Section 8 HAP contract when it expired in June 1999. Properties with
expiring HAP contract rents greater than 100% of fair market rents in the
area where each property is located may be affected immediately by the
legislation. All seven properties have related purchase money notes which
have matured, as discussed in Note 2.a. These seven properties with
expired or expiring Section 8 HAP contracts are as follows.
III-28
<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 12/31/99 (1)
Glenridge Gardens 120 24 05/31/99 05/01/00 (2)
Harborview 300 299 06/01/00 (2)
Pilgrim Tower North 258 205 10/31/98 02/29/00 (2)
Redden Gardens 150 30 09/30/98 09/01/00 (2)
Tradewinds Terrace 122 44 09/30/98 09/30/00 (2)
Wellington Woods 109 73 10/19/99 10/19/00 (2)
---- ---
Total 1185 681
==== ===
</TABLE>
(1) The Section 8 HAP contract was not renewed at the election of the
Managing General Partner.
(2) The Managing General Partner expects that these Section 8 HAP
Contracts will be 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'
operations and the resulting impact on the Partnership investments in and
advances to Local Partnerships at this time. As of December 31, 1999, the
carrying amount of the Partnership's investments in and advances to Local
Partnerships with Section 8 HAP contracts expiring in 2000 was $5,659,419.
There is a new HUD-sponsored program generally referred to as "Mark-
up-to-Market." Under this program, properties with expiring Section 8
contracts that are located in high-rent areas as defined by HUD are
eligible for rent increases which would be necessary to bring Section 8
rents in line with market rate rents. For properties with subsidized FHA
loans, the rents are adjusted to take into account the benefits the
property is already receiving from the below-market interest rate by means
of a HUD determined Interest Subsidy Adjustment Factor. The purpose of
this program is to incentivize owners of properties with expiring Section 8
contracts not to convert these properties to market rate housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract
with HUD, subject to the annual availability of funding by Congress. In
addition, property owners who enter into the Mark-up-to-Market program will
receive a waiver from the cash flow restriction imposed on the property by
the limited dividend limitation.
III-29
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
f. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1999 and 1998 and for the years ended December 31, 1999
and 1998 follows.
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $102,116,657 and $95,165,069, respectively $ 93,933,216 $ 98,251,738
Land 13,220,178 13,144,151
Other assets 36,095,941 34,085,738
------------ ------------
Total assets $143,249,335 $145,481,627
============ ============
Mortgage notes payable $106,839,962 $109,987,239
Other liabilities 16,471,344 15,654,701
------------ ------------
Total liabilities 123,311,306 125,641,940
Partners' capital 19,938,029 19,839,687
------------ ------------
Total liabilities and partners' capital $143,249,335 $145,481,627
============ ============
</TABLE>
III-30
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
For the years ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 34,795,898 $ 34,676,705
Other, principally interest 2,347,065 2,411,782
------------ ------------
Total revenue 37,142,963 37,088,487
------------ ------------
Expenses:
Operating and other 23,001,277 22,541,519
Interest 5,592,073 6,414,944
Depreciation 7,258,015 7,323,620
Amortization 131,323 110,346
------------ ------------
Total expenses 35,982,688 36,390,429
------------ ------------
Net income $ 1,160,275 $ 698,058
============ ============
</TABLE>
g. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net income to taxable income (loss)
-----------------------------------
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.
III-31
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
A reconciliation of the Local Partnerships' financial statement net
income reflected above to taxable income (loss) follows.
<TABLE>
<CAPTION> For the years ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Financial statement net income $ 1,160,275 $ 698,058
Adjustments:
Difference in tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes 847,790 (1,730,860)
Miscellaneous, net 416,553 (542,743)
------------ ------------
Taxable income (loss) $ 2,424,618 $ (1,575,545)
============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the terms of 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, 1999 and 1998,
the Partnership paid $175,448 and $116,943, 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 the Managing General Partner 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.
III-32
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
For each of the years ended December 31, 1999 and 1998, the Partnership
paid the Managing General Partner a Management Fee of $375,000.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property it owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. The Managing General Partner and/or its affiliates earned net fees
for services relating to the sale of River Run of $26,606 on August 27, 1996.
Of this amount, $17,737 was paid by the Partnership on December 20, 1996. On
March 24, 1998, the remaining balance of $8,869 was paid by the Partnership.
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 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;
III-33
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
(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 of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property it owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. The Managing General Partner and/or its affiliates earned net fees
for services relating to the sale of River Run of $26,606 on August 27, 1996.
Of this amount, $17,737 was paid by the Partnership on December 20, 1996. On
March 24, 1998, the remaining balance of $8,869 was paid by the Partnership.
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, after the establishment of
any reserves deemed necessary by the Managing General Partner, after payment of
the Management Fee, and after the distributions described below, the Partnership
had no remaining cash available for distribution for the years ended December
31, 1999 and 1998.
On November 5, 1999, the Partnership made a cash distribution of $733,670
($10.00 per additional limited partnership interest) to the Additional Limited
Partners out of available cash flow.
On November 20, 1998, the Partnership made a cash distribution of $733,970
($10.00 per additional limited partnership interest) to the Additional Limited
Partners. The distribution was a result of cash resources accumulated from
operations and distributions from Partnerships.
The Partnership received distributions of $1,158,508 and $1,098,649 from
the Local Partnerships during 1999 and 1998, respectively. The Managing General
III-34
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
Partner intends to reserve all of the Partnership's remaining undistributed cash
for the possible repayment, prepayment or retirement of the Partnership's
outstanding purchase money notes related to the Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
LOSS TO TAXABLE LOSS
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. These returns are subject to
audit and, therefore, possible adjustment by the IRS. 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.).
III-35
<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 - Continued
A reconciliation of the Partnership's financial statement net loss to
taxable loss follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Financial statement net loss $(15,143,007) $ (15,154,111)
Adjustments:
Difference between taxable loss and
financial statement net loss related to the
Partnership's equity in the Local Partnerships'
income or losses (1,763,321) 354,593
Costs amortized over a shorter period for income
tax purposes (71,756) (107,935)
Difference in interest expense due to interest
for consolidated partnerships and amortization of discount 5,288,707 6,636,344
Difference between taxable interest income
and financial statement interest income 1,135,779 1,158,011
------------ ------------
Taxable loss $(10,553,598) $ (7,113,098)
============ ============
</TABLE>
III-36
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
III-37
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,607,687
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,406,881
<CURRENT-LIABILITIES> 0
<BONDS> 146,983,606
0
0
<COMMON> 0
<OTHER-SE> (105,752,317)
<TOTAL-LIABILITY-AND-EQUITY> 41,406,881
<SALES> 0
<TOTAL-REVENUES> 2,233,062
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 785,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,590,968
<INCOME-PRETAX> (15,143,007)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,143,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,143,007)
<EPS-BASIC> (199.85)
<EPS-DILUTED> (199.85)
</TABLE>
