<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the fiscal year ended December 31, 1995 ........Commission file number 0-15731
----------------- -------
</TABLE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV (A MARYLAND LIMITED PARTNERSHIP)
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-1473440
-------- ----------
(State or other Jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
1225 EYE STREET, N.W. WASHINGTON, D.C. 20005
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (202) 347-6247
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(g) of the Act: 15,414 LIMITED PARTNERSHIP INTERESTS
------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days. Yes X No
-------- -------
The registrant is a partnership. Accordingly, no voting stock is held by
non-affiliates of the registrant.
Documents incorporated by reference. NONE
----
<PAGE> 2
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
(A MARYLAND LIMITED PARTNERSHIP)
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 28
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 33
</TABLE>
1
<PAGE> 3
PART I
Item 1. Business
National Housing Partnership Realty Fund IV, a Maryland Limited
Partnership (the Partnership), was formed under the Maryland Revised Uniform
Limited Partnership Act as of January 8, 1986. On January 15, 1986, the
Partnership commenced offering 35,000 limited partnership interests, at a price
of $1,000 per interest, through a public offering registered with the
Securities and Exchange Commission (the Offering). The Offering was managed by
Dean Witter Reynolds, Inc. and was terminated on October 14, 1986, with
subscriptions for 15,414 limited partnership interests.
The General Partner with a 1% interest in the Partnership is The
National Housing Partnership (NHP), a District of Columbia limited partnership,
whose sole general partner (0.2%) is National Corporation for Housing
Partnerships (NCHP). Following a corporate reorganization in August 1995, which
involved an initial public offering of NHP Incorporated's management-related
service companies (the "Reorganization"), the remaining 99.8% of NHP's limited
partnership interest is owned by NHP Partners Two Limited Partnership (Partners
Two), a Delaware limited partnership. NCHP is wholly owned by NHP Partners,
Inc. (Partners), a Delaware corporation. Notwithstanding the Reorganization,
control of NCHP, Partners Two and Partners remains with Demeter Holdings
Corporation (a Massachusetts nonprofit corporation, which is
wholly-owned/controlled by the President and Fellows of Harvard College, a
Massachusetts educational corporation created by the constitution of
Massachusetts), Capricorn Investors, L.P. (a Delaware investment limited
partnership, whose general partner is Capricorn Holdings, G.P., a Delaware
general partnership), and J. Roderick Heller, III (Chairman, President and
Chief Executive Officer of NCHP and Partners).
The Original Limited Partner of the Partnership is 1133 Fifteenth
Street Four Associates, a Maryland limited partnership, whose general partner
is NHP and whose limited partners were key employees of NCHP at the time the
Partnership was formed. The Original Limited Partner holds a 1% Limited
Partnership interest in the Partnership.
The remaining 98% limited partnership interests in the Partnership are
held by the investors who subscribed to the Offering.
The Partnership's business is to own directly one multi-family housing
property, Trinity Apartments, and to hold limited partnership interests in four
limited partnerships (Local Limited Partnerships), which in turn, owns and
operates multi-family rental housing properties (Properties). With the
exception of Trinity Apartments, all of these Properties receive one or more
forms of assistance from the Federal Government.
The Partnership acquired the interests in the four Local Limited
Partnerships from sellers who originally developed the Properties. The
Partnership directly purchased Trinity Apartments. With respect to the Local
Limited Partnerships, NHP is the general partner of each Local Limited
Partnership and the Partnership is the principal limited partner. As a limited
partner, the Partnership's liability for obligations of the Local Limited
Partnerships is limited to its investment, and the Partnership does not
exercise control over the activities of the Local Limited Partnerships in
accordance with the partnership agreements.
The Partnership's investment objectives are:
(1) preserve and protect Partnership capital;
(2) provide current tax benefits to Limited Partners to the extent
permitted by law, including, but not limited to, deductions
that Limited Partners may use to offset otherwise taxable
income from other sources;
(3) provide capital appreciation through increase in value of the
Partnership's investments, subject to considerations of
capital preservation and tax planning; and
2
<PAGE> 4
(4) provide potential cash distributions from sales or
refinancings of the Partnership's investments and, on a
limited basis, from operations.
The Partnership does not have any employees. Services are performed
for the Partnership by the General Partner and agents retained by it.
The following is a schedule of the Properties owned directly by the
Partnership or by the Local Limited Partnerships in which the Partnership is a
limited partner:
SCHEDULE OF PROPERTIES OWNED BY THE PARTNERSHIP OR BY
LOCAL LIMITED PARTNERSHIPS IN WHICH NATIONAL HOUSING PARTNERSHIP
REALTY FUND IV HAS AN INVESTMENT
<TABLE>
<CAPTION>
Units Occupied
Units Authorized as a Percentage
Financed, Insured for Rental of Total
Property Name, Location Number and Subsidized Assistance Under Units as of
and Partnership Name of Units Under Section 8 (D) December 31, 1995
- ----------------------- -------- --------------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
Capital Park 316 (A) 304 99%
Columbus, Ohio
(Capital Park
Limited Partnership)
Kennedy Homes 172 (B) 172 98%
Gainesville, Florida
(Kennedy Homes
Limited Partnership)
Loring Towers Apartments 208 (A) 187 93%
Minneapolis, Minnesota
(Loring Towers Apartments
Limited Partnership)
Royal Towers 233 (A) 233 95%
Kansas City, Missouri
(Royal Towers Limited
Partnership)
Trinity Apartments 496 (C) None 95%
Irving, Texas
(Wholly-owned)
</TABLE>
(A) The mortgage is insured by the Federal Housing Administration under
the provisions of Section 236 of the National Housing Act.
(B) The mortgage is insured by the Federal Housing Administration under
the provisions of Section 221(d)(3) of the National Housing Act.
(C) Property is conventionally financed.
(D) Section 8 of Title II of the Housing and Community Development Act of
1974.
3
<PAGE> 5
Although each Local Limited Partnership in which the Partnership has
invested owns an apartment complex which must compete with other apartment
complexes for tenants, government mortgage interest and rent subsidies make it
possible to rent units to eligible tenants at below market rates. In general,
this insulates the Properties from market competition. Capital Park and Royal
Towers Section 8 subsidy contracts covering 127 and 88 units, respectively, are
scheduled to expire in June 1996. Additionally, Royal Towers has another
contract for 22 units scheduled to expire in September, 1996. In January 1996,
President Clinton signed into law H.R. 2880. This legislation includes a
provision that requires HUD to provide a one-year renewal for Section 8
contracts scheduled to expire during the first nine months of 1996. All other
Section 8 contracts are scheduled to expire between 1997 and 2008.
Trinity Apartments (Trinity), which is wholly-owned by the
Partnership, is conventionally financed and is a market rate project which
receives no government assistance and must compete directly with other
apartment complexes in its rental market. The local economy and competitive
conditions in the Dallas area, historically, have adversely affected operations
at Trinity Apartments.
The mortgage note payable (the Note) on Trinity was due June 30, 1995.
On March 15, 1996, a modification agreement to the loan agreement was signed
which, among other provisions, extends the due date to March 15, 1999.
As discussed in Note 10 to the Partnership's financial statements,
during 1993 the Partnership determined that a write-down in the book value of
Trinity was necessary because the estimated undiscounted future cash flows from
operations and sale of the property is expected to be less than the net book
value of the property. This write-down was recorded as a loss on reduction of
carrying value of rental property.
The General Partner has made substantial loans to the Partnership for
Trinity's operations. During 1994, Trinity generated surplus cash to pay NHP
$65,625 for administrative fees owed and $38,436 for accrued interest on
partner loans. No payments were made during 1995. Given the competitive nature
of the Dallas market, it is still uncertain as to whether the property will
continue to generate sufficient cash flow to repay the remaining loans and
interest to the General Partner. NHP posted a $200,000 letter of credit on
behalf of Trinity which is to be released after certain debt service coverage
ratios are met. This letter of credit expired in 1993 and was converted to a
cash escrow by NHP on behalf of Trinity.
Royal Towers, which is located in Kansas City, Missouri, has a
significant amount of trade payables at December 31, 1995 and 1994. Royal
Towers' ability to continue as a going concern is dependent on its maintaining
high occupancy levels and reducing its trade payables. Neither the General
Partner nor the Partnership is legally obligated to fund operations, nor does
the Partnership have sufficient reserves to fund operations at Royal Towers.
During 1994, Royal Towers sold the project's parking garage for $6,000
resulting in a net loss on the sale of $181,213. The loss is included in
expenses under loss on sale of parking garage in the statement of profit and
loss (see Note 14 to the Local Limited Partnerships' Combined Financial
Statements). HUD approved this partial release of collateral based on the
estimated high cost to repair or demolish the structure. The parking garage had
been closed for public safety since 1992. Additionally, Royal Towers has
entered into a grant agreement with HUD under the Drug Elimination Grant
Program to assist in the elimination of illegal drugs and the associated crime
at the property (Note 13 to the Local Limited Partnerships' Combined Financial
Statements). The grant agreement is dated July 7, 1994. During 1995, the
Partnership incurred $155,177 of costs under the Program of which $120,010 have
been capitalized in rental property. Drug Elimination Grant revenue of $155,177
is included in other revenue (Note 14 to the Local Limited Partnership's
Combined Financial Statements).
In 1993, Capital Park was awarded a Drug Elimination Grant from HUD in
the amount of $175,000. The funds from the grant are to be used to implement
drug-free housing programs such as physical improvements related to security
and to reduce community vulnerability to drugs and drug activity. The
improvements include iron fencing and exterior lighting along with the
installation of surveillance cameras. During 1994, Capital Park incurred
$174,993 of costs under the program of which $385 are included in operating
expenses and $174,608 have been capitalized in rental property. Drug
Elimination Grant revenue of $174,993 is included in other revenue (Note 14 to
the Local Limited Partnerships' Combined Financial Statements). During 1993,
Kennedy Homes also applied for a Drug Elimination Grant but was unsuccessful in
obtaining that grant.
4
<PAGE> 6
Except for Trinity (as discussed in Note 7 to the Local Limited
Partnerships' Combined Financial Statements), all the properties in which the
Partnership has invested carry deferred acquisition notes due to the original
owners of the properties. In the event of a default on these notes, the
noteholders would assume NHP's and the Partnership's interests in the Local
Limited Partnerships. Due to the rental market conditions where the properties
are located, the General Partner believes the amounts due on the acquisition
notes may exceed the value to be obtained by sale or refinancing opportunities.
The deferred acquisition notes mature in 2001.
The following details the Partnership's ownership percentages of the
Local Limited Partnerships, the cost of acquisition of such ownership and the
cost of Trinity Apartments. All interests in the Local Limited Partnership's
are limited partner interests. Also included is the total mortgage encumbrance
and deferred acquisition notes and accrued interest on each property for each
of the Local Limited Partnerships and Trinity Apartments as of December 31,
1995.
<TABLE>
<CAPTION>
Deferred
NHP Realty Acquisition
Fund IV Cost of Notes
Percentage Ownership Mortgage and Accrued
Partnership Ownership Interest Notes Interest
- ----------- --------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Capital Park L.P. 99% $1,985,450 $4,076,719 $4,516,478
Kennedy Homes L.P. 99% 1,113,509 1,106,552 3,332,453
Loring Towers L.P. 99% 1,476,049 2,692,035 4,754,054
Royal Towers L.P. 99% 1,163,958 2,638,374 4,419,882
Trinity Apartments Wholly-owned 5,971,034 13,700,000 -
</TABLE>
Item 2. Properties
See Item 1 for the real estate owned by the Partnership either
directly or through the ownership of limited partnership interests in Local
Limited Partnerships.
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
PART II
Item 5. Market for the Registrant's Partnership Interests and Related
Partnership Matters
(a) Interests in the Partnership were sold through a public
offering managed by Dean Witter Reynolds, Inc. There is no
established market for resale of interests in the Partnership.
Accordingly, an investor may be unable to sell or otherwise
dispose of his or her interest in the Partnership.
(b) As of December 31, 1995, there were 1,289 registered holders
of 15,414 limited partnership interests (in addition to 1133
Fifteenth Street Four Associates - See Item 1).
(c) No cash dividends or distributions have been declared from the
inception of the Partnership to December 31, 1995.
5
<PAGE> 7
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C>
Rental revenues $ 3,221,978 $ 3,162,772 $ 3,090,840 $ 2,878,627 $ 2,744,818
Rental expenses (3,712,415) (3,281,501) (3,374,984) (3,039,400) (3,397,499)
------------ ------------ ------------ ------------ ------------
Loss from rental
operations (490,437) (118,729) (284,144) (160,773) (652,681)
Distributions in excess
of investment in Local
Limited Partnerships
and interest income 23,963 52,408 45,697 28,465 3,812
Loss on reduction in
carrying value of
rental property - - (4,091,000) - -
Loss on investment in
Local Limited
Partnerships - - (12,400) - -
Share of losses from
Local Limited
Partnerships (A) - - (169,765) (312,348) (368,690)
Partnership operating
expenses (423,453) (368,904) (341,189) (294,832) (336,929)
------------ ------------ ------------ ------------ ------------
Net loss $ (889,927) $ (435,225) $ (4,852,801) $ (739,488) $ (1,354,488)
============ ============ ============ ============ ============
Loss per unit of
limited partnership
interest based on
the units outstanding
during the period $ (58) $ (28) $ (315) $ (48) $ (88)
============ ============ ============ ============ ============
Total long-term
debt - mortgage
notes payable $ 13,700,000 $ 13,700,000 $ 13,700,000 $ 13,700,000 $ 13,801,955
============ ============ ============ ============ ============
Total assets $ 14,496,556 $ 14,892,187 $ 15,274,435 $ 19,470,457 $ 20,205,497
============ ============ ============ ============ ============
Cash distributions
per unit of
limited partnership
interest $ - $ - $ - $ - $ -
============ ============ ============ ============ ============
</TABLE>
(A) The Partnership holds limited partnership interests in the Local
Limited Partnerships, and since its liability for obligations is
limited to its original investment, its investment account is not
reduced below zero (creating a liability) for the investments in Local
Limited Partnerships. As a result, during 1995, 1994, 1993, 1992 and
1991 $1,313,743, $1,447,892, $1,242,218, $1,113,035 and $850,654,
respectively, of losses from four, four, three, three and three,
respectively, Local Limited Partnerships have not been recognized by
the Partnership (see Note 4 to the Partnership's financial
statements).
6
<PAGE> 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Properties in which the Partnership has invested, through its
investments in the Local Limited Partnerships, receive one or more forms of
assistance from the Federal Government. As a result, the Local Limited
Partnerships' ability to transfer funds either to the Partnership or among
themselves in the form of cash distributions, loans or advances is generally
restricted by terms of these government assistance programs. In prior years,
these restrictions have had an impact on the Partnership's ability to meet its
cash obligations.
Net cash used in operations for the year ended December 31, 1995, was
$20,181, as compared to cash provided by operations of $9,936 in 1994 and
$473,000 in 1993. The increase in net cash used in operations from 1994 to 1995
was the net result of decreases in certain expenses paid, including partnership
administrative fees and interest on partner loans, which were more than offset
by increased mortgage interest paid and a decrease in distributions in excess
of investment in Local Limited Partnerships. The decrease in cash provided by
operations from 1993 to 1994 resulted from an increase in property tax expense,
an increase in other operational expenses, and payment of administration fees
and accrued interest to the General Partner.
Distributions in excess of investment in Local Limited Partnerships
represent the Partnership's proportionate share of the excess cash available
for distribution from the Local Limited Partnerships. As a result of the use of
the equity method of accounting for the Partnership's investment in Local
Limited Partnerships, investment carrying values for each of the Local Limited
Partnerships has decreased to zero. Cash distributions received are recorded in
revenues as distributions received in excess of investment in Local Limited
Partnerships. Cash distributions totaling $20,296 and $45,307 were received
from two Local Limited Partnerships during the years ended December 31, 1995
and 1994, respectively. The receipt of these distributions in future years is
dependent on the operations of the underlying properties of the Local Limited
Partnerships.
Cash and cash equivalents amounted to $35,568 at December 31, 1995.
The ability of the Partnership to meet its on-going cash requirements, in
excess of cash on hand at December 31, 1995, is dependent on operations of
Trinity Apartments, distributions received from the Local Limited Partnerships,
and proceeds from the sales or refinancing of the underlying Properties. As of
December 31, 1995, the Partnership owes the General Partner $991,158 for
administrative and reporting services performed. In prior years, NHP has made
advances totalling $635,000 to Trinity Apartments to cover costs associated
with the refinancing of the Partnership's mortgage note payable for Trinity
Apartments and to cover operating deficits for Trinity Apartments. The payment
of the unpaid administrative and reporting fees and advances from the
Partnership and NHP to the Local Limited Partnerships will most likely result
from the sale or refinancing of the underlying Properties of the Local Limited
Partnerships as defined by the Partnership agreement, rather than through
recurring operations. The General Partner will continue to manage the
Partnership's assets prudently in an effort to achieve positive cash flow. NHP
will evaluate lending the Partnership additional funds as such funds are
needed, but is in no way legally obligated to make such loans.
Trinity Apartments' mortgage note, which was originally due June 30,
1995, had interest due and payable at a variable rate equal to 3.10% above the
lender's commercial paper rate. The Note had no amortization of principal
which, coupled with the competitive pay rate in prior years, enabled Trinity to
generate cash flow from operations. During 1994, $65,625 of administrative fees
and $38,436 of accrued interest on advances was paid to NHP from this cash
flow.
On March 15, 1996, a modification to the original loan agreement
became effective which extended the due date of Trinity's mortgage note to
March 15, 1999. Under the revised agreement, interest is payable monthly at a
variable rate equal to 3.25% above the lender's commercial paper rate.
Principal is payable quarterly in an amount equal to 100% of Trinity's net cash
flow, as defined in the agreement, with the remaining principal balance due and
payable March 15, 1999.
In 1993, based on an evaluation of the estimated undiscounted future
cash flows of Trinity, the Partnership recorded a write-down in the net book
value of the property, equal to the shortfall of the estimated undiscounted
future
7
<PAGE> 9
cash flows from operations and proceeds from an assumed sale of the property as
compared to the net book value of the property (discussed more fully in Note 10
to the Partnership's financial statements). The amount of the write-down was
$4,091,000 and is recorded as a loss on reduction of carrying value of rental
property in 1993.
Except for Trinity, all the properties in which the Partnership has
invested carry deferred acquisition notes due to the original owners of the
properties. In the event of a default on these notes, the noteholders would
assume NHP's and the Partnership's interests in the Local Limited Partnerships.
Due to the rental market conditions where the properties are located, the
General Partner believes the amounts due on the acquisition notes may exceed
the value to be obtained by sale or refinancing opportunities. The deferred
acquisition notes mature in 2001.
Results of Operations
The Partnership has invested as a limited partner in four Local
Limited Partnerships which operate four rental housing properties. In addition,
the Partnership directly owns Trinity Apartments. The Partnership's results of
operations are significantly impacted by the rental operations of Trinity
Apartments. In prior years, results of operations were also affected by the
Partnership's share of losses from the Local Limited Partnerships in which it
has invested to the extent the Partnership still had a carrying basis in a
respective Local Limited Partnership. As of December 31, 1995 and 1994, the
Partnership had no carrying value in any of the Local Limited Partnerships and
therefore, reflected no share of losses from the four Local Limited
Partnerships.
The Partnership's net loss increased to $889,927 in 1995 from a net
loss of $435,225 in 1994. The net loss per unit of limited partnership interest
increased to $58 in 1995 from net loss per unit of $28 in 1994 for the 15,414
units outstanding throughout both years. The primary reasons for this increase
in net loss include a $356,000 increase in interest on mortgage notes payable
and a $60,000 increase in interest on partner loans. The increase in mortgage
interest was the result of interest rate increases which began during 1994 and
continued throughout 1995.
The Partnership's net loss was $435,225 in 1994 and $4,852,801 in
1993. Net loss per unit of limited partnership interest was $28 in 1994,
compared to a net loss per unit of $315 in 1993 for the 15,414 units
outstanding throughout both years. The primary reason for this decrease in net
loss resulted from a $4,091,000 write-down of the carrying value of Trinity
(see Note 10 to the Partnership's financial statements) in 1993, while no such
write-down was necessary in 1994. In addition, there was a decrease in interest
expense of approximately $110,000 on Trinity Apartments and an approximate
$56,000 increase in rental revenue from Trinity. The share of losses decreased
in 1994 as the Partnership did not recognize its share of losses from four
Local Limited Partnerships, as the Partnership's net book investment in them
was reduced to zero (see Note 4 to the Partnership's financial statements). The
Partnership did not recognize $1,447,892 of its allocated share of losses from
the four Local Limited Partnerships, as the Partnership's net book investment
in them was reduced to zero (see Note 4 to the Partnership's financial
statements). The Partnership's share of losses from the Local Limited
Partnerships, if not limited to its investment account balance, would have
decreased $22,509 between years. This decrease was the result of the
combination of an increase in rental income and an increase in operating
expenses.
The Partnership did not recognize $1,313,743 of its allocated share of
losses from the four Local Limited Partnerships in 1995, as the Partnership's
net book investment in them was reduced to zero (see Note 4 to the
Partnership's financial statements). The Partnership's share of losses from
the Local Limited Partnerships, if not limited to its investment account
balance, would have decreased $134,149 between years. The decrease was
primarily the result of one of the Local Limited Partnerships recording an
approximately $181,000 loss on the sale of a parking garage during 1994, and an
increase in rental income of $10,000 in 1995, partially offset by a $150,000
increase in interest on deferred acquisition notes.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedule of the Partnership
are included on pages 11 through 28 of this report.
8
<PAGE> 10
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund IV
Washington, D.C.
We have audited the accompanying statements of financial position of National
Housing Partnership Realty Fund IV (the Partnership) as of December 31, 1995
and 1994, and the related statements of operations, partners' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1995, and the supporting schedule listed in the Index at Item 14. These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
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, such financial statements present fairly, in all material
respects, the financial position of National Housing Partnership Realty Fund IV
as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles, and the schedule
referred to above presents fairly, in all material respects, when read in
conjunction with the related financial statements, the information therein set
forth.
Deloitte & Touche LLP
March 19, 1996
Washington, D.C.
9
<PAGE> 11
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
-----------------------
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 35,568 $ 14,317
Prepaid insurance, taxes and tenant security deposits 83,404 76,341
Real estate tax escrow 546,236 629,137
Reserve for insurance premiums 42,583 78,643
Investments in and advances to Local Limited Partnerships (Note 4) - -
Land 3,650,000 3,650,000
Building and improvements - less
accumulated depreciation of $3,929,088
and $3,567,996 (Note 3 and 10) 10,138,765 10,380,209
Deferred finance cost - 63,540
------------ -----------
$14,496,556 $14,892,187
============ ===========
</TABLE>
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Liabilities:
Accounts payable and accrued
expenses from rental operations (Note 5) $ 950,835 $ 873,361
Administrative and reporting fees payable
to General Partner (Note 7) 991,158 875,554
Due to General Partner (Note 7) 1,255,901 1,209,494
Accrued interest on partner loans (Note 7) 1,183,574 933,098
Other accrued expenses 41,710 37,375
Mortgage note payable (Note 6) 13,700,000 13,700,000
----------- -----------
18,123,178 17,628,882
----------- -----------
Partners' equity (deficit):
General Partner - The National
Housing Partnership (NHP) (165,960) (157,061)
Original Limited Partner - 1133
Fifteenth Street Four Associates (170,860) (161,961)
Other Limited Partners - 15,414 investment units (3,289,802) (2,417,673)
----------- -----------
(3,626,622) (2,736,695)
----------- -----------
$14,496,556 $14,892,187
=========== ===========
</TABLE>
See notes to financial statements.
10
<PAGE> 12
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RENTAL REVENUES:
Rental of apartments $ 3,104,124 $ 3,029,594 $ 3,012,360
Other rental revenue 117,854 133,178 78,480
------------ ------------ -----------
3,221,978 3,162,772 3,090,840
------------ ------------ -----------
RENTAL EXPENSES:
Interest 1,291,537 935,644 1,047,509
Renting and administrative 190,602 231,618 219,300
Operating and maintenance 545,230 529,995 444,293
Management and other services
from related party (Note 7) 205,756 199,072 198,626
Salaries and related benefits
to related party (Note 7) 230,283 259,858 249,069
Depreciation and amortization 405,177 359,855 428,278
Taxes and insurance 843,830 765,459 787,909
------------ ------------ -----------
3,712,415 3,281,501 3,374,984
------------ ------------ -----------
LOSS FROM RENTAL OPERATIONS (490,437) (118,729) (284,144)
------------ ------------ -----------
COSTS AND EXPENSES:
Loss on reduction of carrying
value of rental property (Note 10) - - 4,091,000
Loss on investment in Local Limited
Partnerships (Note 4) - - 12,400
Share of losses from Local Limited
Partnerships (Note 4) - - 169,765
Interest on partner loans 250,478 190,594 148,951
Administrative and reporting fees
to General Partner (Note 7) 115,604 115,604 115,605
Other operating expenses 57,371 62,706 76,633
------------ ------------ -----------
423,453 368,904 4,614,354
------------ ------------ -----------
OTHER INCOME:
Interest income 3,667 7,101 1,402
Distributions in excess of
investment in Local Limited Partnerships 20,296 45,307 44,295
------------ ------------ -----------
23,963 52,408 45,697
------------ ------------ -----------
NET LOSS $ (889,927) $ (435,225) $(4,852,801)
============ ============ ===========
ALLOCATION OF NET LOSS:
General Partner - NHP $ (8,899) $ (4,352) $ (48,528)
Original Limited Partner - 1133
Fifteenth Street Four Associates (8,899) (4,352) (48,528)
Other Limited Partners - 15,414
investment units (872,129) (426,521) (4,755,745)
------------ ------------ -----------
$ (889,927) $ (435,225) $(4,852,801)
============ ============ ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST (Note 3) $ (58) $ (28) $ (315)
============ ============ ===========
</TABLE>
See notes to financial statements.
11
<PAGE> 13
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
The 1133
National Fifteenth
Housing Street Other
Partnership Four Limited
(NHP) Associates Partners Total
--------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Equity (deficit) at
January 1, 1993 $(104,181) $(109,081) $ 2,764,593 $ 2,551,331
Net loss (48,528) (48,528) (4,755,745) (4,852,801)
--------- --------- ----------- ----------
Deficit at
December 31, 1993 (152,709) (157,609) (1,991,152) (2,301,470)
Net loss (4,352) (4,352) (426,521) (435,225)
--------- --------- ----------- ----------
Deficit at
December 31, 1994 (157,061) (161,961) (2,417,673) (2,736,695)
Net loss (8,899) (8,899) (872,129) (889,927)
--------- --------- ----------- ----------
Deficit at
December 31, 1995 $(165,960) $(170,860) $(3,289,802) $(3,626,622)
========= ========= =========== ===========
Percentage interest at
December 31, 1995, 1994,
and 1993 1% 1% 98%
--------- --------- -----------
(A) (B) (C)
========= ========= ===========
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 15,414 investment units of .006358% held by 1,289
investors.
See notes to financial statements.
12
<PAGE> 14
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent collections $ 3,057,908 $ 2,975,413 $ 2,959,399
Distributions in excess of
investment in Local Limited Partnerships 20,296 45,307 44,295
Interest received 3,667 7,101 1,404
Other income 110,348 133,178 78,480
Payments of taxes and insurance (856,288) (775,615) (695,070)
Payments of other expenses (1,070,591) (1,383,432) (867,477)
Payments of annual partnership administration fee - (65,625) -
Payment of interest on partner loans - (38,436) -
Mortgage interest paid (1,285,521) (887,955) (1,048,031)
----------- ----------- -----------
Net cash (used in) provided by
operating activities (20,181) 9,936 473,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases (116,436) (139,982) (102,248)
Deposits to real estate tax escrow (587,270) (667,297) (714,066)
Withdrawals from real estate tax escrow 670,171 631,503 539,823
Deposits to reserve for insurance
premiums (33,164) (97,780) -
Withdrawals from reserve for
insurance premiums 69,224 61,801 -
----------- ----------- -----------
Net cash provided by (used in) investing activities 2,525 (211,755) (276,491)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from partner 38,907 541 10,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 21,251 (201,278) 206,509
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 14,317 215,595 9,086
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 35,568 $ 14,317 $ 215,595
=========== =========== ===========
</TABLE>
See notes to financial statements.
13
<PAGE> 15
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS
TO NET CASH (USED IN) PROVIDED
BY OPERATING ACTIVITIES:
Net loss $(889,927) $(435,225) $(4,852,801)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Share of losses from Local Limited Partnerships - - 169,768
Loss on reduction of carrying value of
rental property - - 4,091,000
Loss on investment in Local Limited Partnerships - - 12,400
Depreciation 361,092 313,851 382,275
Amortization of deferred finance costs 44,085 46,004 46,003
Increase (decrease) in accrued partnership
administrative fee payable to General Partner 7,500 (58,125) 7,500
Increase in administrative and reporting fee payable
to General Partner 115,604 115,604 115,605
Decrease (increase) in accounts receivable - 9,420 (1,850)
Decrease (increase) in prepaid insurance, taxes
and security deposits 12,390 (14,129) 19,431
Increase in utility deposits - - (680)
Increase (decrease) in accounts payable and
accrued expenses from rental operations 68,248 (151,610) 311,775
Increase in other accrued expenses 4,335 6,625 2,750
Increase in accrued interest on partner loans 250,476 152,157 171,357
Increase (decrease) in accrued interest on mortgage
note payable 6,016 25,364 (1,533)
--------- --------- -----------
Total adjustments 869,746 445,161 5,325,801
--------- --------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ (20,181) $ 9,936 $ 473,000
========= ========= ===========
</TABLE>
See notes to financial statements.
14
<PAGE> 16
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
National Housing Partnership Realty Fund IV (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on January 8, 1986. The Partnership was formed for the purpose
of raising capital by offering and selling limited partnership interests, and
then using that capital to acquire and operate (either directly or through
investment as a limited partner in Local Limited Partnerships) multi-family
rental apartments, some of which are financed and/or operated with one or more
forms of rental or financial assistance from the U.S. Department of Housing and
Urban Development (HUD). On February 21, 1986, inception of operations, the
Partnership began raising capital and acquiring interests in Local Limited
Partnerships.
The General Partner was authorized to raise capital for the
Partnership by offering and selling to additional limited partners not more
than 35,000 interests at a price of $1,000 per interest. During 1986, 15,414
interests were sold to additional limited partners. The offering was terminated
on October 14, 1986.
During 1986, the Partnership acquired 99% limited partnership
interests in four limited partnerships (Local Limited Partnerships) which were
organized in 1986 to operate existing rental housing projects. In addition,
during 1986, the Partnership directly purchased Trinity Apartments (Trinity), a
conventionally financed rental apartment project.
Significant Accounting Policies
The financial statements of the Partnership are prepared on the
accrual basis of accounting. Public offering costs were recorded as a direct
reduction to the capital accounts of the limited partners. Direct costs of
acquisition, including acquisition fees and reimbursable acquisition expenses
paid to the General Partner, have been capitalized as investments in Trinity or
the Local Limited Partnerships. Other fees and expenditures of the Partnership
are recognized as expenses in the period the related services are performed.
The organization fee was amortized over a period of 60 months on a
straight-line basis. Deferred finance costs are amortized over the appropriate
loan period on a straight-line basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation of the buildings and improvements is computed using the
straight-line method, assuming a 50 year life from the date of initial
occupancy and depreciation of equipment is calculated using accelerated methods
over estimated useful lives of 5 to 27 years (see Note 3).
The Partnership recognizes rental revenue in the month earned in
accordance with signed resident tenant lease agreements.
The financial statements include the accounts of the Partnership and
its wholly-owned subsidiary, Trinity. All significant intercompany transactions
have been eliminated.
15
<PAGE> 17
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Investments in Local Limited Partnerships are accounted for using the
equity method and thus are carried at cost less the Partnership's share of the
Local Limited Partnerships' losses and distributions (see Note 4). An
investment account is maintained for each of the limited partnership
investments and losses are not taken once an investment account has decreased
to zero. Cash distributions are limited by the Regulatory Agreements between
the Local Limited Partnerships and HUD to the extent of surplus cash as defined
by HUD. Undistributed amounts are cumulative and may be distributed in
subsequent years if future operations provide surplus in excess of current
requirements. Distributions received from Local Limited Partnerships in which
the Partnership's investment account has decreased to zero are recorded as
revenue in the year received.
For purposes of the Statements of Cash Flows, the Partnership
considers all highly liquid debt instruments purchased with initial maturities
of three months or less to be cash equivalents.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
<S> <C> <C>
1995 1994
---- ----
Cash in demand accounts $ 56 $ 398
Money market account 35,512 13,919
-------- --------
$ 35,568 $ 14,317
======== ========
</TABLE>
3. CHANGE IN ESTIMATE
During 1993, depreciation of the building was computed using the
straight-line method, assuming a 50-year life from the date of initial
occupancy after construction or substantial rehabilitation of the building.
Depreciation of the building in prior years was computed using the
straight-line method, assuming a 30-year life and 30% salvage value. This
change in the estimate of the life and salvage value of the building decreased
the net loss in 1993 by $73,751.
4. INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
The Partnership owns a 99% limited partnership interest in Loring
Towers Apartments Limited Partnership, Kennedy Homes Limited Partnership,
Capital Park Limited Partnership, and Royal Towers Limited Partnership. These
investments are accounted for using the equity method because, as a limited
partner, the liability of the Partnership is limited to its investment in the
Local Limited Partnerships. As a limited partner, the Partnership does not
exercise control over the activities of the Local Limited Partnerships in
accordance with the partnership agreements. Thus, the investments are carried
at cost less the Partnership's share of the Local Limited Partnerships' losses
and distributions. However, since the Partnership is neither legally liable for
the obligations of the Local Limited Partnerships, nor otherwise committed to
provide additional support to them, it does not recognize losses once its
investment in each of the individual Local Limited Partnerships, reduced for
its share of losses and cash distributions, reaches zero. As a result, during
1995, 1994 and 1993, the Partnership did not recognize $1,313,743, $1,447,892
and $1,242,218 of its allocated share of losses from four Local Limited
Partnerships, respectively. As of December 31, 1995, 1994 and 1993, the
Partnership had not recognized $6,250,914, $4,937,171 and $3,489,279 of its
cumulative allocated share of losses from four of the Local Limited
Partnerships, respectively.
16
<PAGE> 18
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
No working capital advances or recoveries occurred between the
Partnership and the Local Limited Partnerships during 1995 or 1994. During 1991
and 1989, the Partnership advanced $400 and $12,000, respectively, to two Local
Limited Partnerships as working capital advances. These amounts were
outstanding as of December 31, 1993. However, in the fourth quarter of 1993,
the Partnership re-evaluated the timing of the collectibility of these advances
and determined, based on the Local Limited Partnerships' current operations,
that such advances were not likely to be collected currently; therefore, the
Partnership reclassified these advances to the related investment accounts. Due
to the cumulative losses incurred but not recognized on the investments, the
balance was then reduced to zero, with the corresponding charge to operations,
shown as "Loss on Investment in Local Limited Partnerships" in the Statement of
Operations. To the extent these advances are repaid by the Local Limited
Partnerships in the future, operations will be credited upon repayment.
Summaries of the combined financial position of the aforementioned
Local Limited Partnerships as of December 31, 1995 and 1994 and the combined
results of operations for the years ended December 31, 1995, 1994, and 1993 are
as follows:
COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Assets:
Land $ 756,247 $ 756,247
net of accumulated
depreciation of $6,683,888 and $5,796,141 19,502,717 20,001,657
Other assets 1,864,271 1,479,847
----------- -----------
$22,123,235 $22,237,751
=========== ===========
Liabilities and Partners' Equity (Deficit):
Liabilities:
Mortgage notes payable $10,513,680 $10,834,632
Deferred acquisition notes payable 7,174,900 7,174,900
Other liabilities 10,958,506 9,404,556
---------- -----------
28,647,086 27,414,088
Partners' Equity (Deficit):
National Housing Partnership Realty Fund IV (6,397,490) (5,067,185)
The National Housing Partnership (126,361) (109,152)
----------- ------------
$22,123,235 $22,237,751
=========== ===========
</TABLE>
17
<PAGE> 19
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue $ 4,978,626 $ 4,877,422 $ 4,405,345
------------ ---------- -----------
Expenses:
Operating expenses 3,779,189 3,793,768 3,584,359
Financial expenses - primarily interest 188,182 210,830 229,931
Interest on acquisition notes 1,450,521 1,304,903 1,202,317
Depreciation 887,747 849,225 828,519
Loss on sale of parking garage - 181,213 -
------------ ----------- -----------
6,305,639 6,339,939 5,845,126
------------ ---------- -----------
Net loss $ (1,327,013) $(1,462,517) $(1,439,781)
============ =========== ===========
</TABLE>
The combined financial statements of the Local Limited Partnerships
are prepared on the accrual basis of accounting. Each Local Limited Partnership
was formed during 1986 for the purpose of acquiring and operating a rental
housing project originally organized under Section 236 or Section 221(d)(3) of
The National Housing Act. All four projects receive rental assistance from HUD.
Depreciation of the buildings and improvements is computed using the
straight-line method, assuming a 50-year life from the date of initial
occupancy and depreciation of equipment is calculated using accelerated methods
over estimated useful lives ranging from 5 to 27 years.
The mortgage notes payable are insured by the Federal Housing
Administration (FHA) and secured by first deeds of trust on the rental
properties. The notes bear interest at rates ranging from 6% to 8.5% per annum.
For the three rental housing projects insured under Section 236, FHA makes
subsidy payments directly to the mortgage lenders reducing the monthly
principal and interest payments of the project owner to an effective interest
rate of 1% over the 40-year term of the notes. The liability of the Local
Limited Partnerships under the mortgage notes is limited to the underlying
value of the real estate collateral plus other amounts deposited with the
lenders.
Deferred acquisition notes of $7,174,900 bear interest at the rate of
9% per annum, compounded semi-annually. These notes are nonrecourse and are
secured by security interests in all partnership interests of the Local Limited
Partnerships. Neither principal nor interest is payable currently; all
principal and accrued interest are payable upon the earlier of the sale,
transfer, or refinancing of the projects or 2001. The notes may be prepaid in
whole or in part at any time without penalty.
For operating real estate property, generally accepted accounting
principles (GAAP) require that the Local Limited Partnerships evaluate whether
it is probable that the estimated undiscounted future cash flows of any of its
properties, plus the cash projected to be received upon an assumed sale of the
property (Net Realizable Value) is less
18
<PAGE> 20
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
than the net carrying value of the property. If such a shortfall exists, is
material, and is deemed to be other than temporary in nature, then a write-down
equal to the shortfall would be warranted. The Local Limited Partnerships
perform such evaluations on an ongoing basis. No adjustment was required to any
of the Local Limited Partnerships' properties as a result of this evaluation.
Additionally, regardless of whether a write-down of an individual
property has been recorded or not, the carrying value of each of these
properties may still exceed their fair market value as of December 31, 1995.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ending
December 31, 1996 will require an impairment loss to be recognized if the sum
of estimated future cash flows (undiscounted and without interest charges) is
less than the carrying amount of rental property. The impairment loss would be
the amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell. The Local Limited Partnerships have not estimated the
effect of implementing the Statement. Adoption of the Statement for the year
ending December 31, 1996 will not have a significant impact on the results of
operations and financial position of the Partnership because its investment in
each Local Limited Partnership has been reduced to zero.
One of the Local Limited Partnerships, Royal Towers has a significant
amount of payables and only limited resources to pay such items which raises
substantial doubt about its ability to continue as a going concern. NHP's
intentions are to continue managing the property prudently so that it can
maintain positive cash flow.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES FROM RENTAL OPERATIONS
Accounts payable and accrued expenses from rental operations consist
of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Trade payables $136,595 $ 98,321
Accrued interest on mortgage notes 105,349 99,333
Accrued real estate taxes 622,953 593,124
Tenant security deposits 72,724 65,836
Due to management agent (Note 7) 13,214 12,361
Rent received in advance - 4,386
-------- --------
$950,835 $873,361
======== ========
</TABLE>
6. MORTGAGE NOTE PAYABLE
The Partnership, on behalf of Trinity Apartments, had a non-recourse
mortgage note payable (the Note) in the amount of $13,700,000, payable to
General Electric Capital Corporation (GECC). The Note had a term of five years
19
<PAGE> 21
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
which matured on June 30, 1995, at which date the entire principal and accrued
interest was due and payable. The mortgage had been in default since that date.
Under the terms of the defaulted loan, interest on the Note accrued at
a rate of 11% in the first year and thereafter at a variable rate (the Contract
Index Rate) equal to 3.10% above the "GECC Composite Commercial Paper Rate"
- -essentially GECC's short term commercial paper rate. At December 31, 1995, the
Contract Index Rate was 8.93%.
Trinity was entitled to defer interest above the Applicable Base
Percentage Rate (as defined below), provided that such deferred interest not
exceed the lesser of 10% of the outstanding principal amount of the Note
(excluding capitalized deferred interest) or $1,370,000. The Applicable Base
Percentage Rate was set at 8.5% for the first year, 9.0% in the second and
third years, and 9.5% in the fourth and fifth years. Deferred interest was
payable in any month in which the Applicable Base Percentage Rate exceeded the
Contract Index Rate and, on each February 15, to the extent of Trinity's net
cash flow for the previous calendar year. Any unpaid deferred interest
remaining at the end of any year was to be added to the then outstanding
principal amount of the Note. Through the June 30, 1995 maturity date, no
deferred interest was added to the outstanding principal balance.
GECC was also entitled to 50% of annual net cash flow and net sale or
refinancing proceeds or, to the extent Trinity was not sold or refinanced by
the maturity date, 50% of Trinity's appraised net fair market value. In
addition, if Trinity was refinanced, GECC was entitled to 50% of the fair
market value above the amount of refinanced debt and could elect to have such
amount calculated and paid either at the time of refinancing or upon what would
have been the maturity date of the Note (June 30, 1995) had Trinity not
refinanced.
During 1995, subsequent to June 30, the Partnership continued to make
monthly payments for interest and real estate tax escrows while negotiating for
an extension or refinancing of the loan. The balance of the loan at December
31, 1995 was $13,700,000. A Modification Agreement was signed on March 15,
1996.
The Modification Agreement, effective March 15, 1996, is for a
mortgage principal balance of $13,140,000. The reduction of principal of
$560,000 plus closing costs of $107,201 were loaned to the Partnership by an
affiliate of NHP. Interest only, at the Contract Index Rate, on the mortgage is
payable monthly beginning April 1, 1996 through March 1, 1999. In addition,
beginning April 1, 1996 and continuing each July, October, December and April,
installments of principal in an amount equal to 100% of the net cash flow (as
defined) is due and payable. On March 15, 1999, the entire unpaid principal and
interest is due and payable. The Contract Index Rate is equal to 3.25% per
annum in excess of the GECC Composite Commercial Paper Rate.
Under the agreement with GECC, Trinity is required to make monthly
escrow deposits for taxes.
As additional security for all obligations arising under the Note,
NHP, on behalf of the Partnership, secured two letters of credit with Riggs
National Bank under which GECC may draw down a maximum of $500,000. The first
letter of credit in the amount of $300,000 was released during 1992. The second
letter of credit for $200,000 expired in 1993 and was replaced by cash escrowed
by NHP on behalf of Trinity.
20
<PAGE> 22
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
7. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
The General Partner of the Partnership is The National Housing
Partnership (NHP). National Corporation for Housing Partnerships (NCHP) is the
sole general partner of NHP, while NHP Partners Two Limited Partnership is the
sole limited partner. The Original Limited Partner of the Partnership is 1133
Fifteenth Street Four Associates, whose limited partners are individuals who
were key employees of NCHP at the time the Partnership was formed and whose
general partner is NHP.
The Partnership accrued administrative and reporting fees payable to
the General Partner of $115,604 in 1995 and 1994 and $115,605 during 1993. The
balance owed to NHP at December 31, 1995 and 1994 was $991,158 and $875,554,
respectively. No payments were made during 1995, 1994 or 1993.
During 1995 and 1994, NHP made working capital advances of $38,907 and
$541, respectively, to the Partnership. No repayments of working capital
advances were made in 1995 or 1994. The balance owed to NHP at December 31,
1995 and 1994 was $1,248,401 and $1,209,494, respectively. Interest is charged
at the Chase Manhattan Bank rate of prime plus 2%. During 1994, interest of
$38,436 was paid to NHP. Additionally, Annual Partnership Administrative Fees
of $7,500 were accrued by Trinity Apartments during 1995, 1994 and 1993,
respectively. These fees are payable to NHP without interest from cash
available for distribution to partners. During 1994, $65,625 was paid to NHP
for these fees. As of December 31, 1995, $7,500 was owed to NHP for these fees.
No balance was owed to NHP at December 31, 1994.
An affiliate of the general partner, NHP Management Company (NHPMC),
is the project management agent for Trinity Apartments and each of the
properties operated by the Local Limited Partnerships in which the Partnership
has invested. NHPMC and other affiliates of NCHP earned $707,401, $629,187 and
$698,899 in 1995, 1994 and 1993, respectively, for management fees and other
services provided to Trinity Apartments and the Local Limited Partnerships. At
December 31, 1995, trade payables included $26,950 due to NHPMC.
Personnel working at Trinity Apartments and the other property sites
were NCHP employees and, therefore, Trinity and the properties reimbursed NCHP
for the actual salaries and related benefits. Beginning January 1, 1996,
project employees became employees of NHP Incorporated. Total reimbursement for
salaries and benefits earned for the years ended December 31, 1995, 1994 and
1993 were approximately $872,300, $872,900 and $872,100, respectively.
8. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in
their individual capacities upon their distributive share of the Partnership's
taxable income and are allowed the benefits to be derived from off-setting
their distributive share of the tax losses against taxable income from other
sources subject to application of passive loss rules. The taxable income or
loss differs from amounts included in the statement of operations because of
different methods used in computing depreciation and determining the losses of
the Local Limited Partnerships. The tax loss is allocated to the partner groups
in accordance with Section 704(b) of the Internal Revenue Code and therefore is
not necessarily proportionate to the interest percentage owned.
For Federal income tax purposes, both the Partnership and the four
Local Limited Partnerships compute depreciation of the buildings and
improvements using the Accelerated Cost Recovery System (ACRS) and the
21
<PAGE> 23
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Modified Accelerated Cost Recovery System (MACRS), while for financial
statement purposes, depreciation is computed using the straight-line method,
assuming a 50-year life from the date of initial occupancy. Rent received in
advance is included as income in determining the taxable income or loss for
Federal income tax purposes, while for financial statement purposes, it is
shown as a liability. Other differences result from the allocation of tax
losses in accordance with Section 704(b) of the Internal Revenue Code.
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net loss per financial statements $ (889,927) $ (435,225) $(4,852,801)
Timing difference - depreciation (402,215) (464,383) (447,150)
Loss on reduction of carrying value
of rental property - - 4,091,000
Timing differences in determining
losses of Local Limited Partnerships:
Depreciation (353,959) (377,724) (587,905)
Interest on partner loans 2,580 152,157 171,357
Losses taken in excess of financial
statement investment account (1,255,387) (1,514,374) (1,192,412)
Other 104,556 (84,775) 47,678
----------- ----------- -----------
Loss per tax return $(2,794,352) $(2,724,324) $(2,770,233)
=========== =========== ===========
</TABLE>
As discussed in Note 4, one of the Local Limited Partnerships in which
the Partnership has invested may not be able to continue as a going concern.
Should a Local Limited Partnership not continue as a going concern or the
Partnership itself not continue as a going concern (see Note 9), there could be
adverse tax consequences to the partners in the Partnership. The impact of the
tax consequences is dependent upon each partner's individual tax situation.
9. GOING CONCERN CONSIDERATIONS
In prior years, Trinity Apartments, a rental property wholly-owned by
the Partnership, has generated substantial losses from operations which have
resulted in the accumulation of significant accounts payable and accrued
expenses at December 31, 1995 and has also necessitated significant funding
from the General Partner in prior years. The General Partner's intentions are
to continue to manage Trinity prudently so that the property can maintain
positive cash flows and pay its general obligations.
10. LOSS ON REDUCTION OF CARRYING VALUE OF RENTAL PROPERTY
Generally accepted accounting principles (GAAP) require that the
Partnership evaluate whether it is probable that the estimated undiscounted
future cash flows of Trinity Apartments is less than the net book value of the
Trinity
22
<PAGE> 24
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Apartments rental property. If such a shortfall exists, is material, and is
deemed to be other than temporary in nature, then a write-down equal to the
shortfall would be warranted. The Partnership performs such an evaluation on an
ongoing basis by comparing the net book value to the total estimated
undiscounted future cash flow plus cash projected to be received upon an
assumed sale (Net Realizable Value). In doing such an analysis at December 31,
1992, no write-down of Trinity's rental property was necessary. However,
during 1993, due to revised estimates of future market conditions and
operations, both of which are projected to have a negative impact on the
Partnership's ability to refinance the mortgage note, coupled with the fact
that one year's less undiscounted cash flow is available at December 31, 1993,
the Partnership recorded a write-down of $4,091,000 to reduce the carrying
value to estimated net realizable value, which may not necessarily reflect
current market value. This non-cash expense is shown on the accompanying
statement of operations as a loss on reduction of carrying value of rental
property. The analysis done at December 31, 1995 and 1994 indicated that no
additional write-down was necessary for 1995 and 1994. However, the carrying
value of the property may still exceed its fair market value as of December 31,
1995 and 1994. The Partnership will continue to evaluate the carrying value of
the rental property on an ongoing basis.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of'
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ending
December 31, 1996 will require an impairment loss to be recognized if the sum
of estimated future cash flows (undiscounted and without interest charges) is
less than the carrying amount of rental property. The impairment loss would be
the amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell. The Partnership has not estimated the effect of
implementing the Statement. Adoption of the Statement for the year ending
December 31, 1996 could require that an impairment loss be recognized which
could have a significant impact (noncash) on results of operations and
financial position.
11. ALLOCATION OF RESULTS OF OPERATIONS, CASH DISTRIBUTIONS AND GAINS AND
LOSSES FROM SALE OR REFINANCING
Cash received from sales or refinancing of any underlying property of
the Local Limited Partnerships, after payment of the applicable mortgage debt
and the payment of all expenses related to the transaction, is to be
distributed in the following manner:
First, to the General Partner for any unrepaid loans to the
Partnership or a Local Limited Partnership (other than operating
guarantee loans) and any unpaid fees (other than disposition and
refinancing fees);
Second, to the General Partner to repay any unrepaid operating
guarantee loans made to the Property sold or refinanced;
Third, to the Limited Partners until the Limited Partners have
received a return of their capital contribution to the Partnership
allocable to the Property sold or refinanced after deduction for prior
cash distributions from sales or refinancing, but without deduction
for prior cash distribution from operations;
Fourth, to the General Partner to repay any unrepaid operating
guarantee loans made to Properties other than the Property sold or
refinanced;
23
<PAGE> 25
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fifth, to the Limited Partners until the Limited Partners have
received a return of the unrecovered amount of their capital
contributions, after deduction for prior cash distributions from sales
or refinancings, but without deduction for prior cash distributions
from operations;
Sixth, to the Limited Partners, until each Limited Partner has
received an amount equal to a cumulative noncompounded 9% annual
return on its capital contribution, after deduction of (a) an amount
equal to 35% of the tax losses allocated to the Limited Partner and
(b) prior cash distributions from operations;
Seventh, to the General Partner until the General Partner has received
a return of its capital contributions, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations;
Eighth, to the General Partner for disposition and refinancing fees,
including prior disposition and refinancing fees which have been
accrued but are unpaid;
Ninth, to the partners with positive capital accounts to bring such
accounts to zero; and
Finally, 85% of the remaining sales proceeds to the Limited Partners
and 15% to the General Partner.
Net income or loss from operations is allocated 98% to the Limited
Partners, 1% to the General Partner and 1% to the Original Limited Partner.
Cash distributions from operations, after payment of certain obligations
including reimbursement on a cumulative basis of direct expenses incurred by
the General Partner or its affiliate in managing the properties and payment of
annual cumulative administrative and reporting fees, is distributed 98% to the
Limited Partners, 1% to the General Partner and 1% to the Original Limited
Partner.
Gain for federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated in the following manner:
First, to the Limited Partners in an amount up to the negative
balances of the capital accounts of Limited Partners in the same
proportion as each Limited Partner's negative capital account bears to
such aggregate negative capital accounts;
Second, to the General Partner in an amount up to the General
Partner's negative capital account, if any;
Third, to the Limited Partners up to the aggregate amount of capital
contributions of the Limited Partners, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations, in the same proportion that
such Limited Partner's capital contribution bears to the aggregate of
all Limited Partners' capital contributions;
Fourth, to the Limited Partners, until each Limited Partner has been
allocated in such an amount equal to a cumulative noncompounded 9%
annual return on their capital contribution, after deduction of (a) an
amount equal to 35% of the tax losses allocated to the Limited Partner
and (b) prior cash distributions from operations;
24
<PAGE> 26
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Fifth, to the General Partner up to the aggregate amount of capital
contributions made by the General Partner, after deduction for prior
cash distributions from sales or refinancing, but without deduction
for prior cash distributions from operations and
Finally, 85% of the remaining gain to the Limited Partners and 15% to
the General Partner.
Losses for federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated 85% to the Limited
Partners and 15% to the General Partner.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about significant
financial instruments, when it is practicable to estimate that value and
excessive costs would not be incurred. To estimate the fair value of the
balances due to the General Partner and accrued interest thereon, excessive
costs would be incurred and, therefore, no estimate has been made. The
Partnership believes that the carrying value of other assets and liabilities
reported on the statement of financial position that require such disclosure
approximates fair value.
13. NONCASH INVESTING ACTIVITY
During 1995 and 1994, the Partnership incurred costs of $9,297 and
$6,085, respectively, for additions to building and equipment which are
included in accounts payable as of December 31, 1995 and 1994, respectively.
25
<PAGE> 27
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OFLOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND IV HAS INVESTED
DECEMBER 31, 1995
<TABLE>
<CAPTION> Initial Cost Capitalized
Cost to Local Subsequent Gross Amount at which Carried
Limited Partnership to Acquisition at Close of Period
-------------------- -------------------------- ----------------------------------
Buildings Carrying Buildings
and Cost and Total
Partnership Name Encumbrances Land Improvements Improvements Adjustments Land Improvements (2)(3)
---------------- ------------ ----------- ------------ ------------ ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Park (1) $ 110,000 $ 7,634,451 $1,760,540 $ - $ 110,000 $ 9,394,991 $ 9,504,991
Limited Partnership
Kennedy Homes (1) 150,000 3,130,682 1,010,214 - 150,000 4,140,896 4,290,896
Limited Partnership
Loring Towers (1) 290,000 5,875,841 503,717 - 290,000 6,379,558 6,669,558
Limited Partnership
Royal Towers (1) 360,000 5,453,177 817,983 (153,753) 206,247 6,271,160 6,477,407
Limited Partnership
Trinity Apartments (1) 3,650,000 18,809,468 (650,615) (4,091,000) 3,650,000 14,067,853 17,717,853
(wholly-owned) ---------- ----------- ------------ ----------- ---------- ----------- -----------
Total, December 31, 1995 $4,560,000 $40,903,619 $3,441,839 $(4,244,753) $4,406,247 $40,254,458 $44,660,705
========== =========== ========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Life upon which
depreciation in
Accumulated latest statement of
Depreciation Date of Date operations is
Partnership Name (3) Construction Acquired computed (years)
- ----------------- ------------ ------------ -------- ------------------
<S> <C> <C> <C> <C>
Capital Park $ 2,286,304 1969 3/86 5-50
Limited Partnership
Kennedy Homes 1,183,739 1968 3/86 5-50
Limited Partnership
Loring Towers 1,613,777 1970 3/86 5-50
Limited Partnership
Royal Towers 1,600,068 1973 4/86 5-50
Limited Partnership
Trinity Apartments 3,929,088 1985 4/86 5-50
(wholly-owned) ----------
Total, December 31, $10,612,976
===========
</TABLE>
See notes to Schedule XI.
26
<PAGE> 28
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF PARTNERSHIP AND LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND IV HAS INVESTED
DECEMBER 31, 1995
(1) Schedule of Encumbrances
<TABLE>
<CAPTION>
Deferred
Acquisition
Notes and
Mortgage Accrued
Partnership Name Notes Interest Total
---------------- --------------- ------------------ --------------
<S> <C> <C> <C>
Capital Park
Limited Partnership $ 4,076,719 $ 4,516,478 $ 8,593,197
Kennedy Homes
Limited Partnership 1,106,552 3,332,453 4,439,005
Loring Towers Apartments
Limited Partnership 2,692,035 4,754,054 7,446,089
Royal Towers
Limited Partnership 2,638,374 4,419,882 7,058,256
Trinity Apartments
(wholly-owned) 13,700,000 - 13,700,000
---------- ----------- -----------
TOTAL $24,213,680 $17,022,867 $41,236,547
=========== =========== ===========
</TABLE>
(2) The aggregate cost of land for Federal income tax purposes is
$4,560,000 and the aggregate costs of buildings and improvements for
Federal income tax purposes is $41,956,488. The total of the
above-mentioned items is $46,516,488.
See notes to combined financial statements.
27
<PAGE> 29
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF PARTNERSHIP AND LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND IV HAS INVESTED
DECEMBER 31, 1995
(CONTINUED)
(3) Reconciliation of real estate
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $44,152,250 $43,798,940 $47,517,243
Improvements during the period 508,455 507,063 372,697
Loss on reduction of carrying value - - (4,091,000)
Reduction of land and building from sale
of parking garage - (153,753) -
----------- ----------- -----------
Balance at end of period $44,660,705 $44,152,250 $43,798,940
=========== =========== ===========
</TABLE>
Reconciliation of accumulated depreciation
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 9,364,137 $ 8,207,750 $ 6,996,956
Depreciation expense for the period 1,248,839 1,156,387 1,210,794
------------ ------------ ------------
Balance at end of period $ 10,612,976 $ 9,364,137 $ 8,207,750
============ ============ ============
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
28
<PAGE> 30
PART III
Item 10. 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), (e) and (f). The names, ages, business experience and
involvement in legal proceedings of the directors and executive
officers of National Corporation for Housing Partnerships (NCHP), the
sole general partner of The National Housing Partnership, the sole
general partner of the Partnership, and certain of its affiliates, are
as follows:
Directors of NCHP
Seven individuals comprise the Board of Directors of NCHP. Three
directors were appointed by the President of the United States, by and with the
advice and consent of the Senate.
J. Roderick Heller, III (age 58) was elected President, Chief
Operating Officer and a Director of NCHP in 1985, Chief Executive Officer of
NCHP in 1986 and Chairman in 1988. He currently serves as Chairman, President
and Chief Executive Officer of NHP Incorporated and NCHP and their affiliate,
NHP Real Estate Corporation. Mr. Heller also serves as Chairman and Chief
Executive Officer of NHP Management Company, another principal affiliate of
NCHP. He had been President and Chief Executive Officer of Bristol Compressors,
Inc., Bristol, Virginia, a manufacturer of air conditioning compressors, from
1982 until 1985. Prior to that, he was a partner in the Washington, D.C. law
firm of Wilmer, Cutler & Pickering from 1971 until 1982, and while there,
represented NCHP on legal matters from its organization in 1970. He serves on
the boards of directors of Auto-Trol Technology Corporation and a number of
nonprofit organizations, including the National Trust for Historic
Preservation. Mr. Heller was re-elected to the Board of Directors in 1992 and
continues to serve.
Susan R. Baron (age 44) is an attorney specializing in conventional
and government-assisted real estate development and finance in the residential
and commercial markets. From 1978 to 1993 she was with the Washington, D.C. law
firm of Dunnells, Duvall & Porter. Ms. Baron serves on the board of directors
of Seeds of Peace and is a past president of the National Leased Housing
Association. She was appointed to the Board of Directors by the President of
the United States in September 1994 to complete a term expiring in October 1994
and continues to serve until the appointment of a successor.
Danny K. Davis (age 54) has been a Commissioner on the Cook County
Board of Commissioners since November 1990. Prior to his service on the Cook
County Board, he served as an Alderman on the Chicago City Council for 11
years. Mr. Davis is also a member of numerous civic and professional
organizations. He was appointed to the Board of Directors by the President of
the United States in September 1994 for a term to expire on October 27, 1996.
Alan A. Diamonstein (age 64) has been a member of the Virginia House
of Delegates since 1967, currently serving as Chairman of the General Laws
Committee and a member of the standing committees on Appropriations, Education
and Rules. He is chairman of the Virginia Housing Study Commission and is a
member of the Peninsula Board of Advisors for Signet Bank, the
Jamestown-Yorktown Board of Trustees, as well as a number of educational and
civic organizations. Mr. Diamonstein is the senior partner in the law firm of
Diamonstein, Becker and Staley. He was appointed to the Board of Directors by
the President of the United States in October 1994 and continues to serve until
the appointment of a successor.
Michael R. Eisenson (age 40) is the President and Chief Executive
Officer of Harvard Private Capital Group, Inc., the wholly-owned subsidiary of
Harvard Management Company, Inc. which manages the direct investment and
private equity portfolio of the Harvard University endowment fund. Between 1981
and 1986, Mr. Eisenson was a
29
<PAGE> 31
principal with the Boston Consulting Group. Mr. Eisenson serves on the boards
of directors of Harken Energy Corporation, ImmunoGen, Inc. and Somatix Therapy
Corporation, as well as a number of private companies. Under a Shareholders
Agreement between NHP Incorporated, Demeter Holdings Corporation and Capricorn
Investors, L.P. (see Item 1, above), Demeter is entitled to elect two members
of the NCHP Board of Directors. Pursuant to this agreement, Mr. Eisenson was
re-elected to the Board of Directors in 1992 and continues to serve.
Tim R. Palmer (age 38) is a Managing Director of Harvard Private
Capital Group, the wholly-owned subsidiary of Harvard Management Company, Inc.
which manages the direct investment and private equity portfolio of the Harvard
University endowment fund. Prior to joining Harvard Private Capital in 1990,
Mr. Palmer was a manager of business development at The Field Corporation and
an attorney with Sidley & Austin. Mr. Palmer serves on the board of directors
of PriCellular Corporation, as well as on the boards of several private
companies. Under a Shareholders Agreement between NHP Incorporated, Demeter
Holdings Corporation and Capricorn Investors, L.P. (see Item 1, above), Demeter
is entitled to elect two members of the NCHP Board of Directors. Pursuant to
this agreement, Mr. Palmer was re-elected to the Board of Directors in June
1994, for a term to expire in 1997.
Herbert S. Winokur, Jr. (age 52) has been the President of Winokur &
Associates, Inc. and Winokur Holdings, Inc., and the Managing General Partner of
Capricorn Investors, L.P. since 1987. Mr. Winokur is the Chairman of DynCorp
and serves on the boards of directors of Enron Corporation, Marine Drilling
Companies, Inc. and NacRe Corporation. Under a Shareholders Agreement between
NHP Incorporated, Demeter Holdings Corporation and Capricorn Investors, L.P.
(see Item 1, above), Capricorn is entitled to elect one member of the NCHP
Board of Directors. Pursuant to this agreement, Mr. Winokur was re-elected to
the Board of Directors in 1994, for a term to expire in 1997.
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below. Also listed and
described are certain of the executive officers of NHP Incorporated, NCHP's
parent company, and both NHP Real Estate Corporation (Realco) and NHP
Management Company (NHP Management), two principal affiliates of NCHP.
References below to "NHP" are intended to include NCHP and its principal
affiliates, as appropriate.
J. Roderick Heller, III (age 58). See "Directors of NCHP."
Ann Torre Grant (age 38) has served as Executive Vice President, Chief
Financial Officer and Treasurer of NHP since February 1995. She was Vice
President and Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through
January 1995, and held other finance positions at the airline between 1988 and
1991. From 1983 to 1988, she held various finance positions with American
Airlines, Inc. Ms. Grant is a graduate of the University of Notre Dame and has
a Masters of Business from Cornell University. Ms. Grant serves as a director
of the Mutual Series Funds.
Linda J. Brower (age 44) has served as Executive Vice President of NHP
since March 1994 and served as Senior Vice President of NCHP from February 1992
to March 1994. Ms. Brower is responsible for asset management of the
multifamily portfolio. From 1984 to 1991, Ms. Brower was Vice President and
Area Director for the Orange County, California and Washington, D.C. offices of
Citicorp Real Estate and was responsible for analyzing investment proposals,
asset management and restructuring. She is a graduate of UCLA, holds a Masters
degree in finance from the University of Texas and is a licensed real estate
broker.
Linda G. Davenport (age 46) has served as Executive Vice President of
the Company since March 1994. She is primarily responsible for corporate and
portfolio acquisitions. Ms. Davenport served as Executive Vice President and
Chief Operating Officer of NCHP from 1990 to January 1994 and as General
Counsel and Senior Vice President of the Company from 1986 to 1989. Prior to
joining NCHP in 1979 as Assistant General Counsel, Ms. Davenport was employed
in the Office of the General Counsel of the Federal Deposit Insurance
Corporation. She is a graduate of Michigan State University and holds J.D.
degree form California Western School of Law.
30
<PAGE> 32
Robert M. Greenfield (age 48) has served as Executive Vice President
of NHP since March 1994. He joined NCHP in October 1991 as Senior Vice
President. Mr. Greenfield is primarily responsible for corporate and portfolio
acquisitions. From 1978 to 1984, and from 1990 to 1991, Mr. Greenfield was a
consultant in corporate strategy for the Boston Consulting Group, providing
analyses and recommendations to clients in the areas of corporate strategy,
business development and diverstiture. From 1984 to 1991, he was a principal in
Schindler Greenfield, Inc. and OCC, Inc., closely held real estate development
firms. In February of 1992, Mr. Greenfield and his wife filed for protection
under Chapter 7 of the United States Bankruptcy Code as a result of their
inability to meet certain direct and guaranteed obligations on borrowings by or
on behalf of Schindler Greenfield, Inc. and its affiliates. Mr. Greenfield
graduated with honors from the University of Chicago and holds a Masters of
Business Administration with honors from Harvard Business School.
J. Robert Hiner (age 44) has served as Executive Vice President of NHP
Management Co. since October 1993. He previously served as Senior Vice
President of NHP Management Co. from 1991 to 1993. During 1990, Mr. Hiner
served as President of Shadwell-Jefferson Property Management, Inc., a retail
property management company formed to manage 71 shopping centers in the
midwestern and southern United States. From 1986 to 1990, he served as
President of Cardinal Apartment Management Group, Inc., which was responsible
for the management of 55,000 apartment units. Mr. Hiner is a graduate of the
University of Virginia and holds a Masters of Business Administration from
Capital University.
Joel F. Bonder (age 47) has served as Senior Vice President and
General Counsel of the Company since April 1994. Mr. Bonder also served as Vice
President and Deputy General Counsel from June 1991 to March 1994, as Associate
General Counsel from 1986 to 1991, and as Assistant General Counsel of the
Company from 1985 to 1986. From 1983 to 1985, he was with the Washington, D.C.
law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the
Chicago law firm of Ross and Hardies. He is a graduate of the University of
Rochester and received a J.D. degree from the Washington University School of
Law.
Charles S. Wilkins, Jr. (age 45) has served as Senior Vice President
of NCHP since September 1988 and is currently responsible for legislative and
regulatory affairs. He was formerly responsible for asset and property
management of the affordable multifamily portfolio. Prior to joining NCHP, Mr.
Wilkins was Senior Vice President of Westminster Company, a regional real
estate development firm where he was responsible for the property management of
a diverse portfolio of properties. Mr. Wilkins is immediate past-president of
the National Assisted Housing Management Association and is a director of the
National Leased Housing Association, as well as various regulatory committees,
including the Executive Committee of the HUD Occupancy Task Force. He graduated
with honors from the University of North Carolina at Chapel Hill, is a
Certified Property Manager and a licensed real estate broker.
Jeffrey J. Ochs (age 38) has served as Vice President and Chief
Accounting Officer of NHP since September 1995. From 1994 until September
1995, Mr. Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he
held various accounting positions with USAir, Inc. Mr. Ochs is a CPA and has a
Masters of Business Administration from Clarion University of Pennsylvania,
where he also earned a B.S. in Business Administration.
Eugene H. Goodsell (age 42) serves as Vice President and Controller of
NHP Incorporated, NCHP, Realco and NHP Management. He has been with NCHP since
1983. Prior to joining NHP, Mr. Goodsell, a CPA, was an audit manager with the
public accounting firm of Arthur Andersen LLP.
(d) There is no family relationship between any of the foregoing
directors and executive officers.
31
<PAGE> 33
Item 11. Executive Compensation
National Housing Partnership Realty Fund IV has no officers or
directors. However, as outlined in the prospectus, various fees and
reimbursements are paid to the General Partner and its affiliates. Following is
a summary of such fees paid or accrued during the year ended December 31, 1995:
(i) Administrative and reporting fees of $115,604 accrued during the
year but not yet paid to the General Partner for managing the
affairs of the Partnership and for investor services. No payments
were made in 1995.
(ii) Annual partnership administration fee of $30,000 to the General
Partner for its services as General Partner of the four Local
Limited Partnerships. Payments of $15,000 were made in 1995.
Trinity Apartments also accrued $7,500 in such fees during 1995.
(iii) During 1995, the Local Limited Partnerships repaid to NHP $205
of accrued interest on Partner advances.
(iv) An affiliate of the General Partner, NHP Management Company
(NHPMC), is the project management agent for the projects
operated by the Local Limited Partnerships, as well as Trinity
Apartments. During 1995, NHPMC and other affiliates of NCHP
earned $501,645 and $205,756 for management fees and other
services provided to the Local Limited Partnerships and Trinity
Apartments, respectively.
(v) In 1995, personnel working at the project sites which were
managed by NHPMC were NCHP employees, and therefore the project
reimbursed NCHP for the actual salaries and related benefits.
Total reimbursements for salaries and benefits earned for the
year ended December 31, 1995, were approximately $642,000 for
the Local Limited Partnerships and $230,000 for Trinity
Apartments.
Item 12. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Four Associates, a Maryland Limited Partnership,
whose general partner is NHP and whose limited partners were key employees of
NCHP at the time the Partnership was formed, owns a 1% interest in the
Partnership.
Item 13. Certain Relationships and Related Transactions
The Partnership has had no material transactions or business
relationships with NHP or its affiliates except as described in Items 8, 10,
and 11, above.
32
<PAGE> 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
The financial statements, notes, and reports listed below are
included herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 9
Statements of Financial Position,
December 31, 1995 and 1994 10
Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 11
Statements of Partners' Equity
(Deficit) for the Years Ended
December 31, 1995, 1994 and 1993 12
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 13
Notes to Financial Statements 15
Schedule XI - Real Estate and
Accumulated Depreciation of Partnership and
Local Limited Partnerships in which NHP
Realty Fund IV has Invested, December 31, 1995 26
</TABLE>
2. Financial statement schedules
Financial statement schedules for the Registrant:
Schedule XI is included in the financial statements
listed under Item 14(a)(1) above. All other schedules
have been omitted as the required information is
inapplicable or the information is presented in the
financial statements or notes thereto.
Financial statements required by Regulation S-X which
are excluded from the annual report to shareholders
by Rule 14a-3(b): See 3 below.
33
<PAGE> 35
3. Exhibits
The following combined financial statements of the
Local Limited Partnerships in which the Partnership
has invested funds are included as an exhibit to this
report and are incorporated herein by reference:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 37
Combined Statements of Financial
Position, December 31, 1995 and 1994 38
Combined Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 39
Combined Statements of Partners'
(Deficit) for the Years
Ended December 31, 1995, 1994 and 1993 40
Combined Statements of Cash
Flows for the Years Ended
December 31, 1995, 1994 and 1993 41
Notes to Combined Financial Statements 44
</TABLE>
(b) Reports on Form 8-K
None.
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
National Housing Partnership Realty Fund IV
By: The National Housing Partnership, its sole general
partner By: National Corporation for Housing
Partnerships, its sole general partner
March 28, 1996 /s/ J. Roderick Heller, III
- -------------- ----------------------------
Date J. Roderick Heller, III
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 28, 1996 /s/ J. Roderick Heller, III
- -------------- ---------------------------
Date J. Roderick Heller, III
Chairman, President, Chief Executive
Officer and Director
March 28, 1996 /s/ Ann Torre Grant
- -------------- -------------------
Date Ann Torre Grant
Executive Vice President,
Chief Financial Officer
and Treasurer
March 28, 1996 /s/ Jeffrey J. Ochs
- -------------- -------------------
Date Jeffrey J. Ochs
Vice President and
Chief Accounting Officer
35
<PAGE> 37
March 28, 1996 *
- -------------- --------------------------------
Date Susan R. Baron, Director
March 28, 1996 *
- -------------- --------------------------------
Date Michael R. Eisenson, Director
March 28, 1996 *
- -------------- --------------------------------
Date Danny K. Davis, Director
March 28, 1996 *
- -------------- --------------------------------
Date Tim R. Palmer, Director
March 28, 1996 *
- -------------- --------------------------------
Date Alan A. Diamonstein, Director
March 28, 1996 *
- -------------- ---------------------------------
Date Herbert S. Winokur, Jr., Director
This registrant is a limited partnership whose sole general partner,
The National Housing Partnership, is also a limited partnership. The sole
general partner of The National Housing Partnership is National Corporation for
Housing Partnerships. The persons indicated are Directors of National
Corporation for Housing Partnerships. Powers of Attorney are on file in
Registration Statement No. 33-1141 and as Exhibit 25 to the Partnership's Form
10-K for the fiscal years ended December 31, 1987, December 31, 1988, December
31, 1990 and December 31, 1991. Other than the Form 10-K report, no annual
report or proxy materials have been sent to security holders.
*By J. Roderick Heller, III pursuant to Power of Attorney.
/s/ J. Roderick Heller, III
36
<PAGE> 38
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund IV
Washington, D.C.
We have audited the accompanying combined statements of financial position of
the Local Limited Partnerships in which National Housing Partnership Realty
Fund IV (the Partnership) holds a limited partnership interest as of December
31, 1995 and 1994, and the related combined statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1995. 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 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, such financial statements present fairly, in all material
respects, the combined financial position of the Local Limited Partnerships in
which National Housing Partnership Realty Fund IV holds a limited partnership
interest as of December 31, 1995 and 1994 and the combined results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 19, 1996
Washington, D.C.
37
<PAGE> 39
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 383,269 $ 271,527
Accounts receivable, net (Note 3) 147,081 115,409
Tenants' security deposits held in trust funds 90,459 92,426
Prepaid taxes and insurance 20,331 31,660
Reserve for painting and decorating 78,555 59,101
Deferred costs 20,405 -
Mortgage escrow deposits (Note 6) 1,124,171 909,724
Rental property, net (Notes 2 and 5) 20,258,964 20,757,904
---------- -----------
$22,123,235 $22,237,751
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Trade payables $ 392,567 $ 277,080
Accrued real estate taxes 247,775 265,202
Due to management agent - NHPMC (Note 10) 169,072 190,283
Accrued interest on mortgage notes 10,281 11,879
Due to partners (Note 8) 174,275 159,942
Accrued interest on partner loans 14,039 11,433
------------- -----------
1,008,009 915,819
Tenants' security deposits payable 91,487 91,291
Deferred income 11,043 -
Deferred acquisition notes payable (Note 7) 7,174,900 7,174,900
Accrued interest on deferred acquisition notes (Note 7) 9,847,967 8,397,446
Mortgage notes payable (Note 6) 10,513,680 10,834,632
Partners' deficit (6,523,851) (5,176,337)
----------- -----------
$22,123,235 $22,237,751
=========== ===========
</TABLE>
See notes to combined financial statements.
38
<PAGE> 40
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Rental income (Note 4) $ 4,665,078 $ 4,481,127 $ 4,265,468
Interest income 55,367 30,750 19,330
Other income 258,181 365,545 120,547
------------ ------------ ------------
4,978,626 4,877,422 4,405,345
------------ ------------ ------------
EXPENSES:
Administrative expenses 229,382 318,734 329,594
Utilities and operating expenses 1,786,705 1,786,239 1,425,438
Management and other services
from related party (Note 10) 501,645 430,115 500,273
Salaries and related benefits
to related party (Note 10) 642,425 612,715 622,513
Depreciation (Note 2) 887,747 849,225 828,519
Taxes and insurance 589,032 615,298 666,932
Financial expenses - primarily interest (Note 6) 188,182 210,830 229,931
Interest on acquisition notes (Note 7) 1,450,521 1,304,903 1,202,317
Other entity expense - 667 9,609
Annual partnership administrative fees
to General Partner 30,000 30,000 30,000
Loss on sale of parking garage - 181,213 -
------------ ------------ ------------
6,305,639 6,339,939 5,845,126
------------ ------------ ------------
NET LOSS $(1,327,013) $(1,462,517) $(1,439,781)
============ =========== ===========
</TABLE>
See notes to combined financial statements.
39
<PAGE> 41
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
National
Housing The
Partnership National
Realty Fund Housing
IV Partnership Total
------------ --------- -----------
<S> <C> <C> <C>
Deficit at January 1, 1993 $(2,100,572) $ (82,958) $(2,183,530)
Distributions (44,297) (447) (44,744)
Net loss (1,425,383) (14,398) (1,439,781)
----------- --------- ----------
Deficit at December 31, 1993 (3,570,252) (97,803) (3,668,055)
Distributions (45,307) (458) (45,765)
Net loss (1,447,892) (14,625) (1,462,517)
----------- --------- ----------
Deficit at December 31, 1994 $(5,063,451) $(112,886) $(5,176,337)
Distributions (20,296) (205) (20,501)
Net loss (1,313,743) (13,270) (1,327,013)
----------- --------- ----------
Deficit at December 31, 1995 $(6,397,490) $(126,361) $(6,523,851)
=========== ========= ===========
Percentage interest at
December 31, 1993, 1994 and 1995 (A) (B)
=========== =========
</TABLE>
(A) Holds a 99% limited partnership interest in four Local Limited
Partnerships.
(B) Holds a 1% general partnership interest in four Local Limited
Partnerships.
See notes to combined financial statements.
40
<PAGE> 42
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rental receipts $4,596,918 $ 4,448,945 $4,093,783
Interest receipts 55,768 28,853 19,546
Other receipts 310,478 322,477 113,126
Administrative expenses paid (243,969) (216,562) (177,776)
Administrative salaries paid (319,584) (283,622) (274,977)
Management fees paid to related party (382,452) (326,721) (295,667)
Computer and accounting fees paid (46,327) (46,327) (46,327)
Utilities paid (775,058) (786,751) (696,693)
Operating and maintenance expenses paid (915,996) (1,058,130) (852,445)
Operating and maintenance payroll paid (322,841) (329,093) (333,842)
Real estate taxes paid (321,803) (388,960) (398,641)
Payroll taxes paid (62,884) (56,392) (62,683)
Miscellaneous taxes paid (9,526) (7,934) (13,602)
Property insurance paid (109,621) (79,096) (87,743)
Miscellaneous insurance paid (101,782) (97,494) (85,696)
Interest on mortgage notes paid (133,050) (154,454) (174,274)
Mortgage insurance premium paid (53,176) (54,782) (56,189)
Miscellaneous financial expenses paid (106) (177) (177)
Payment of annual partnership administrative fees
to General Partner in lieu of distributions (15,000) (22,500) -
Payment of interest on partner loans (205) - -
------------- ------------ -----------
Net cash provided by rental operating activities 1,149,784 891,280 669,723
Decrease (increase) in tenants' security deposits
held in trust fund 1,967 (1,133) (3,130)
Increase in tenants' security deposits payable 196 3,388 4,587
---------- ----------- ----------
Net cash provided by operating activities 1,151,947 893,535 671,180
---------- ----------- ----------
</TABLE>
See notes to combined financial statements.
41
<PAGE> 43
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases $(358,346) $(458,522) $(194,391)
Payments to mortgage escrow deposits (896,472) (764,505) (871,055)
Disbursements from mortgage escrow deposits 717,820 801,453 829,139
Interest earned on mortgage escrow deposits (35,795) (21,495) (15,115)
Interest withdrawn from mortgage escrow deposits - - 1,631
Payments to reserve for painting and decorating (18,000) (18,000) (18,000)
Interest earned on reserve for painting and decorating (1,454) (942) (758)
Payment of deferred costs (20,405) - -
(Increase) decrease in due from mortgagee (85,433) (4,413) 4,978
--------- --------- ---------
Net cash used in investing activities (698,085) (466,424) (263,571)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (20,501) (45,765) (44,744)
Payments of principal on mortgage notes (320,952) (336,745) (277,007)
Repayment of loans from partners (667) - (7,500)
--------- --------- ---------
Net cash used in financing activities (342,120) (382,510) (329,251)
--------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 111,742 44,601 78,358
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 271,527 226,926 148,568
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 383,269 $ 271,527 $ 226,926
========= ========= =========
</TABLE>
See notes to combined financial statements.
42
<PAGE> 44
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(1,327,013) $(1,462,517) $(1,439,781)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 887,747 849,226 828,519
Mortgagor entity expenses 1,483,332 1,519,007 1,241,926
Decrease (increase) in receivable from tenants, net 4,642 (2,295) (2,093)
Decrease (increase) in receivable for FHA subsidy 6,143 75,356 (72,225)
Decrease (increase) in insurance proceeds receivable - - 14,240
Decrease (increase) in interest receivable 976 (1,100) 1,000
Decrease in prepaid property insurance 11,329 4,955 31,267
Decrease in prepaid mortgage insurance - 27 109
Increase (decrease) in trade payables 87,859 (19,742) (12,091)
(Decrease) increase in accrued wages and payroll
taxes - (19,378) 38,356
Decrease in accrued interest on mortgage note (1,598) (1,723) (1,602)
Decrease in accrued real estate taxes (17,427) (40,598) (12,700)
(Decrease) increase in management fee payable (21,211) 54,562 54,798
Payment of annual partnership administrative fees
to General Partner in lieu of distributions (15,000) (22,500) -
Payment of interest on partner loans (205) - -
Increase in deferred income 8,210 - -
Decrease (increase) in tenants' security deposits
held in trust funds 1,967 (1,133) (3,130)
Decrease (increase) in other receivable 42,000 (42,000) -
Increase in tenants' security deposits payable 196 3,388 4,587
----------- ----------- -----------
Total adjustments 2,478,960 2,356,052 2,110,961
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,151,947 $ 893,535 $ 671,180
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
43
<PAGE> 45
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION, BASIS OF COMBINATION AND
SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund IV (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on January 8, 1986. The Partnership was formed for the purpose
of raising capital by offering and selling limited partnership interests, and
then using that capital to acquire and operate (either directly or through
investment as a limited partner in Local Limited Partnerships) existing
multi-family rental apartments, some of which are financed and/or operated with
one or more forms of rental or financial assistance from the U.S. Department of
Housing and Urban Development (HUD). On February 21, 1986, inception of
operations, the Partnership began raising capital and acquiring interests in
Local Limited Partnerships.
During 1986, the Partnership acquired 99% Limited Partnership
interests in four limited partnerships (the Local Limited Partnerships) which
were organized in 1986 to acquire and operate existing rental housing projects.
The rental housing projects were originally organized under Sections 236 or
221(d)(3) of the National Housing Act. As a limited partner, the Partnership
does not exercise control over the activities of the Local Limited Partnerships
in accordance with the partnership agreements.
Basis of Combination
The combined financial statements include the accounts of the
following four Local Limited Partnerships in which the Partnership holds a
limited partnership interest:
Capital Park Limited Partnership
Kennedy Homes Limited Partnership
Loring Towers Apartments Limited Partnership
Royal Towers Limited Partnership
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are
prepared on the accrual basis of accounting. Depreciation of the buildings and
improvements is computed using the straight-line method, assuming a 50-year
life from the date of initial occupancy. Cash distributions are limited by the
Regulatory Agreements between the Local Limited Partnerships and HUD to the
extent of surplus cash as defined by HUD. Undistributed amounts are cumulative
and may be distributed in subsequent years if future operations provide surplus
cash in excess of current requirements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with initial maturities
of three months or less to be cash equivalents.
44
<PAGE> 46
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
2. CHANGE IN ESTIMATE
Depreciation of the buildings has been computed using the
straight-line method, assuming a 50-year life from the date of initial
occupancy after construction or substantial rehabilitation of the building.
Depreciation of the buildings in 1992 was computed using the straight-line
method, assuming a 30-year life and a 30% salvage value. This change in the
estimate of the life and salvage value of the buildings increased the combined
net loss of the four local limited partnerships by $133,419 during 1993.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Due from tenants $ 31,406 $ 25,729
FHA 12,506 18,649
Interest 3,524 4,500
Other - 42,000
Due from mortgagee 124,016 38,583
-------- -------
171,452 129,461
Less allowance for doubtful accounts (24,371) (14,052)
-------- -------
Net accounts receivable $147,081 $115,409
======== ========
</TABLE>
4. HOUSING ASSISTANCE AGREEMENTS
The Federal Housing Administration (FHA) has contracted with the four
subsidized rental projects under Section 8 of Title II of the Housing and
Community Development Act of 1974 to make housing assistance payments to the
Local Limited Partnerships on behalf of qualified tenants. The terms of the
agreements are five years with one or two five-year renewal options. The
agreements expire at various dates over the next ten years. Each Local Limited
Partnership has an agreement in effect for 1996. Capital Park and Royal Towers
Section 8 subsidy contracts covering 127 and 88 units, respectively, are
scheduled to expire in June 1996. Additionally, Royal Towers has another
contract for 22 units scheduled to expire in September, 1996. In January 1996,
President Clinton signed into law H.R. 2880. This legislation includes a
provision that requires HUD to provide a one-year renewal for Section 8
contracts scheduled to expire during the first nine months of 1996. All other
Section 8 contracts are scheduled to expire between 1997 and 2008. The Local
Limited Partnerships received a total of $3,407,079, $3,275,260 and $3,048,956
during 1995, 1994 and 1993, respectively, in the form of housing assistance
payments which is included in "Rental Income" in the combined statements of
operations.
45
<PAGE> 47
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
5. RENTAL PROPERTY
Rental property consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 756,247 $ 756,247
Buildings and improvements 23,630,653 23,630,653
Furniture and equipment 2,555,952 2,167,145
----------- -----------
26,942,852 26,554,045
Less accumulated depreciation (6,683,888) (5,796,141)
----------- -----------
Rental property, net $20,258,964 $20,757,904
=========== ===========
</TABLE>
6. MORTGAGE NOTES PAYABLE
The mortgage notes payable are insured by FHA and secured by first
deeds of trust on the rental properties. The notes bear interest at rates
ranging from 6% to 8.5% per annum. FHA, under an interest reduction contract
with the three Section 236 properties, makes subsidy payments directly to the
mortgage lender reducing the monthly principal and interest payments of the
project owner to an effective interest rate of 1% over the 40-year terms of the
notes. The liability of the Local Limited Partnerships under the mortgage notes
is limited to the underlying value of the real estate collateral, plus other
amounts deposited with the lenders.
Under agreements with the mortgage lenders and FHA, the Local Limited
Partnerships are required to make monthly escrow deposits for taxes, insurance
and a reserve for the replacement of project assets, and are subject to
restrictions as to operating policies, rental charges, operating expenditures
and distributions to partners.
Approximate maturities of mortgage notes payable for the next five
years are as follows:
<TABLE>
<S> <C>
1996 $346,000
1997 $372,000
1998 $400,000
1999 $431,000
2000 $464,000
</TABLE>
46
<PAGE> 48
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
7. DEFERRED ACQUISITION NOTES PAYABLE
The deferred acquisition notes bear interest at the rate of 9% per
annum, compounded semi-annually. These notes are nonrecourse and are
collateralized by partnership interests in all Local Limited Partnerships.
Neither principal nor interest are payable currently; all principal and accrued
interest are payable upon the earlier of the sale, transfer, or refinancing of
the project or 2001. The notes may be prepaid in whole or in part at any time
without penalty.
8. DUE TO PARTNERS
Annual partnership administration fees of $30,000 were accrued for
1995, 1994 and 1993. The Local Limited Partnerships paid $15,000, $22,500 and
$7,500 in such fees during 1995, 1994 and 1993, respectively. These fees are
payable to NHP without interest from surplus cash available for distribution to
partners. The accumulated fees owed to NHP were $161,875 and $146,875 at
December 31, 1995 and 1994, respectively.
As of December 31, 1994, the Limited Partner, National Housing
Partnership Realty Fund IV, had advanced $12,000 to a Local Limited Partnership
to help defray operating deficits subsequent to NHP's guarantee period and $400
to two Local Limited Partnerships to fund partnership entity expenses. Interest
is charged at the rate of prime plus 2%. The advance and interest will be paid
in conformity with HUD and/or other regulatory requirements and applicable
partnership agreements.
9. FEDERAL AND STATE INCOME TAXES
The Local Limited Partnerships are not taxed on their income. The
partners are taxed in their individual capacities upon their distributive share
of the Local Limited Partnerships' taxable income and are allowed the benefits
to be derived from offsetting their distributive share of the tax losses
against taxable income from other sources subject to passive loss rule
limitations. The taxable income or loss differs from amounts included in the
statement of operations primarily because of different methods used in
determining depreciation expense for tax purposes. The tax loss is allocated to
partner groups in accordance with Section 704(b) of the Internal Revenue Code
and therefore is not necessarily proportionate to the interest percentage
owned.
For Federal income tax purposes, the Local Limited Partnerships
compute depreciation of the buildings and improvements using the Accelerated
Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System
(MACRS), while for financial statements purposes, depreciation is computed
using the straight-line method, assuming a 50-year life from the date of
initial occupancy. Rent received in advance is included as income in
determining the taxable income or loss for Federal income tax purposes, while
for financial statement purposes it is shown as a liability. Other differences
result from the allocation of tax losses in accordance with Section 704(b) of
the Internal Revenue Code.
47
<PAGE> 49
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net loss per combined financial
statements $(1,327,013) $(1,462,516) $(1,439,781)
Depreciation (357,534) (381,541) (485,256)
Other (95,355) (96,308) 8,209
----------- ----------- -----------
Loss per tax returns $(1,779,902) $(1,940,365) $(1,916,828)
=========== =========== ===========
</TABLE>
10. RELATED PARTY TRANSACTIONS
The General Partner of the Partnership is The National Housing
Partnership (NHP). National Corporation for Housing Partnerships (NCHP) is the
sole general partner of NHP. NHP is the sole general partner of the Local
Limited Partnerships. An affiliate of the general partner, NHP Management
Company (NHPMC), is the project management agent for the projects operated by
the Local Limited Partnerships. During 1995, 1994 and 1993, NHPMC and other
affiliates of NCHP earned $501,645, $430,115 and $500,273, respectively, for
management fees and other services provided to the Local Limited Partnerships.
As of December 31, 1995 and 1994, amounts due NHPMC and unpaid by the Local
Limited Partnerships amounted to $169,072 and $190,283, respectively.
Personnel working at the project sites which are managed by NHPMC are
NCHP employees, and therefore the projects reimburse NCHP for the actual
salaries and related benefits. At December 31, 1994, trade payables include
$31,080 due to NCHP. Total reimbursements earned for salaries and benefits for
the years ended December 31, 1995, 1994 and 1993 were approximately $642,000,
$613,000 and $623,000, respectively.
11. NON-CASH INVESTING ACTIVITIES
At December 31, 1995, three of the Local Limited Partnerships had
purchased $47,017 in additions to rental property and at December 31, 1994,
three Local Limited Partnership had purchased $16,556 of additions to rental
property which are included in trade payables.
12. FUTURE OPERATIONS AND CASH FLOWS
One Local Limited Partnership, Royal Towers, has a significant amount
of payables and only limited resources with which to pay such items. These
issues raise substantial doubt about the Royal Towers Limited Partnership's
ability to continue as a going concern. Royal Towers continued existence as a
going concern is dependent upon maintaining positive cash flows from operations
or obtaining additional fundings from partners if positive cash flows are not
maintained. NHP's intentions are to continue managing the property prudently so
that it can maintain positive cash flows and decrease its debts.
48
<PAGE> 50
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
The total assets, deficit, revenues and net loss of Royal Towers
represent 23%, 35%, 24% and 20% of the applicable amounts included in the
accompanying combined financial statements as of December 31, 1995 and for the
year then ended.
13. DRUG ELIMINATION GRANT PROGRAM
Two Local Limited Partnerships have entered into a grant agreement
with HUD under the Drug Elimination Grant Program (the "Program") to assist in
the elimination of illegal drugs and the associated crime at the properties.
The grant agreements are dated August 1993 and July 1994, and the amounts
awarded are $175,000 and $164,387, respectively. During 1995, one of the Local
Limited Partnerships received $156,034 for costs incurred under the program, of
which $35,167 is included in miscellaneous operating expenses and $120,867 has
been capitalized in rental property. During 1994, one of the Local Limited
Partnerships received $174,993 for costs incurred under the program, of which
$385 is included in miscellaneous operating expenses and $174,608 has been
capitalized in rental property.
14. SALE OF PARKING GARAGE
During 1994, one of the Local Limited Partnerships sold the project's
parking garage for $6,000 resulting in a net loss on sale of $181,213.
HUD approved this partial release of collateral based on the estimated
high costs to repair or demolish the structure. The parking garage had been
closed for public safety since 1992. As a condition of sale, certain easements
have been granted to the Partnership to use or access equipment, storage areas
and entrances in the same manner as before the sale.
15. LOSS ON REDUCTION OF CARRYING VALUE OF RENTAL PROPERTY
For operating real estate property, generally accepted accounting
principles (GAAP) require that the Local Limited Partnership evaluate whether
it is probable that the estimated undiscounted future cash flows of each of its
properties, plus the cash projected to be received upon an assumed sale of the
property (Net Realizable Value) is less than the net carrying value of the
property. If such a shortfall exists, is material, and is deemed to be other
than temporary in nature, then a write-down of the shortfall would be
warranted. The Local Limited Partnership performs such evaluations on an
ongoing basis. No adjustment was required to any of the Local Limited
Partnerships' properties as a result of this evaluation.
Additionally, regardless of whether a write-down of an individual
property has been recorded or not, the carrying value of each of these
properties may still exceed their fair market value as of December 31, 1995.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ending
December 31, 1996 will require an impairment loss to be recognized if the sum
of estimated future cash flows (undiscounted and without interest charges) is
less than the carrying amount of rental property. The impairment loss would be
the amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell. The Local Limited
49
<PAGE> 51
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(CONTINUED)
Partnerships have not estimated the effect of implementing the Statement.
Adoption of the Statement for the year ending December 31, 1996 could require
that an impairment loss be recognized which could have a significant impact
(noncash) on the results of operations and financial position of the Local
Limited Partnerships.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, when it is practicable to estimate that value. The mortgage notes
payable are insured by the FHA and are secured by the rental property. The
operations generated by the rental property are subject to various government
rules, regulations and restrictions which make it impracticable to obtain the
information to estimate the fair value of the mortgage note and the partner
loans and related accrued interest. For the deferred acquisition notes and
related accrued interest, a reasonable estimate of fair value could not be made
without incurring excessive costs. The carrying amount of other assets and
liabilities reported on the statement of financial position that require such
disclosure approximates fair value.
50
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 624,387
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 707,791
<PP&E> 17,717,853
<DEPRECIATION> 3,929,088
<TOTAL-ASSETS> 14,496,556
<CURRENT-LIABILITIES> 4,423,178
<BONDS> 13,700,000
0
0
<COMMON> 0
<OTHER-SE> (3,626,622)
<TOTAL-LIABILITY-AND-EQUITY> 14,496,556
<SALES> 0
<TOTAL-REVENUES> 3,245,941
<CGS> 0
<TOTAL-COSTS> 2,420,878
<OTHER-EXPENSES> 172,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,542,015
<INCOME-PRETAX> (889,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> (889,927)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (889,927)
<EPS-PRIMARY> (57)
<EPS-DILUTED> (57)
</TABLE>
