<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
Commission file number 0-23766
-----------------
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
- -----------------------------------------------------------------------
(Name of small business issuer in its charter)
District of Columbia 52-1388957
- ----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 468-9200
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE N/A
- ----------------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNER UNITS
- ------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
State issuer's revenues for its most recent fiscal year $776,601.
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-85 LIMITED PARTNERSHIP
(a limited partnership)
1998 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Page
----
PART I
------
Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-3
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-4
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-4
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-1
Item 7. Financial Statements . . . . . . . . . . . . . . II-5
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-5
PART III
--------
Item 9. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . III-2
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-2
Item 12. Certain Relationships and Related Transactions . III-3
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . III-4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . III-6
Financial Statements . . . . . . . . . . . . . . . . . . . III-7
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Capital Realty Investors-85 Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on December 26, 1984. On November 11, 1985, the Partnership
commenced offering Beneficial Assignee Certificates (BACs) for 60,000 limited
partner interests through a public offering which was managed by Merrill Lynch,
Pierce, Fenner and Smith, Incorporated. The Partnership had an initial closing
on December 27, 1985 and closed the offering on July 19, 1986, with a total of
21,200 BACs. During 1996, five BACs were abandoned; during 1998, 37 BACs were
abandoned.
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.
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 eight Local Partnerships. As of December 31,
1998, the Partnership had investments in six Local Partnerships; as of March 29,
1999, the Partnership had investments in five Local Partnerships. 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;
(4) provide cash distributions from rental operations; and
(5) provide cash distributions from sale or refinancing of the
Partnership's investments.
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, applied for
applicable mortgage loans and mortgage insurance and/or entered into
construction contracts, and remained as the local general partners in the Local
Partnerships. The Partnership became the principal limited partner in six (four
as of December 31, 1998) of these Local Partnerships. However, in the event of
non-compliance with the Local Partnerships' partnership agreements, the local
general partner may be removed and replaced with another local general partner
or with an affiliate of the Partnership's Managing General Partner. As a
limited partner, the Partnership's legal liability for obligations of the Local
Partnership is limited to its investment. In two Local Partnerships, (one as of
March 29, 1999), the Partnership has invested as a limited partner in
intermediary partnerships which, in turn, have invested as limited partners in
the Local Partnerships. An affiliate of the Managing General Partner of the
Partnership is also a general partner of the six (four as of December 31, 1998)
Local Partnerships as well as the two (one as of March 29, 1999) intermediary
partnerships. In most cases, the local general partners of the Local
Partnerships retain responsibility for developing, constructing, maintaining,
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
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.
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 as of December 31, 1998 follows.
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Mortgage
Name and Location Payable at Financed and/or Insured Number of
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units
- -------------------- ------------ --------------------------------- ------------
<S> <C> <C> <C>
Devonshire $ 4,623,412 GMAC 140
Kirkland, WA
Paradise Foothills 6,011,943 HUD/221(d)(4) 180
Phoenix, AZ of the National Housing Act
The Pointe 7,585,937 Lincoln National Life Company 238
El Paso, TX
Semper Village 8,150,000 SRS Insurance Services, Inc. 252
Westminster, CO
Springfield (4) 6,298,698 GMAC 184
Redmond, WA
Willow Creek II 2,741,678 Hartger & Willard Mortgage/221 159
Kalamazoo, MI (d)(4) of the National Housing
Act ------------
------------
TOTALS 6 $ 35,411,668 1,153
============ ============
</TABLE>
I-3
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Devonshire 96% 98% 98% 95% 94% $ 8,262 $ 7,732 $ 7,286 $ 6,944 $ 6,509
Kirkland, WA
Paradise Foothills 95% 97% 96% 95% 97% 6,951 6,551 6,408 6,340 5,893
Phoenix, AZ
The Pointe 95% 97% 98% 84% 97% 6,716 6,594 6,292 6,403 6,791
El Paso, TX
Semper Village 96% 99% 99% 98% 95% 7,335 6,974 6,782 6,506 6,223
Westminster, CO
Springfield (4) 91% 97% 99% 97% 93% 8,638 8,330 7,744 7,347 6,822
Redmond, WA
Willow Creek II 98% 91% 96% 91% 92% 6,340 6,178 6,025 5,934 5,959
Kalamazoo, MI ---- ---- ---- ---- --- -------- -------- -------- -------- --------
TOTALS(3) 6 95% 97% 98% 93% 95% $ 7,374 $ 7,060 $ 6,756 $ 6,579 $ 6,366
==== ==== ==== ==== === ======== ======== ======== ======== ========
</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 of
the Local Partnerships as of December 31, 1998.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
(4) Springfield was sold on January 22, 1999. See the notes to the
consolidated financial statements for additional information pertaining to
this sale.
The local managing general partner of Devonshire has agreed to sell the
property to a potential buyer, and as of March 29, 1999, the parties are
negotiating a sales contract. There is no assurance that a sale will take
place.
I-4
<PAGE>
PART I
------
ITEM 2. PROPERTIES
----------
Through its ownership of limited partner interests in Local Partnerships,
Capital Realty Investors-85 Limited Partnership indirectly holds an interest in
the underlying real estate. See Part I, Item 1 for information pertaining to
these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
I-5
<PAGE>
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS
-------------------------------------------------
AND RELATED PARTNERSHIP MATTERS
-------------------------------
(a) It is not anticipated that there will be any formal market for resale
of BACs in the Partnership. As a result, investors may be unable to
sell or otherwise dispose of their interests in the Partnership.
(b) As of March 29, 1999, there were approximately 1,800 registered
holders of BACs in the Partnership.
(c) No distributions were declared or paid by the Partnership during 1998
or 1997. The Partnership anticipates a distribution later in 1999 to
the BAC Holders as a result of the sale of the Springfield property.
The Partnership received distributions of $503,945 and $528,557 from
Local Partnerships during 1998 and 1997, respectively.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors-85 Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1998, the Partnership had approximately 1,800 investors
who subscribed to a total of 21,158 BACs in the original amount of $21,158,000.
The Partnership originally made investments in eight Local Partnerships. As of
December 31, 1998, the Partnerships had investments in six (five as of March 29,
1999) Local Partnerships. The Local Partnerships in turn invested in apartment
complexes (the "properties"). The Partnership's liquidity, with unrestricted
cash resources of $2,154,057 as of December 31, 1998, along with anticipated
future cash distributions from the Local Partnerships, is expected to meet its
current and anticipated operating cash needs. The Partnership's remaining
obligations with respect to its investment in Local Partnership's of $250,000,
excluding purchase money notes and accrued interest, is not in excess of its
capital resources. As of March 29, 1999, there were no material commitments for
capital expenditures.
During 1998 and 1997, the Partnership received cash distributions of
$503,945 and $528,557, respectively, from the Local Partnerships.
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 10 to 15
years from the date of acquisition of the interests in particular Local
Partnerships.
II-1
<PAGE>
PART II
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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
$2,348,000 plus accrued interest of $6,431,131 as of December 31, 1998, are
payable in full upon the earliest of: (1) sale or refinancing of the respective
Local Partnership's rental property; (2) payment in full of the respective Local
Partnership's permanent loan; or (3) maturity. A purchase money note in the
principal amount of $230,000 matured on January 30, 1996 but has not been paid
or extended. Purchase money notes having principal balances of $250,000 and
$1,250,000 matured on January 1, 1997 and February 1, 1997, respectively, and
the Partnership's obligation with respect to these notes has been satisfied.
The remaining purchase money notes mature from 2001 to 2003. See the notes to
the consolidated financial statements for additional information pertaining to
these purchase money notes.
The purchase money notes, which are nonrecourse to the Partnership, are
generally secured by the Partnership's interest in the respective Local
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 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 the
related Local Partnerships. Thus, even a complete loss of one of these Local
Partnerships would not have a material adverse impact on the financial condition
of the Partnership.
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay or buy down certain purchase money
note obligations. See the notes to the consolidated financial statements for
alternatives relating to specific properties.
As of both December 31, 1998 and 1997, the Partnership's obligations with
respect to its investments in Local Partnerships included $174,600 due to local
general partners, plus accrued interest on these obligations of $75,400.
II-2
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1998 and 1997, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
increased during 1998 and 1997 primarily due to the receipt of distributions
from partnerships.
Results of Operations
---------------------
1998 versus 1997
- ----------------
The Partnership incurred a net loss for year ended December 31, 1998 as
compared to net income for the year ended December 31, 1997 principally due to
the gain on disposition of investment in partnership or extraordinary gain on
forgiveness of accrued interest related to the sale and foreclosure of the
Partnership's remaining interests in River Place and Deerfield, respectively,
during 1997, as discussed in the notes to the consolidated financial statements.
Contributing to the net loss was an increase in interest expense due to the
annual compounding of interest and a decrease in other income primarily due to
the receipt of cash during 1997 which was previously held in an interest-bearing
escrow related to River Place. Partially offsetting the net loss was an
increase in share of income from partnerships due to increased distributions
from Local Partnerships in which the Partnership has no basis. (Distributions
received by the Partnership from Local Partnerships in which the Partnership has
no basis are included in share of income from partnerships, in accordance with
the equity method, as discussed in Note 1.d. in the accompanying notes to the
consolidated financial statements.)
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 recognized losses for the years ended December 31,
1998 and 1997 did not include losses of $375,964 and $447,600, 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 $311,781 and $180,399 received
from two Local Partnerships during 1998 and 1997, respectively, 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 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.
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The combined rental revenues of the properties for the five years ended
December 31, 1998, follow. Combined rental revenue amounts for years prior to
1998 have been adjusted to reflect the sale of the Partnership's remaining
interest in River Place in 1997 and the foreclosure on the Deerfield property in
1997, as discussed in the notes to the consolidated financial statements.
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $ 8,452,327 $ 8,103,395 $ 7,763,087 $ 7,572,418 $ 7,359,042
Annual Percentage
Increase 4.3% 4.4% 2.5% 2.9%
</TABLE>
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November, 1998. Under the next phase, the Assessment Phase, all applications
and functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999. Additionally, the
Managing General Partner is currently working with third party vendors, service
providers, Local Partnership managing general partners, and Local Partnership
property managers to verify their Y2K compliance, with completion expected by
June 1999. The Testing Phase, which will include testing of internal
applications as well as some third party systems, began during January 1999 and
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
will continue throughout 1999. Contingency planning commenced during the fourth
quarter 1998 and will be completed by year-end 1999. The Managing General
Partner does not expect the expense associated with the Y2K Project to be
material.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-6
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and (c)
The Partnership has no directors, executive officers or significant
employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the
Partnership, are as follows:
William B. Dockser, 62, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 52, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Ronald W. Thompson, 52, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan. During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in
London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
Susan R. Campbell, 40, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Melissa Cecil Lackey, 43, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required in these sections is incorporated herein by
reference to Notes 3 and 4 of the notes to the consolidated financial
statements contained in Part III.
(h) Termination of employment and change in control arrangements.
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding BACs at
December 31, 1998.
(b) Security ownership of management.
The following table sets forth certain information concerning all BACs
beneficially owned, as of December 31, 1998, by each director and by
all directors and officers as a group of the Managing General Partner
of the Partnership's General Partner.
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
<S> <C> <C>
William B. Dockser Five BACs .02%
H. William Willoughby None 0%
All Directors and Officers
as a Group (5 persons) Five BACs .02%
</TABLE>
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 10 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to consolidated financial statements, which contains disclosure of
related party transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
12(a).
(c) Indebtedness of management.
None.
III-3
<PAGE>
PART III
--------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(d) Transactions with promoters.
Not applicable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants - Capital Realty Investors-85
Limited Partnership III-7
Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors-85 Limited Partnership
has invested III-8
Consolidated Balance Sheets as of December 31, 1998
and 1997 III-9
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997 III-10
Consolidated Statements of Changes in Partners'
Deficit for the years ended December 31,
1998 and 1997 III-11
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997 III-12
Notes to Consolidated Financial Statements III-13
(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-85
Limited Partnership. (Incorporated by reference from Exhibit No.
4 to Registrant's Registration Statement on Form S-11, as
amended, dated June 12, 1985.)
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. Limited Partnership Agreement of Capital Realty Investors-85
Limited Partnership. (Incorporated by reference from Exhibit No.
4 to Registrant's Registration Statement on Form S-11, as
amended, dated June 12, 1985.)
Exhibit No. 10 - Material Contracts.
III-4
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - Continued
--------------------------------
a. Management Services Agreement between CRI and Capital Realty
Investors-85 Limited Partnership. (Incorporated by reference
from Exhibit No. 10(b) to Registrant's Registration Statement on
Form S-11, as amended, dated June 12, 1985.)
Exhibit No. 27 - Financial Data Schedule.
a. Filed herewith electronically.
Exhibit No. 99 - Additional Exhibits.
a. Prospectus of the Partnership, dated November 11, 1985.
(Incorporated by reference to Registrant's Registration Statement
on Form S-11, as amended, dated June 12, 1985.)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1998. A report on Form 8-K dated January 22, 1999, was filed on
February 5, 1999; the report discussed the sale of Springfield
Apartments, located in Redmond, Washington. See the notes to the
consolidated financial statements for additional information
pertaining to this sale.
III-5
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
-----------------------------------------------
(Registrant)
by: C.R.I., Inc.
-------------------------------------------
Managing General Partner
March 29, 1999 by: /s/ William B. Dockser
- ----------------- ---------------------------------------
DATE William B. Dockser, Director,
Chairman of the Board,
and Treasurer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
March 29, 1999 by: /s/ H. William Willoughby
- ----------------- ---------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 29, 1999 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
-------------------------------
PUBLIC ACCOUNTANTS
------------------
To the Partners
Capital Realty Investors-85 Limited Partnership
We have audited the consolidated balance sheets of Capital Realty
Investors-85 Limited Partnership (a Maryland limited partnership) as of December
31, 1998 and 1997, and the related consolidated statements of operations,
changes in partners' deficit and cash flows for the years ended December 31,
1998 and 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of any Local Partnerships. The Partnership's share of income from
these Local Partnerships constitutes $299,258 and $111,891 of income in 1998 and
1997, respectively, included in the Partnership's net income or 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 amount included for these Local
Partnerships, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-85
Limited Partnership as of December 31, 1998 and 1997 and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Vienna, VA
March 17, 1999
III-7
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-85 Limited Partnership has
invested were filed in paper format under Form SE on March 29, 1999 in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted March 5, 1999.
III-8
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investments in and advances to partnerships $ 588,772 $ 612,145
Investment in partnership held for sale 208,549 --
Cash and cash equivalents 2,154,057 1,798,455
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $110,438 and $117,156 respectively 148,172 180,745
Property purchase costs, net of accumulated amortization of
$103,963 and $117,875, respectively 135,960 176,813
Other assets 55,663 5,900
------------ ------------
Total assets $ 3,291,173 $ 2,774,058
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 2,522,600 $ 2,522,600
Accrued interest payable 6,506,531 5,495,200
Accounts payable and accrued expenses 77,909 56,987
------------ ------------
Total liabilities 9,107,040 8,074,787
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid in:
General Partners 2,000 2,000
Limited Partners 21,202,500 21,202,500
------------ ------------
21,204,500 21,204,500
Less:
Offering costs (2,570,535) (2,570,535)
Accumulated losses (24,449,832) (23,934,694)
------------ ------------
Total partners' deficit (5,815,867) (5,300,729)
------------ ------------
Total liabilities and partners' deficit $ 3,291,173 $ 2,774,058
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
III-9
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Share of income from partnerships $ 649,388 $ 548,490
----------- -----------
Other revenue and expenses:
Revenue:
Interest income 127,213 143,543
----------- -----------
Expenses:
Interest 1,011,331 909,935
Management fee 97,930 97,930
General and administrative 104,132 97,693
Professional fees 59,377 60,656
Amortization 18,969 19,755
----------- -----------
1,291,739 1,185,969
----------- -----------
Total other revenue and expenses (1,164,526) (1,042,426)
----------- -----------
Loss before gain on disposition of investment in
partnership or extraordinary gain on forgiveness
of accrued interest (515,138) (493,936)
----------- -----------
Gain on disposition of investment in partnership or
extraordinary gain on forgiveness of accrued
interest -- 2,721,977
----------- -----------
Net (loss) income $ (515,138) $ 2,228,041
=========== ===========
Net (loss) income allocated to General Partners (1.51%) $ (7,779) $ 33,643
=========== ===========
Net (loss) income allocated to Initial and Special Limited
Partners (2.49%) $ (12,827) $ 55,478
=========== ===========
Net (loss) income allocated to BAC Holders (96%) $ (494,532) $ 2,138,920
=========== ===========
Net (loss) income per BAC based on 21,158 and 21,195 BACs
outstanding at December 31, 1998 and 1997, respectively $ (23.37) $ 100.92
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
III-10
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit,
January 1, 1997 (393,057) (648,952) (6,486,761) (7,528,770)
Net income 33,643 55,478 2,138,920 2,228,041
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1997 (359,414) (593,474) (4,347,841) (5,300,729)
Net loss (7,779) (12,827) (494,532) (515,138)
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1998 $ (367,193) $ (606,301) $ (4,842,373) $ (5,815,867)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
III-11
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (515,138) $ 2,228,041
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Share of income from partnerships (649,388) (548,490)
Amortization of deferred costs 18,969 19,755
Payment of purchase money note interest -- (122,888)
Gain on disposition of investment in partnership or extraordinary
gain on forgiveness of accrued interest -- (2,721,977)
Changes in assets and liabilities:
Increase in accrued interest receivable on advances
to partnerships (23,625) (23,625)
Increase in other assets (49,763) (1,376)
Increase in accrued interest payable 1,011,331 909,935
Increase in accounts payable and accrued expenses 20,922 7,384
------------ ------------
Net cash used in operating activities (186,692) (253,241)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 503,945 528,557
Repayment of advances to partnerships 38,349 256,200
------------ ------------
Net cash provided by investing activities 542,294 784,757
------------ ------------
Net increase in cash and cash equivalents 355,602 531,516
Cash and cash equivalents, beginning of year 1,798,455 1,266,939
------------ ------------
Cash and cash equivalents, end of year $ 2,154,057 $ 1,798,455
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ -- $ 122,888
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
III-12
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-85 Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on
December 26, 1984 and shall continue until December 31, 2039, 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 apartment properties throughout the United States.
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-V, a limited partnership which includes certain officers and
former employees of CRI. The Special Limited Partner is Two Broadway
Associates, a limited partnership comprised of an affiliate and employees
of Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
The Partnership sold 21,200 BACs at $1,000 per BAC through a public
offering. The offering period was terminated on July 19, 1986. During
1996, five BACs were abandoned; during 1998, 37 BACs were abandoned.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Principles of consolidation
---------------------------
These financial statements include the accounts of two intermediary
limited partnerships which have invested in two Local Partnerships which
own and operate apartment properties. All activity between the two
intermediary limited partnerships and the Partnership has been eliminated
in consolidation.
d. Investments in and advances to partnerships
-------------------------------------------
At both December 31, 1998 and 1997, the Partnership held investments
in six Local Partnerships (five as of March 29, 1999). These investments
in and advances to Local Partnerships (see Note 2) are accounted for by the
equity method because the Partnership is a limited partner in the Local
Partnerships. Under this method, the carrying amount of the investments in
and advances to Local Partnerships is (i) reduced by distributions received
and (ii) increased or reduced by the Partnership's share of earnings or
losses, respectively, of the Local Partnerships. As of December 31, 1998
and 1997, the Partnership's share of the cumulative losses for four of the
six Local Partnerships exceeded the amount of the Partnership's investment
in and advances to those Local Partnerships by $6,984,364 and $6,878,625,
respectively. Since the Partnership has no further obligation to advance
funds or provide financing to these Local Partnerships, except as described
herein, the excess losses have not been reflected in the accompanying
consolidated financial statements. As of December 31, 1998 and 1997,
III-13
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
cumulative cash distributions of $590,386 and $278,605, 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. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of BACs. Such costs were recorded as a reduction of partners'
capital when incurred.
g. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these consolidated financial
statements.
h. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
III-14
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
i. Investment in Partnership Held For Sale
---------------------------------------
On January 22, 1999, the local managing general partner of
Springfield Apartments sold the property, as discussed in Note 2.d.
Accordingly, the Partnership's investment in this Local Partnership was
classified as an investment in partnership held for sale on the
consolidated balance sheet as of December 31, 1998. Assets held for
sale are not recorded in excess of their estimated net realizable
value.
j. Fair Value of Financial Instruments
-----------------------------------
The financial statements include estimated fair value information as
of December 31, 1998, as required by Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
Instruments." Such information, which pertains to the Partnership's
financial instruments (primarily cash and cash equivalents and purchase
money notes), is based on the requirements set forth in SFAS No. 107 and
does not purport to represent the aggregate net fair value of the
Partnership.
The balance sheet carrying amounts for cash and cash equivalents
approximate estimated fair values of such assets.
The Partnership has determined that it is not practicable to estimate
the fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive
costs associated with an independent appraisal of the purchase money notes.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of December 31, 1998 and 1997, the Partnership held limited partner
interests in six Local Partnerships, which were organized to develop,
construct, own, maintain and operate multifamily apartment properties. The
remaining principal amounts due on investments in the Local Partnerships
were as follows.
III-15
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Due to local general partners: $ 174,600 $ 174,600
Purchase money notes due in:
1996 230,000 230,000
2001 1,475,000 1,475,000
2003 643,000 643,000
------------ ------------
Total $ 2,522,600 $ 2,522,600
============ ============
</TABLE>
The amounts due to local general partners of $174,600, plus accrued
interest of $75,400, will be paid upon the occurrence of certain specified
events, as outlined in the respective Local Partnerships' partnership
agreements. The purchase money notes have stated interest rates ranging
from 9% to 14%, compounded annually. 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. A purchase money note in
the principal amount of $230,000 matured on January 30, 1996 but has not
been paid, as discussed below. Purchase money notes having a principal
balance of $250,000 and $1,250,000 matured on January 1, 1997 and February
1, 1997, respectively, and the Partnership's obligation with respect to
these notes has been satisfied, as discussed below. The remaining purchase
money notes mature from 2001 to 2003.
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 Local Partnership. The
Partnership's inability to pay certain of the purchase money note principal
and accrued interest balances when due, and the resulting uncertainty
regarding the Partnership's continued ownership interest in the related
Local Partnerships, does not adversely impact the Partnership's financial
condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with
maturing purchase money notes not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
because the amount of the nonrecourse indebtedness of each of the maturing
purchase money notes exceeds the carrying amount of the investment in and
advances to each of the related Local Partnerships. Thus, even a complete
loss of one of these Local Partnerships would not have a material adverse
impact on the financial condition of the Partnership.
III-16
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Interest expense on the Partnership's purchase money notes and unpaid
purchase price for the years ended December 31, 1998 and 1997 was
$1,011,331 and $909,935, respectively. The accrued interest on the
purchase money notes of $6,431,131 and $5,419,800 as of December 31, 1998
and 1997, respectively, is due on the respective maturity dates of the
purchase money notes or earlier if the Local Partnerships have
distributable net cash flow, as defined in the respective Local Partnership
agreements.
Deerfield
---------
The Partnership defaulted on its purchase money notes relating to
Deerfield Partners Limited Partnership (Deerfield) when the notes matured
on January 1, 1997 and were not paid. The default amount included
principal and accrued interest of $250,000 and $623,068, respectively.
Since the purchase money notes were nonrecourse and secured solely by the
Partnership's interest in the related Local Partnership, the Partnership's
obligation regarding the purchase money notes was retired in conjunction
with the transfer of ownership in Deerfield to the mortgagee, as discussed
in Note 2.d. The Partnership's investment in Deerfield had previously been
reduced to zero as a result of losses from the Local Partnership during
prior years. Acquisition fees and property purchase costs relating to
Deerfield were previously fully amortized in order to record the investment
at its net realizable value. As a result of the foreclosure on the
Deerfield property, the Partnership's purchase money note obligation was
forgiven and resulted in a net financial statement gain of approximately
$875,000. The federal tax gain was approximately $2.4 million.
Paradise Foothills
------------------
The Partnership defaulted on its purchase money note relating to
Paradise Associates, L.P. (Paradise Foothills) when the note matured on
January 30, 1996 and was not paid. The default amount included principal
and accrued interest of $230,000 and $371,464, respectively. As of March
29, 1999, principal and accrued interest totaling $230,000 and $580,634,
respectively, were due. The Managing General Partner made an offer for an
extension of the purchase money note maturity date until May 31, 2003,
coterminous with the expiration of the related Local Partnership's
provisional workout agreement related to its mortgage loan. As of March
29, 1999, the Managing General Partner is awaiting a response from the
noteholder. There is no assurance that the Managing General Partner will
reach an agreement of any kind with the noteholder. Should the noteholder
begin foreclosure proceedings on the Partnership's interest in the Local
Partnership, the Managing General Partner intends to vigorously contest
such action. Additionally, the holder of the loan secured by the mortgage
on Paradise Foothills has attempted to terminate the provisional workout
agreement related to the property. The local managing general partner is
disputing the purported termination, and since July, 1997, has not received
any response from the mortgagee. Should the mortgagee begin foreclosure
proceedings, the local managing general partner intends to vigorously
contest such action. However, due to possible foreclosure actions by the
noteholder and/or the mortgagee, there can be no assurance that the
Partnership will be able to retain its interest in the Local Partnership.
III-17
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
The uncertainty regarding the continued ownership of the Partnership's
interest in the related Local Partnership does not impact the Partnership's
financial condition, as discussed above.
River Place
-----------
Purchase money notes relating to River Place, Ltd. (River Place)
totaling $2,500,000 plus accrued interest were originally scheduled to
mature on December 31, 1995. On December 27, 1995, the Managing General
Partner entered into an agreement with the noteholders which granted the
noteholders three options to purchase the Partnership's 98.99% limited
partnership interest in River Place over a two-year period. Purchase money
note interest of $821,528, which accrued during 1995, was forgiven by the
noteholders as part of the agreement. During 1995 and 1996, the
noteholders purchased 9.9% and 39.6% interests, respectively, in River
Place from the Partnership in exchange for the forgiveness of purchase
money note principal and interest aggregating $1,250,000 and $1,967,568,
respectively.
On February 18, 1997, certain of the noteholders holding notes with an
outstanding principal and accrued interest balance of $650,000 and
$1,348,641, respectively, foreclosed on 25.73% of the Partnership's
remaining 49.49% interest in River Place, resulting in a net financial
statement gain of approximately $1.4 million, and a federal tax gain of
approximately $1.9 million in 1997. On February 21, 1997, certain of the
noteholders purchased the Partnership's remaining 23.76% interest in River
Place from the Partnership in exchange for the forgiveness of purchase
money note principal and accrued interest of $600,000 and $434,616,
respectively, resulting in a net financial statement gain of approximately
$468,000, and a federal tax gain of approximately $900,000 in 1997. As a
result of the noteholders' purchase of the Partnership's remaining interest
in River Place, the Partnership no longer has an ownership interest in the
Local Partnership. In accordance with the purchase option agreement, CRHC,
Inc., an affiliate of the Managing General Partner, transferred its .01%
general partner interest in River Place to the noteholders and/or their
assignees. Pursuant to the agreement, the noteholders or an affiliate paid
a fee into escrow to the Partnership of $35,000. This fee, and interest
accrued thereon totaling $1,353, were released to the Partnership in
accordance with the purchase option agreement, on March 17, 1997.
b. Interests in profits, losses and cash distributions
---------------------------------------------------
made by Local Partnerships
--------------------------
The Partnership has a 98% to 98.99% interest in profits, losses and
cash distributions of each Local Partnership. An affiliate of the General
Partners of the Partnership is also a general partner of each Local
Partnership or the intermediary partnership which invested in the Local
Partnership. As stipulated by the Local Partnerships' partnership
agreements, the Local Partnerships are required to make annual cash
distributions from surplus cash flow, if any. During 1998 and 1997, the
Partnership received cash distributions from rental operations of the Local
Partnerships of $503,945 and $528,557, respectively. As of December 31,
1998 and 1997, one of the Local Partnerships had surplus cash, as defined
III-18
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
by its partnership agreement, in the amount of $125,806 and
$96,013, respectively, which may be available for distribution in
accordance with the respective agency's regulations.
Upon sale or refinancing of a property owned by a Local Partnership,
or upon the 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 general
partners and related entities of the Local Partnership.
c. Advances to Local Partnerships
------------------------------
The Pointe
----------
Mesa Partners Limited Partnership (The Pointe), located in El Paso,
Texas, modified its mortgage loan in 1987. In connection with the loan
modification, the Partnership loaned $262,500 to the Local Partnership in
1987. Repayment of this loan, with simple interest at 9% per annum, is
expected to occur upon sale or refinancing of the property. As of December
31, 1998 and 1997, accrued interest was $269,438 and $245,813,
respectively.
Springfield
-----------
The Partnership had previously made advances to Springfield Properties
Limited Partnership (Springfield) related to its mortgage loan. The
balance of these advances, which was $38,349 as of December 31, 1997, was
repaid to the Partnership on March 13, 1998. See Notes 2.d. and 3. for a
discussion of the sale of Springfield.
d. Property matters
----------------
Deerfield
---------
Deerfield was unable to generate sufficient cash flow to pay its debt
service and therefore was unable to meet its obligations under the terms of
its mortgage loan. The Local Partnership defaulted on its mortgage loan in
1990. On November 16, 1995, the Local Partnership received a notice of
default, acceleration and assignment of rents from the mortgagee. On
February, 27, 1996, Deerfield entered into a term sheet agreement with the
mortgagee pursuant to which Deerfield transferred management of the
property to the mortgagee on April 1, 1996 and agreed, at the mortgagee's
election, to either voluntarily transfer ownership of the property to the
mortgagee, or not oppose a foreclosure action, occurring no earlier than
January 6, 1997, without further consideration, if the mortgage loan
default had not been cured by that date. On January 7, 1997, in accordance
III-19
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
with the term sheet agreement, the mortgagee foreclosed on the property.
See Note 2.a. for a discussion of purchase money notes related to
Deerfield.
Devonshire and Springfield
--------------------------
During June 1998, the local managing general partners of Devonshire
Development Limited Partnership (Devonshire) and Springfield Properties
Limited Partnership (Springfield) received offers from third parties to
purchase the respective properties. The local managing general partners of
Devonshire and Springfield entered into contracts to sell the respective
properties to a real estate investment trust (REIT) (in the case of
Springfield) and the REIT's affiliate (in the case of Devonshire) on or
before January 15, 1999. In September 1998, prior to the expiration of the
due diligence period, the purchaser, in accordance with its rights under
the sale contract, terminated the sales contract for Devonshire. The local
managing general partner of Devonshire has agreed to sell the property to a
new potential buyer, and as of March 29, 1999, the parties are negotiating
a sales contract.
On January 22, 1999, pursuant to the Springfield sale contract, the
local managing general partner sold Springfield Apartments, located in
Redmond, Washington, to ASN-Washington Holdings (1) Incorporated, an
affiliate of the REIT. The sale resulted in an estimated financial
statement gain of approximately $6.1 million, an estimated Federal tax gain
of approximately $9.0 million, and net cash proceeds of approximately $6.3
million to the Partnership. As a result of the sale, CRICO of Springfield,
Inc. (CRICO), the local managing general partner of the Local Partnership
and a wholly-owned affiliate of the Managing General Partner, received an
additional management fee of $615,524, pursuant to the Local Partnership
Agreement.
Due to the then impending sale of the Springfield property, the
Partnership's basis in this Local Partnership, which was $208,549, was
reclassified to "Investment in partnership held for sale" in the
accompanying consolidated balance sheet at December 31,
III-20
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
e. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1998 and 1997 and for the years ended December 31, 1998
and 1997 follows.
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation of
$20,620,004 and $19,463,950, respectively $ 21,420,278 $ 22,418,372
Land 6,444,869 6,444,869
Other assets 4,531,513 4,073,692
------------ ------------
Total assets $ 32,396,660 $ 32,936,933
============ ============
Mortgage notes payable $ 35,411,668 $ 35,684,597
Due to general partners 3,492,581 3,429,235
Other liabilities 3,168,050 3,181,624
------------ ------------
Total liabilities 42,072,299 42,295,456
Partners' deficit (9,675,639) (9,358,523)
------------ ------------
Total liabilities and partners' deficit $ 32,396,660 $ 32,936,933
============ ============
</TABLE>
III-21
<PAGE>
CAPITAL REALTY INVESTORS-85 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,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 8,452,327 $ 8,292,309
Interest 84,570 75,499
Other 364,382 358,720
------------ ------------
Total revenue 8,901,279 8,726,528
------------ ------------
Expenses:
Operating 4,321,211 4,437,917
Interest 3,129,245 3,153,678
Depreciation 1,180,610 1,395,848
Amortization 72,165 72,292
------------ ------------
Total expenses 8,703,231 9,059,735
------------ ------------
Net income (loss) $ 198,048 $ (333,207)
============ ============
</TABLE>
f. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net income (loss) to taxable 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 audit and, therefore, possible adjustment by the
IRS.
A reconciliation of the Local Partnerships' financial statement net
income (loss) reflected above to taxable loss follows.
III-22
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net income (loss) $ 198,048 $ (333,207)
Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (499,377) (378,313)
Amortization for financial statement purposes not
deducted for income tax purposes 7,223 11,847
Miscellaneous, net 3,063 (16,027)
------------ ------------
Taxable loss $ (291,043) $ (715,700)
============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships and a fee for its services in connection with the initial
management of the Partnership through 1989. The Partnership paid $424,000 in
acquisition fees. The acquisition fees were capitalized and are being amortized
over the estimated useful lives of the properties (generally 30 years), using
the straight-line method.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership. For the years ended December 31, 1998 and 1997,
the Partnership paid $75,602 and $61,605, 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 be equal to 0.50%
of equity payments, 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 on a monthly
basis as an operating expense before any distributions to limited partners in
III-23
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS - Continued
the amount computed as described in the Partnership Agreement, provided that
such amount shall not exceed $97,930. The Partnership paid the Managing General
Partner a Management Fee of $97,930 for each of the years ended December 31,
1998 and 1997.
On January 22, 1999, Springfield Properties Limited Partnership, one of the
Local Partnerships in which the Partnership has invested, sold Springfield
Apartments. As a result of the successful sale, CRICO, the local managing
general partner of the Local Partnership and a wholly-owned affiliate of the
Managing General Partner, earned an additional management fee of $615,524,
pursuant to the Local Partnership Agreement; the fee was paid January 29, 1999.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses prior to the first date on which the first BAC
Holders were admitted were allocated to affiliates of the General Partners.
Upon admission of the first BAC Holder, such interests were reduced. The BAC
Holders own 96% of the Partnership. The net proceeds resulting from the
liquidation of the Partnership or the Partnership's share of the net proceeds
from any sale or refinancing of the projects or their rental properties 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 affiliate; 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 or refinancing and allocated pursuant to
the Partnership Agreement;
(iv) to the Assignees and BAC Holders 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;
(v) to the Special Limited Partner an amount equal to 1% of the sum
of the sale and refinancing proceeds less the amounts set forth
above;
(vi) to the Assignees and BAC Holders, an amount for each fiscal year
after 1986, equal to a noncompounded cumulative return of 6% per
annum of the capital contribution paid by each Assignee and each
BAC Holder, which additional amount may be increased by a Tax
Bracket Adjustment Factor, and reduced, but not below zero, by
distributions of net cash flow to each Assignee and BAC Holder;
and to the Special and Initial Limited Partners, in the amount of
their capital contributions, respectively;
III-24
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
(vii) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate to the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(viii) to the General Partners in the amount of their capital
contributions;
(ix) thereafter, in equal shares to the General Partners for services
to the Partnership and to the Special Limited Partner whether or
not any is then a general partner or special limited partner (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 the Special
Limited Partner or their designees;
(x) to the General Partners, the Initial Limited Partner and the
Special Limited Partner an amount equal to the total of all
accrued but unpaid portions of the Deferred Cash Flow Return
which were previously deferred; and
(xi) the remainder, 12% in the aggregate to the General Partners and
the Initial Limited Partner (or their assignees) (11.51% to the
General Partners and 0.49% to the Initial Limited Partner), 85%
in the aggregate to the Assignees and BAC Holders, as a group (or
their assignees) and 3% to the Special Limited Partner.
Fees payable to the General Partners and the Special Limited Partner (or
their designees) under (ix) 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.
If there are insufficient funds to make payment in full of all amounts, the
funds then available for payment shall be allocated proportionately among the
persons entitled to payment pursuant to such subsection of the Partnership
Agreement. Pursuant to the Partnership Agreement, all cash available for
distribution, as defined, shall be accrued at 89% to the Assignees and to the
BAC Holders (other than the Initial Limited Partner and Special Limited
Partner), 2.5% to the Special Limited Partner, 0.49% to the Initial Limited
Partner and 8.01% to the General Partners after payment of the Management Fee
(see note 3), as specified in the Partnership Agreement. All cash available for
distribution, as defined, shall be distributed, not less frequently than
annually, as follows:
a. 1% to the Special Limited Partner; and
b. 89% to the Assignees and to the BAC Holders and 10% to the General
Partners, Special Limited Partner, and Initial Limited Partner, except
that the 10% to the General Partners, Special Limited Partner, and
Initial Limited Partner shall be subordinated to the Preferred Cash
Flow Return to the Assignees which is calculated to be 7.332% based on
the Tax Reform Act of 1986.
The Partnership's cash available for distribution, as defined in the
Partnership Agreement, prior to the establishment of any reserves deemed
necessary by the Managing General Partner and after payment of the Management
Fee, was approximately $380,000 and $490,000 for the years ended December 31,
1998 and 1997, respectively. No distributions were declared or paid during the
III-25
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
years ended December 31, 1998 and 1997. The Partnership anticipates a
distribution later in 1999 to the BAC Holders as a result of the sale of the
Springfield property.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET (LOSS) INCOME
TO TAXABLE (LOSS) INCOME
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations; and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see note 2.f.), including
losses in excess of related investment amounts. These returns are subject to
audit and, therefore, possible adjustment by the IRS.
III-26
<PAGE>
CAPITAL REALTY INVESTORS-85 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the Partnership's financial statement net (loss) income
to taxable (loss) income follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net (loss) income $ (515,138) $ 2,228,041
Adjustments:
Differences between the income tax losses and financial
statement losses related to the Partnership's
equity in the Local Partnerships' losses (825,015) (844,397)
Differences in amortization of
acquisiton costs and property purchase costs (17,043) 78,989
Difference in gain on disposition of investment in
partnership -- 4,805,918
------------ ------------
Taxable (loss) income $ (1,357,196) $ 6,268,551
============ ============
</TABLE>
# # #
III-27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,154,057
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,291,173
<CURRENT-LIABILITIES> 0
<BONDS> 9,029,131
0
0
<COMMON> 0
<OTHER-SE> (5,815,867)
<TOTAL-LIABILITY-AND-EQUITY> 3,291,173
<SALES> 0
<TOTAL-REVENUES> 776,601
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 280,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,011,331
<INCOME-PRETAX> (515,138)
<INCOME-TAX> 0
<INCOME-CONTINUING> (515,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (515,138)
<EPS-PRIMARY> (23.37)
<EPS-DILUTED> (23.37)
</TABLE>
