10KSB 1 qh4q407.txt QH4Q407 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2008 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------------------------- Commission file number 0-19765 Boston Financial Qualified Housing Tax Credits L.P. IV --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-3044617 ------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 Arch Street, Boston, Massachusetts 02110-1106 ----------------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 439-3911 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST (Title of Class) Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ____ 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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Subsection 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. X . Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X . State issuer's revenues for its most recent fiscal year: $663,481. State the aggregate sales price of partnership units held by nonaffiliates of the registrant: $67,653,000 as of March 31, 2008. Part of Report on Form 10-KSB into Documents incorporated by reference Which the Document is Incorporated Post-effective Amendments No. 1 through 3 to the Registration Statement, File # 33-26394 Part I, Item 1 Acquisition Reports Part I, Item 1 Prospectus - Sections Entitled: "Investment Objectives and Policies - Principal Investment Policies" Part I, Item 1 "Estimated Use of Proceeds" Part III, Item 12 "Management Compensation and Fees" Part III, Item 12 "Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions" Part III, Item 12 BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV (A Limited Partnership) ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31, 2008 TABLE OF CONTENTS PART I Page No. Item 1 Business K-4 Item 2 Properties K-6 Item 3 Legal Proceedings K-9 Item 4 Submission of Matters to a Vote of Security Holders K-10 PART II Item 5 Market for the Registrant's Units and Related Security Holder Matters K-10 Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations K-10 Item 7 Financial Statements and Supplementary Data K-16 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure K-16 Item 8A Controls and Procedures K-16 Item 8B Other Information K-16 PART III Item 9 Directors and Executive Officers of the Registrant K-17 Item 10 Management Remuneration K-17 Item 11 Security Ownership of Certain Beneficial Owners and Management K-18 Item 12 Certain Relationships and Related Transactions K-18 Item 13 Exhibits, Financial Statement Schedules and Reports on Form 8-K K-20 Item 14. Principal Accountant Fees and Services K-20 SIGNATURES K-21 ---------- CERTIFICATIONS K-22 -------------- PART I Item 1. Business Boston Financial Qualified Housing Tax Credits L.P. IV (the "Partnership") is a limited partnership formed on March 30, 1989 under the Revised Uniform Limited Partnership Act of the Commonwealth of Massachusetts. The Partnership's partnership agreement ("Partnership Agreement") authorized the sale of up to 100,000 units of Limited Partnership Interest ("Units") at $1,000 per Unit, adjusted for certain discounts. The Partnership raised $67,653,000 ("Gross Proceeds"), net of discounts of $390,000, through the sale of 68,043 Units. Such amounts exclude five unregistered Units previously acquired for $5,000 by the Initial Limited Partner, which is also one of the General Partners. The offering of Units terminated on January 31, 1990. No further sale of Units is expected. The Partnership is engaged solely in the business of real estate investment. Therefore, a presentation of information about industry segments is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. The Partnership originally invested as a limited partner in thirty-seven limited partnerships ("Local Limited Partnerships") which own and operate residential apartment complexes ("Properties"), most of which benefit from some form of federal, state or local assistance programs and all of which qualify for the low-income housing tax credits ("Tax Credits") added to the Internal Revenue Code (the "Code") by the Tax Reform Act of 1986. The investment objectives of the Partnership include the following: (i) to provide current tax benefits in the form of Tax Credits which qualified limited partners may use to offset their federal income tax liability; (ii) to preserve and protect the Partnership's capital; (iii) to provide limited cash distributions from Property operations which are not expected to constitute taxable income during the expected duration of the Partnership's operations; and (iv) to provide cash distributions from sale or refinancing transactions. There cannot be any assurance that the Partnership will attain any or all of these investment objectives. A more detailed discussion of these investment objectives, along with the risks in achieving them, is contained in the section of the prospectus entitled "Investment Objectives and Policies - Principal Investment Policies" which is herein incorporated by this reference. Table A on the following page lists the Properties originally acquired by the Local Limited Partnerships in which the Partnership has invested. Item 6 of this Report contains other significant information with respect to such Local Limited Partnerships. As required by applicable rules, the terms of the acquisition of Local Limited Partnership interests have been described in supplements to the Prospectus and collected in three post-effective amendments to the Registration Statement (collectively, the "Acquisition Reports"); such descriptions are incorporated herein by this reference. TABLE A SELECTED LOCAL LIMITED PARTNERSHIP DATA
Date Properties owned by Interest Local Limited Partnerships Location Acquired 46th & Vincennes Chicago, IL 03/29/91 Audobon (1) Boston, MA 12/22/89 Bent Tree (1) Jackson, TX 12/27/89 Bentley Court Columbia, SC 12/26/89 Brookscrossing Atlanta, GA 06/30/89 Brown Kaplan (1) Boston, MA 07/01/90 BK Apartments (1) Jamestown, ND 12/01/90 Carolina Woods (1) Greensboro, NC 01/31/90 Canfield Crossing (1) Milan, MI 08/20/90 Dorsett Apartments (1) Philadelphia, PA 10/20/89 Findlay Market (1) Cincinnati, OH 08/15/90 Grandview (1) Grandview, TX 12/27/89 Green Tree Village (1) Greenville, GA 07/06/90 Gateway Village Garden (1) Azle, TX 06/24/91 Hampton Lane (1) Buena Vista, GA 12/20/89 Hilltop (1) Rhome, TX 12/27/89 Justin Place (1) Justin, TX 12/27/89 Lancaster House North Lancaster, PA 03/13/89 Lakeside Square (1) Chicago, IL 05/17/90 Lincoln Green (1) Old Town, ME 03/21/90 Leawood Manor Leawood, KS 12/29/89 Mayfair Mansions (1) Washington, DC 03/21/90 Nocona Terrace (1) Nocona, TX 12/27/89 Oakview Square (1) Chesterfield, MI 03/22/89 Orchard View (1) Gobles, MI 04/29/90 Orocovix IV (1) Orocovix, PR 12/30/89 Pecan Hill (1) Bryson, TX 12/28/89 Pine Manor (1) Jacksboro, TX 12/27/89 Pinewood Terrace (1) Rusk, TX 12/27/89 Royal Crest (1) Bowie, TX 12/27/89 Seagraves (1) Seagraves, TX 11/28/90 Sencit Towne House Shillington, PA 12/26/89 Town House Apartments Allentown, PA 12/26/89 Valley View (1) Valley View, TX 12/27/89 West Pine (1) Findlay, PA 12/31/90 Willow Ridge (1) Prescott, AZ 08/28/89 Whitehills II (1) Howell, MI 04/21/90
(1) The Partnership no longer has an interest in the Local Limited Partnership which owns this Property. Although the Partnership's investments in Local Limited Partnerships are not subject to seasonal fluctuations, the Partnership's equity in losses of Local Limited Partnerships, to the extent they reflect the operations of individual Properties, may vary from quarter to quarter based upon changes in occupancy and operating expenses as a result of seasonal factors. With the exception of Leawood Manor, each Local Limited Partnership has as its general partners ("Local General Partners") one or more individuals or entities not affiliated with the Partnership or its General Partners. In accordance with the partnership agreements under which such entities are organized ("Local Limited Partnership Agreements"), the Partnership depends on the Local General Partners for the management of each Local Limited Partnership. As of March 31, 2008, the following Local Limited Partnerships have a common Local General Partner or affiliated group of Local General Partners accounting for the specified percentage of the capital contributions to Local Limited Partnerships: Sencit Towne House L.P., Allentown Towne House, L.P. and Prince Street Towers L.P., representing 25.15%, have AIMCO Properties as Local General Partner. The Local General Partners of the remaining Local Limited Partnerships are identified in the Acquisition Reports, which are incorporated herein by reference. The Properties owned by Local Limited Partnerships in which the Partnership has invested are and will continue to be subject to competition from existing and future apartment complexes in the same areas. The continued success of the Partnership will depend on many outside factors, most of which are beyond the control of the Partnership and which cannot be predicted at this time. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Properties are located, the availability and cost of borrowed funds, real estate tax rates, operating expenses, energy costs and government regulations. In addition, other risks inherent in real estate investment may influence the ultimate success of the Partnership, including: (i) possible reduction in rental income due to an inability to maintain high occupancy levels or adequate rental levels; (ii) possible adverse changes in general economic conditions and adverse local conditions, such as competitive overbuilding, a decrease in employment or adverse changes in real estate laws, including building codes; and (iii) the possible future adoption of rent control legislation which would not permit increased costs to be passed on to the tenants in the form of rent increases or which would suppress the ability of the Local Limited Partnerships to generate operating cash flow. Since most of the Properties benefit from some form of government assistance, the Partnership is subject to the risks inherent in that area including decreased subsidies, difficulties in finding suitable tenants and obtaining permission for rent increases. In addition, any Tax Credits allocated to investors with respect to a Property are subject to recapture to the extent that the Property or any portion thereof ceases to qualify for the Tax Credits. Other future changes in federal and state income tax laws affecting real estate ownership or limited partnerships could have a material and adverse affect on the business of the Partnership. The Partnership is managed by Arch Street VIII, Inc., the Managing General Partner of the Partnership. The other General Partner of the Partnership is Arch Street IV Limited Partnership. The Partnership, which does not have any employees, reimburses MMA Financial, Inc. ("MMA"), an affiliate of the General Partners, for certain expenses and overhead costs. A complete discussion of the management of the Partnership is set forth in Item 9 of this Report. Item 2. Properties The Partnership currently owns limited partnership interests in seven Local Limited Partnerships which own and operate Properties, some of which benefit from some form of federal, state or local assistance programs and all of which qualify for the Tax Credits added to the Code by the Tax Reform Act of 1986. The Partnership's ownership interest in each Local Limited Partnership is 99% with the exception of Leawood Manor, which is 89%. Each of the Local Limited Partnerships has received an allocation of Tax Credits from its relevant state tax credit agency. In general, the Tax Credits run for ten years from the date the Property is placed in service. The required holding period (the "Compliance Period") of the Properties is fifteen years. During these fifteen years, the Properties must satisfy rent restrictions, tenant income limitations and other requirements, as promulgated by the Code, in order to maintain eligibility for the Tax Credits at all times during the Compliance Period. Once a Local Limited Partnership has become eligible for the Tax Credits, it may lose such eligibility and suffer an event of recapture if its Property fails to remain in compliance with the requirements. To date, with the exception of Bentley Court, none of the Local Limited Partnerships have suffered an event of recapture of Tax Credits. In addition, some of the Local Limited Partnerships have obtained one or a combination of different types of loans such as: i) below market rate interest loans; ii) loans provided by a redevelopment agency of the town or city in which the Property is located at favorable terms; or iii) loans that have repayment terms that are based on a percentage of cash flow. The schedule on the following pages provides certain key information on the Local Limited Partnership interests acquired by the Partnership.
Capital Contributions Local Limited Partnership Total Paid Mtge. Loans Occupancy at Property Name Number of Committed at Through Payable at Type of March 31, Property Location Apts Units March 31, 2008 March 31, 2008 December 31, 2007 Subsidy * 2008 --------------------------------------------- ----------- ------------- ---------------- ----------------- -------------- Brookscrossing Apartments, L.P. A Limited Partnership Brookscrossing 224 $ 3,363,776 $ 3,363,776 $ 5,410,392 None 90% Atlanta, GA Leawood Associates, L.P. A Limited Partnership Leawood Manor Leawood, KS 254 7,497,810 7,497,810 7,297,960 None 98% Allentown Towne House, L.P. Towne House Apartments Allentown, PA 160 1,589,403 1,589,403 5,452,326 Section 8 99% Prince Street Towers L.P. A Limited Partnership Lancaster House North Lancaster, PA 201 1,996,687 1,996,687 6,035,821 Section 8 99% Sencit Towne House L.P. Sencit Towne House Shillington, PA 200 1,996,687 1,996,687 2,752,835 Section 8 100% Bentley Court II Limited Partnership Bentley Court Columbia, SC 272 5,000,000 5,000,000 6,346,709 None 96%
Capital Contributions Local Limited Partnership Total Paid Mtge. Loans Occupancy at Property Name Number of Committed at Through Payable at Type of March 31, Property Location Apts Units March 31, 2008 March 31, 2008 December 31, 2007 Subsidy * 2008 --------------------------------------------- ------------ ----------- ---------------- ---------------- ---------- 46th and Vincennes Limited Partnership 46th and Vincennes Chicago, IL 28 751,120 751,120 1,298,214 Section 8 93% ------ -------------- ------------- --------------- 1,339 $ 22,195,483 $ 22,195,483 $ 34,594,257 ------ ============== ============= =============
Section 8 This subsidy, which is authorized under Section 8 of Title II of the Housing and Community Development Act of 1974, allows qualified low-income tenants to pay 30% of their monthly income as rent with the balance paid by the federal government. Also includes comparable state subsidies. The Partnership does not guarantee any of the mortgages or other debt of the Local Limited Partnerships. Duration of leases for occupancy in the Properties described above is generally six to twelve months. The Managing General Partner believes the Properties described herein are adequately covered by insurance. Additional information required under this Item, as it pertains to the Partnership, is contained in Items 1, 6 and 7 of this Report. Item 3. Legal Proceedings On November 29, 2007, the Partnership and its General Partners were sued in Superior Court for the County of Los Angeles, California by a Limited Partner named Danford Baker and companies named Everest Housing Investors 2, LP and Everest Management, LLC with which Mr. Baker is affiliated (collectively, "Everest"). In the lawsuit, Everest seeks a declaration and injunction requiring the Partnership and its General Partners to honor votes obtained in Everest's consent solicitation seeking to remove the General Partners and replace them with an Everest affiliate in the event that Everest obtains votes of holders of a majority of outstanding Limited Partner Units of the Partnership in favor of Everest's proposal. The Partnership and its General Partners were never served with this lawsuit. On or about April 17, 2008, Everest filed a voluntary dismissal of the Complaint without prejudice. On January 22, 2008, the Partnership and its General Partners were sued in the District Court of Johnson County, Kansas by a Limited Partner named McDowell Investments, L.P. ("McDowell"). In the lawsuit, McDowell alleges that the Partnership and its General Partners violated the Partnership's Partnership Agreement and/or breached fiduciary duties by, among other things: (i) allegedly selling substantially all of the assets of the Partnership without a vote of the Limited Partners; (ii) allegedly selling Partnership assets to persons formerly affiliated with the Partnership or its General Partners; and (iii) allegedly increasing the cash reserves owned by the Partnership to benefit affiliates of the Partnership or its General Partners. In connection with the lawsuit, McDowell also seeks to enjoin the sale of Leawood Manor Apartments, which is real estate property owned by one of the Local Limited Partnerships of which the Partnership owns the majority of limited partnership interests. The Partnership and its General Partners deny these allegations and intend to vigorously defend against them. The Partnership and its General Partners have filed a motion to dismiss, which is currently pending with the Kansas court. The Local Limited Partnership that owns Leawood Manor Apartments and its general partner also were named in the lawsuit and will similarly defend their position. Those Local Limited Partnership entities filed a motion that asked the court to dismiss the case on various grounds, and also that the court declares that McDowell did not have an ownership interest in Leawood Manor Apartments. While the court declined to dismiss the lawsuit as to the Local Limited Partnership and its general partner, the court stated on the record that McDowell "[does not] have any interest in the property," and further that the court would work to "enable the sale" of Leawood Manor Apartments. On January 29, 2008, the Partnership and its General Partners filed suit against McDowell in the Superior Court for Suffolk County, Massachusetts alleging, among other things, that McDowell has damaged the Partnership by intentionally and unlawfully interfering with efforts of the Local Limited Partnership that owns Leawood Manor Apartments to sell that real estate. McDowell has filed a motion to dismiss, asking the Massachusetts court to dismiss the case because Massachusetts is allegedly not a convenient forum to hear the matter. The Partnership and its General Partners filed an opposition to McDowell's motion to dismiss, and the motion remains pending with the court at this time. On April 22, 2008, the Partnership and its General Partners filed suit against the following defendants: Everest Housing Investors 2, L.P.; Everest Management LLC; Everest Properties, Inc.; Everest Properties, LLC; McDowell Investments, L.P.; MGM Holdings, LLC; Park G.P., Inc., Bond Purchase, L.L.C.; Anise L.L.C.; Paco Development, L.L.C.; Maxus Realty Trust, Inc.; David L. Johnson; W. Robert Kohorst; Danford M. Baker; Monte G. McDowell; Kevan D. Acord (collectively, the "Johnson/Everest Group"), in the Superior Court for Suffolk County, Massachusetts. The Complaint asserts claims against the Johnson/Everest Group for breach of the Partnership Agreement, breach of fiduciary duty, conspiracy and tortuous interference with advantageous business relationships and for their concerted efforts to: (i) improperly gain control of the Partnership and/or certain real estate assets in which the Partnership is invested; (ii) block arms-length transactions with third parties for the sale of real estate assets in which the Partnership is invested; and (iii) gain non-public information for use in trading limited partner units at below-market prices. The Johnson/Everest Group defendants have not yet responded to the Complaint. Item 4. Submission of Matters to a Vote of Security Holders ------------------------------------------------------------ None. PART II Item 5. Market for the Registrant's Units and Related Security Holder Matters There is no public market for the Units, and it is not expected that a public market will develop. If a Limited Partner desires to sell Units, the buyer of those Units will be required to comply with the minimum purchase and retention requirements and investor suitability standards imposed by applicable federal or state securities laws and the minimum purchase and retention requirements imposed by the Partnership. The price to be paid for the Units, as well as the commissions to be received by any participating broker-dealers, will be subject to negotiation by the Limited Partner seeking to sell his Units. Units will not be redeemed or repurchased by the Partnership. The Partnership Agreement does not impose on the Partnership or its General Partners any obligation to obtain periodic appraisals of assets or to provide Limited Partners with any estimates of the current value of Units. As of March 31, 2008, there were 2,968 record holders of Units of the Partnership. Cash distributions, when made, are paid annually. During the year ended March 31, 2008 a cash distribution of $15,548,170 was paid. No cash distributions were paid for the year ended March 31, 2007. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------------------- Certain matters discussed herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The use of words like "anticipate," "estimate," "intend," "project," "plan," "expect," "believe," "could," and similar expressions are intended to identify such forward-looking statements. The Partnership intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements and is including this statement for purposes of complying with these safe harbor provisions. Although the Partnership believes the forward-looking statements are based on reasonable assumptions and current expectations, the Partnership can give no assurance that its expectations will be attained. Actual results and timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, general economic and real estate conditions and interest rates. Executive Level Overview The Partnership was formed on March 30, 1989 under the laws of the Commonwealth of Massachusetts for the primary purpose of investing, as a limited partner, in Local Limited Partnerships which own and operate apartment complexes, most of which benefit from some form of federal, state or local assistance program and each of which qualifies for low-income housing tax credits. The Partnership's objectives are to: (i) provide current tax benefits in the form of Tax Credits which qualified investors may use to offset their federal income tax liability; (ii) preserve and protect the Partnership's capital; (iii) provide limited cash distributions which are not expected to constitute taxable income during Partnership's operations; and (iv) provide cash distributions from sale or refinancing transactions. The General Partners of the Partnership are Arch Street VIII, Inc., which serves as the Managing General Partner, and Arch Street IV L.P., which also serves as the Initial Limited Partner. Both of the General Partners are affiliates of MMA. The fiscal year of the Partnership ends on March 31. As of March 31, 2008, the Partnership's investment portfolio consisted of limited partnership interests in seven Local Limited Partnerships, each of which owns and operates a multi-family apartment complex and each of which has generated Tax Credits. Since inception, the Partnership has generated Tax Credits, net of recapture, of approximately $1,287 per Limited Partner Unit. The aggregate amount of Tax Credits generated by the Partnership was consistent with the objective specified in the Partnership's prospectus. In October 2007, the Partnership distributed $15,392,688, or $226.22 per Unit, to Limited Partners. The Partnership was able to make this distribution primarily as a result of the disposition of twenty-nine of the Partnership's thirty-seven properties or Limited Partnership interests in these properties, most notably the sale of Mayfair Mansions, located in Washington, DC. Properties that receive low income housing Tax Credits must remain in compliance with rent restriction and set-aside requirements for at least 15 calendar years from the date the property is placed in service. Failure to do so would result in recapture of a portion of the property's Tax Credits. The Compliance Periods of the seven remaining Properties in which the Partnership has an interest all expired before December 31, 2007. The Partnership disposed of one Local Limited Partnership interest during the twelve months ended March 31, 2008. The Managing General Partner will continue to closely monitor the operations of the Properties and will formulate disposition strategies with respect to the Partnership's remaining Local Limited Partnership interests. The Partnership shall dissolve and its affairs shall be wound up upon the disposition of the final Local Limited Partnership interest and other assets of the Partnership. Investors will continue to be Limited Partners, receiving K-1s and quarterly and annual reports, until the Partnership is dissolved. Critical Accounting Policies The Partnership's accounting policies include those that relate to its recognition of investments in Local Limited Partnerships using the equity method of accounting. The Partnership's policy is as follows: The Local Limited Partnerships in which the Partnership invests are Variable Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a non-controlling limited partner equity holder. Because the Partnership is not the primary beneficiary of these VIEs, it accounts for its investments in the Local Limited Partnerships using the equity method of accounting. As a result of its involvement with the VIEs, the Partnership's exposure to economic and financial statement losses is limited to its investments in the VIEs ($691,419 at March 31, 2008). The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future. Under the equity method, the investment is carried at cost, adjusted for the Partnership's share of net income or loss and for cash distributions from the Local Limited Partnerships; equity in income or loss of the Local Limited Partnerships is included currently in the Partnership's operations. A liability is recorded for delayed equity capital contributions to Local Limited Partnerships. Under the equity method, a Local Limited Partnership investment will not be carried below zero. To the extent that equity in losses are incurred when the Partnership's carrying value of the respective Local Limited Partnership has been reduced to a zero balance, the losses will be suspended and offset against future income. Income from Local Limited Partnerships, where cumulative equity in losses plus cumulative distributions have exceeded the total investment in Local Limited Partnerships, will not be recorded until all of the related unrecorded losses have been offset. To the extent that a Local Limited Partnership with a carrying value of zero distributes cash to the Partnership, that distribution is recorded as income on the books of the Partnership and is included in "other revenue" in the accompanying financial statements. The Partnership has implemented policies and practices for assessing other-than-temporary declines in values of its investments in Local Limited Partnerships. Periodically, the carrying values of the investments are compared to their respective fair values. If an other-than-temporary decline in carrying value exists, a provision to reduce the asset to fair value, as calculated based primarily on remaining tax benefits, will be recorded in the Partnership's financial statements. The tax benefits for each Local Limited Partnership consists of future tax losses, tax credits and residual receipts at disposition. Included in the residual receipts calculation is current net operating income capitalized at the regional rate specific to each Local Limited Partnership. During the year ended March 31, 2008, the Partnership concluded that three of the Local Limited Partnerships had experienced other-than-temporary decline in their carrying values and impairment losses were recorded: Allentown Towne House L.P., for $4,000; Prince Street Towers L.P., for $374,000; and Sencit Towne House L.P., for $2,028,000. During the year ended March 31, 2007, the Partnership concluded that one of the Local Limited Partnerships had experienced an other-than-temporary decline in its carrying value and impairment losses were recorded for Prince Street Towers L.P., for $250,000. Generally, the carrying values of most Local Limited Partnerships will decline through losses and distributions in amounts sufficient to prevent other-than-temporary impairments. However, the Partnership may record similar impairment losses in the future if the expiration of tax credits outpaces losses and distributions from any of the Local Limited Partnerships. Liquidity and Capital Resources At March 31, 2008, the Partnership had cash and cash equivalents of $2,704,392 as compared to $15,869,238 at March 31, 2007. The decrease is mainly attributable to the payment of a cash distribution, partially offset by proceeds from maturities of investment securities, cash distributions received from Local Limited Partnerships, proceeds from sale of investments in Local Limited Partnerships and operating activities. The Managing General Partner originally designated 4.00% of the Gross Proceeds as Reserves, as defined in the Partnership Agreement. The Reserves were established to be used for working capital of the Partnership and contingencies related to the ownership of Local Limited Partnership interests. The Managing General Partner may increase or decrease such Reserves from time to time, as it deems appropriate. At March 31, 2008, $2,704,392 has been designated as Reserves. To date, professional fees relating to various Property issues totaling approximately $2,014,000 have been paid from Reserves. To date, Reserve funds in the amount of approximately $304,000 also have been used to make additional capital contributions to one Local Limited Partnership. In the event a Local Limited Partnership encounters operating difficulties requiring additional funds, the Partnership's management might deem it in its best interest to voluntarily provide such funds in order to protect its investment. As of March 31, 2008, the Partnership has advanced approximately $1,476,000 to Local Limited Partnerships to fund operating deficits. The Managing General Partner believes that the investment income earned on the Reserves, along with cash distributions received from Local Limited Partnerships, to the extent available, will be sufficient to fund the Partnership's ongoing operations. Reserves may be used to fund Partnership operating deficits, if the Managing General Partner deems funding appropriate. If Reserves are not adequate to cover the Partnership's operations, the Partnership will seek other financing sources including, but not limited to, the deferral of Asset Management Fees paid to an affiliate of the Managing General Partner or working with Local Limited Partnerships to increase cash distributions. To date, the Partnership has used approximately $3,777,000 of operating funds to replenish Reserves. Since the Partnership invests as a limited partner, the Partnership has no contractual duty to provide additional funds to Local Limited Partnerships beyond its specified investment. Thus, as of March 31, 2008, the Partnership had no contractual or other obligation to any Local Limited Partnership which had not been paid or provided for. Cash Distributions A cash distribution of $15,548,170 was made to General and Limited Partners during the year ended March 31, 2008. No cash distributions were made during the year ended March 31, 2007. The Partnership is currently working on disposing of its interest in certain Local Limited Partnerships during the next twelve months. These dispositions may result in cash available for distribution, but due to the uncertainty of the sales, no guarantees can be made as to the extent of their outcome on distributions to Limited Partners. Based on the results of 2007 Property operations, the Local Limited Partnerships are not expected to distribute significant amounts of cash to the Partnership because such amounts will be needed to fund Property operating costs. In addition, many of the Properties benefit from some type of federal or state subsidy and, as a consequence, are subject to restrictions on cash distributions. Results of Operations The Partnership's results of operations for year ended March 31, 2008 resulted in a net loss of $2,939,328 as compared to a net income of $12,558,438 for the same period in 2007. The decrease in net income is primarily attributable to a decrease in gain on sale of investments in Local Limited Partnerships and an increase in impairment on investments in Local Limited Partnerships, partially offset by an increase in investment income and decrease in equity in losses of Local Limited Partnerships. The decrease in gain on sale of investments in Local Limited Partnerships is due to the sale of investments in two Local Limited Partnerships during the year ended March 31, 2007. Impairment on investments increased due to the Partnership recording an impairment allowance for its investments in certain Local Limited Partnerships. The Partnership had an increase in investment income during 2007 related to the reimbursement of 2006 interest that the Partnership had lost while its cash was invested in below-market interest bearing accounts. The decrease in equity in losses of Local Limited Partnerships is primarily due to an increase in unrecognized losses by the Partnership of Local Limited Partnerships with carrying values of zero. Low-Income Housing Tax Credits The Tax Credits per Limited Partner stabilized in 1992. The credits have ended as all of the Properties have reached the end of the ten year credit period. Property Discussions A majority of the Properties in which the Partnership has an interest had stabilized operations and operated above breakeven as of December 31, 2007. Some Properties generate cash flow deficits that the Local General Partners of those Properties fund through project expense loans, subordinated loans or operating escrows. However, a few Properties have had persistent operating difficulties that could either: (i) have an adverse impact on the Partnership's liquidity; (ii) result in their foreclosure; or (iii) result in the Managing General Partner deeming it appropriate for the Partnership to dispose of its interest in the Local Limited Partnership. Also, the Managing General Partner, in the normal course of the Partnership's business, may arrange for the future disposition of its interest in certain Local Limited Partnerships. The following Property discussions focus only on such Properties. As previously reported, the Managing General Partner negotiated an agreement to transfer the Local General Partner interest in West Pine, located in Findlay, Pennsylvania, to an affiliate of the Allegheny County Housing Authority ("ACHA"), contingent upon receiving approval from the U.S. Department of Housing and Urban Development ("HUD"). HUD approval was received, and the Local General Partner interest was transferred on October 17, 2003. In addition, the ACHA had informed the Managing General Partner of its interest in acquiring the Partnership's interest in the Local Limited Partnership, pending their assumption of the Local General Partner interest. Concurrent with the replacement of the Local General Partner, another ACHA affiliate acquired 30% of the Partnership's limited partner interest in the Local Limited Partnership. As part of this transaction, the Partnership acquired a put option for the remaining 70% exercisable for $1 anytime after the expiration of the Compliance Period on December 31, 2006. West Pine generated its final year of Tax Credits in 2001. The Managing General Partner's pursuit of an exit strategy culminated in the transfer of the Partnership's interest in the Local Limited Partnership for $20,000, or $0.29 per Unit, on December 2, 2007. The Managing General Partner, in accordance with and as permitted by the Partnership Agreement, will retain the sales proceeds in Reserves for the time being until it deems a subsequent distribution to be prudent. This transaction resulted in 2007 taxable income of $519,798, or $7.64 per Unit. The Partnership no longer has an interest in this Local Limited Partnership. In accordance with the terms of their respective Local Limited Partnership Agreements, the Managing General Partner, effective November 28, 2007, transferred the Partnership's interest in the following Local Limited Partnerships: Prince Street Towers, L.P., located in Lancaster, Pennsylvania; Sencit Towne House L.P., located in Shillington, Pennsylvania; and Allentown Towne House, L.P., located in Allentown, Pennsylvania. The interests in the aforementioned Local Limited Partnerships were transferred to MMA Lancaster North, L.P., MMA Sencit Townhouse, L.P. and MMA Allentown Towne House, L.P., respectively (together, the "Transferee Partnerships"). The Partnership is the sole limited partner of each of the Transferee Partnerships. An affiliate of the Partnership is the general partner of each of the Transferee Partnerships and has obtained a 1% interest in each of the Transferee Partnerships in exchange for a promissory note in favor of the Partnership. In processing these transactions, the Managing General Partner acted out of necessity, due to the impending expiration of the Partnership's ability to transfer its interest in the above-mentioned Local Limited Partnerships without the Local General Partner's consent. As previously disclosed, these Local Limited Partnership interests were originally expected to be sold as part of a settlement agreement between the Partnership, Boston Financial Qualified Housing Tax Credits L.P. III, , Boston Financial Qualified Housing Tax Credits L.P. V, Boston Financial Tax Credit Fund VII, A Limited Partnership, and certain of their affiliates on the one hand, and on the other hand, Everest Housing Investors 2, LP, certain of its affiliates, Park GP, Inc., Bond Purchase, L.L.C, Anise, L.L.C., and Paco Development, L.L.C. (together, the "Everest and Park Parties"). When the Everest and Park Parties failed to exercise their option to purchase these Local Limited Partnership interests, the above-described transfers were carried out. The Managing General Partner may now have flexibility in being able to dispose of the Partnership's interest in the Local Limited Partnerships without the Local General Partners' consent, expediting the Managing General Partner's ability to liquidate the assets of, and dissolve, the Partnership. It is possible that such Local General Partner may contest this right to free transferability. As previously reported, the Partnership's interest in the Local Limited Partnership that owns Mayfair Mansions, located in Washington, DC, was terminated upon the July 2006 sale of the Property to an unaffiliated entity. The Partnership received net sales proceeds in 2006 of $12,794,835, or $188.04 per Unit, resulting in taxable income of $17,236,598, or $253.32 per Unit. The Managing General Partner believed that the Partnership had a claim of up to an additional $1,500,000 of sale proceeds under the terms of the partnership agreement and investment documents for this Local Limited Partnership. The Local General Partners disputed that at least a portion of this amount is due. On behalf of the Partnership, the Managing General Partner retained counsel and filed suit in the Superior Court of the District of Columbia (Civil Action No. 0006755-06) seeking a declaratory judgment and damages. The Local General Partners filed counter-claims and disputed the Partnership's claims. On January 10, 2007, representatives of the Managing General Partner and the Local General Partners reached a settlement during court-ordered mediation with regard to all of the above referenced legal claims. All pending legal matters were subsequently dismissed with prejudice. The settlement required an additional distribution in the amount of $1,096,411, or $16.11 per Unit, that was received by the Partnership in October 2007. As previously reported, the Managing General Partner estimated the additional distribution would result in 2007 taxable income equal to the settlement distribution. Actual 2007 taxable income of $46,441, or $0.68 per Unit, was incurred by the Partnership. This amount was significantly lower than estimated because the Partnership included, as part of the total 2006 gain of $17,236,598, or $253.32 per Unit, an estimated amount of $1,050,000, or $15.43 per Unit, from the settlement proceeds. The Partnership distributed a majority of the initial net sales proceeds in October 2007. The Managing General Partner, in accordance with and as permitted by the Partnership Agreement, will retain the remaining sales proceeds in Reserves for the time being until it deems a subsequent distribution to be prudent. The Partnership no longer has an interest in this Local Limited Partnership. As previously reported, the Managing General Partner anticipated the termination of the Partnership's interest in the Local Limited Partnership that owned Oakview Square, located in Chesterfield, Michigan, upon the sale of the Property. The sale of this Property, which resulted in net proceeds during the year ended March 31, 2007 to the Partnership of $100,000, or $1.47 per Unit, occurred on February 28, 2007, effectively terminating the Partnership's interest in this Local Limited Partnership. In October 2007, the Partnership received additional proceeds of $74,426, or $1.09 per Unit, upon a reconciliation of tax and utility payments. This sale resulted in a 2007 taxable loss of $59,158, or $0.87 per Unit. In April 2008, the Partnership received final sale proceeds of $7,146, or $0.11per Unit. The Partnership no longer has an interest in this Local Limited Partnership. As previously reported, an IRS audit of the 1993 tax return for Bentley Court II Limited Partnership questioned the treatment of certain items and had findings of non-compliance in 1993. The IRS then expanded the scope of the audit to include the 1994 and 1995 tax returns. As a result, the IRS disallowed the Property's Tax Credits for each of these years (the disallowance of the 1993, 1994 and 1995 Tax Credits applies only to the Limited Partners of the Partnership that claimed Tax Credits for those years and the recapture applies to all current Limited Partners of the Partnership). On behalf of the Partnership, the Managing General Partner retained counsel to appeal the IRS's findings in order to minimize the loss of Tax Credits. This administrative appeal has been unsuccessful, and the IRS has not retracted its position of disallowing Tax Credits for 1993, 1994 and 1995, a total of $2,562,173, plus accrued interest of approximately $3,900,000, or approximately $95 per Unit. Based on advice of tax counsel, the Managing General Partner determined to concede the disallowance of Tax Credits for those three years. In addition, the Local General Partner received notification that the IRS was expanding its claims to recapturing $502,472 of Tax Credits taken in 1990, 1991 and 1992, plus accrued interest of approximately $800,000, or approximately $20 per Unit. Based on advice of tax counsel, the Managing General Partner determined to challenge the IRS's findings with respect to this $502,472 of recapture, and a trial was held on this issue in November 2005. Last year, the Tax Court ruled against the Partnership. Upon advice of counsel, this decision was not appealed by the Managing General Partner. It is possible that the IRS will further expand its claims for additional amounts with respect to other years. However, counsel has advised that the statute of limitations has expired for the tax years 1996, 1997 and 1998. At this point, there appears to be no possibility of a settlement with the IRS, and the Managing General Partner anticipates that the IRS will forward the assessments for disallowance and recapture directly to the affected Limited Partners. The accrued interest calculations above respecting the disallowance and recapture of Tax Credits are estimates only, based upon a rate of 8% simple interest from the dates that the taxes were deemed to be owed. The Managing General Partner has not included estimates for penalties because it is not expecting them. However, it is possible that the IRS will attempt to claim penalties. Tax counsel has advised that Limited Partners that acquired Units after 1998 will not be affected by these assessments. The Managing General Partner strongly recommends that Limited Partners consult with their tax advisors regarding the appropriate treatment of any disallowance or recapture assessments. The Managing General Partner began marketing Bentley Court II in May 2008, and has received several bids that could result in a range of net sales proceeds to the Partnership of approximately $3,600,000 to $4,200,000, or $53 to $62 per Unit, respectively. The Managing General Partner currently anticipates a September 2008 sale. This transaction, based on the range of net sales proceeds above, is expected to result in taxable income of approximately $6,850,000 to $7,450,000, or $101 to $109 per Unit, respectively. As previously reported, for the three month period ending September 30, 2007, occupancy at 46th and Vincennes, located in Chicago, Illinois, declined to 85%. Working capital levels and debt service coverage remained well below appropriate levels throughout the same time period. For the three month period ending December 31, 2007, occupancy improved to 87%, and while working capital levels improved due to advances from the Local General Partner, they still remain far below the Managing General Partner's benchmark at year-end. Debt service coverage also remained well below appropriate levels throughout the same time period, primarily due to an increase in maintenance expenses incurred to prepare vacant units for occupancy. An increase in real estate taxes also contributed to the poor debt service coverage. A representative of the Managing General Partner visited the Property in December 2007 to reassess the management agent and physical condition and noted slight improvement in overall appearance of the Property but not enough to earn an acceptable rating. Although advances from the Local General Partner have enabled the Property to remain current on its loan obligations, the Managing General Partner believes that the Local General Partner and its affiliated management company are not adequately performing their responsibilities with respect to the Property. The Managing General Partner has expressed their concerns to the Local General Partner and will continue to closely monitor the Property's operations. Based on the results of a market valuation, which confirmed that the Property's value is less than its outstanding debt, the Managing General Partner will assign the Partnership's interest to the Local General Partner upon receipt of official documentation from HUD approving the Transfer of Physical Assets application. The Managing General Partner currently believes a mid-2008 disposition is likely. The Managing General Partner does not expect this disposition to result in any proceeds to the Partnership and currently projects taxable income of approximately $900,000, or $13.23 per Unit. The Property's Compliance Period ended on December 31, 2005. Inflation and Other Economic Factors Inflation had no material impact on the operations or financial condition of the Partnership for the years ended March 31, 2008 and 2007. Since most of the Properties benefit from some sort of government assistance, the Partnership is subject to the risks inherent in that area including decreased subsidies, difficulties in finding suitable tenants and obtaining permission for rent increases. In addition, any Tax Credits allocated to investors with respect to a Property are subject to recapture to the extent that the Property or any portion thereof ceases to qualify for Tax Credits. Certain Properties in which the Partnership has invested are located in areas suffering from poor economic conditions. Such conditions could have an adverse effect on the rent or occupancy levels at such Properties. Nevertheless, the Managing General Partner believes that the generally high demand for below-market rate housing will tend to negate such factors. However, no assurance can be given in this regard. Item 7. Financial Statements and Supplementary Data Information required under this Item is submitted as a separate section of this Report. See Index on page F-1 hereof. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ----------------------------------------------------------------------------- None. Item 8A. Controls and Procedures Disclosure Controls and Procedures We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosure. Based on that evaluation, management has concluded that as of March 31, 2008, our disclosure controls and procedures were effective. Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management conducted an assessment of the effectiveness of our internal control over financial reporting. This assessment was based upon the criteria for effective internal control over financial reporting established in Internal Control -- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership's internal control over financial reporting involves a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes the controls themselves, as well as monitoring of the controls and internal auditing practices and actions to correct deficiencies identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management assessed the effectiveness of the Partnership's internal control over financial reporting as of March 31, 2008. Based on this assessment, management concluded that, as of March 31, 2008, the Partnership's internal control over financial reporting was effective. Item 8B. Other Information None. PART III Item 9. Directors and Executive Officers of the Registrant The Managing General Partner of the Partnership is Arch Street VIII, Inc., a Massachusetts corporation (the "Managing General Partner"), an affiliate of MMA. The Managing General Partner was incorporated in December 1988. The Investment Committee of the Managing General Partner approved all investments. The names and positions of the principal officers and the directors of the Managing General Partner are set forth below. Name Position Greg Judge Executive Vice President Michael H. Gladstone Principal, Member The other General Partner of the Partnership is Arch Street IV Limited Partnership, a Massachusetts Limited Partnership ("Arch Street IV L.P.") that was organized in December 1988. Arch Street VIII, Inc. is the managing general partner of Arch Street IV L.P. The Managing General Partner provides day-to-day management of the Partnership. Compensation is discussed in Item 10 of this Report. Such day-to-day management does not include the management of the Properties. The business experience of each of the persons listed above is described below. There is no family relationship between any of the persons listed in this section. Greg Judge, age 43, Executive Vice President, Head of the Affordable Housing Group of MMA Financial since February 2008. As head of the Company's Affordable Housing Group, Mr. Judge is responsible for both the affordable tax exempt and taxable lending and equity businesses. Prior to his appointment as EVP, Mr. Judge was responsible for tax credit equity investments and underwriting of equity and debt investments for the Affordable Housing Group. Mr. Judge joined MMA as a result of the Boston Financial and Lend Lease HCI acquisitions, starting with Boston Financial in 1989 as an asset manager. Mr. Judge is a frequent speaker on affordable housing and tax credit industry issues. Mr. Judge is a graduate of Colorado College (BA) and Boston University (MBA). Michael H. Gladstone, age 51, Senior Vice President. Mr. Gladstone is responsible for capital transactions work in the Asset Management group of MMA Financial. He joined MMA as a result of the Boston Financial and Lend Lease HCI acquisitions, starting with Boston Financial in 1985 as the firm's General Counsel. Prior to joining Boston Financial, Mr. Gladstone was associated with the law firm of Herrick & Smith and served on the advisory board of the Housing and Development Reporter. Mr. Gladstone has lectured at Harvard University and Cornell University on affordable housing matters and is a member of the Cornell Real Estate Council and the Massachusetts Bar. Mr. Gladstone is a graduate of Emory University (BA) and Cornell University (J.D. & MBA). The Partnership is organized as a limited partnership solely for the purpose of real estate investment and does not have any employees. Therefore the Partnership has not adopted a Code of Ethics. The Partnership is structured as a limited partnership that was formed principally for real estate investment and is not a "listed" issuer as defined by Rule 10A-3 of the Securities Exchange Act of 1934. Accordingly, neither an audit committee nor a financial expert to serve on such a committee has been established by the Partnership. Item 10. Management Remuneration Neither the directors nor officers of Arch Street VIII, Inc., nor the partners of Arch Street IV L.P. nor any other individual with significant involvement in the business of the Partnership receives any current or proposed remuneration from the Partnership. Item 11. Security Ownership of Certain Beneficial Owners and Management ------------------------------------------------------------------------ As of March 31, 2008, the following are the only entities known to the Partnership to be the beneficial owners of more than 5% of the Units outstanding:
Amount Title of Name and Address of Beneficially Class Beneficial Owner Owned Percent of Class ---------- ----------------- ------------- ---------------- Limited Bond Purchase, LLC 10,818 Units 15.90% Partner 104 Armor Road P.O Box 34729 Kansas City, MO 64116-1129 Limited Danford M Baker 4,354 Units 6.40% Partner 600 Orange Grove Circle Pasadena, CA 91105 Limited Anise, LLC 3,802 Units 5.59% Partner 1001 Walnut Kansas City, MO 64106
The equity securities registered by the Partnership under Section 12(g) of the Act of 1934 consist of 100,000 Units, of which 68,043 were sold to the public. The remaining Units were deregistered in Post-Effective Amendment No. 3, dated February 21, 1990. Holders of Units are permitted to vote on matters affecting the Partnership only in certain unusual circumstances and do not generally have the right to vote on the operation or management of the Partnership. Arch Street IV L.P. owns five (unregistered) Units not included in the 68,043 Units sold to the public. Except as described in the preceding paragraph, neither Arch Street VIII, Inc., Arch Street IV L.P., MMA nor any of their executive officers, directors, principals or affiliates is the beneficial owner of any Units. None of the foregoing persons possess a right to acquire beneficial ownership of Units. The Partnership does not know of any existing arrangement that might at a later date result in a change in control of the Partnership. Item 12. Certain Relationships and Related Transactions The Partnership paid certain fees to and reimbursed certain expenses of the Managing General Partner or its affiliates in connection with the organization of the Partnership and the offering of Units. The Partnership is also required to pay certain fees to and reimburse certain expenses of the Managing General Partner or its affiliates in connection with the administration of the Partnership and its acquisition and disposition of investments in Local Limited Partnerships. In addition, the General Partners are entitled to certain Partnership distributions under the terms of the Partnership Agreement. Also, an affiliate of the General Partners will receive up to $10,000 from the sale or refinancing proceeds of each Local Limited Partnership, if it is still a limited partner at the time of such transaction. All such fees and distributions are more fully described in the sections entitled "Estimated Use of Proceeds", "Management Compensation and Fees" and "Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions" of the Prospectus. Such sections are incorporated herein by reference. The Partnership is permitted to enter into transactions involving affiliates of the Managing General Partner, subject to certain limitations established in the Partnership Agreement. Information regarding the fees paid and expense reimbursements made in the two years ending March 31, 2008 is presented as follows: Organizational Fees and Expenses In accordance with the Partnership Agreement, affiliates of the General Partner were reimbursed by the Partnership for organizational, offering and selling expenses advanced on behalf of the Partnership for salaries and direct expenses of certain employees of the Managing General Partner and its affiliates in connection with the registration and organization of the Partnership. Such expenses included printing expenses and legal, accounting, escrow agent and depository fees and expenses. Such expenses also included a non-accountable expense allowance for marketing expenses equal to 1% of the Gross Proceeds. Organization and offering fees and expenses of $8,351,601 were incurred on behalf of the Partnership were paid and reimbursed to an affiliate of the Managing General Partner. Total organization and offering expenses did not exceed 5.50% of the Gross Proceeds. No payments were made or expenses reimbursed in each of two years ended March 31, 2008. Acquisition Fees and Expenses In accordance with the Partnership Agreement, the Partnership was required to pay acquisition fees to and reimburse acquisition expenses of the Managing General Partner or its affiliates for selecting, evaluating, structuring, negotiating and closing the Partnership's investments in Local Limited Partnerships. Acquisition fees totaled 7.50% of the Gross Proceeds. Acquisition expenses, which included such expenses as legal fees and expenses, travel and communications expenses, costs of appraisals, accounting fees and expenses, did not exceed 1.75% of the Gross Proceeds. Acquisition fees totaling $1,588,763 for the closing of the Partnership's Local Limited Partnership investments were paid to an affiliate of the Managing General Partner. Acquisition expenses totaling $415,467 were incurred and were reimbursed to an affiliate of the Managing General Partner. No payments were made or expenses reimbursed in each of the two years ended March 31, 2008. Asset Management Fees In accordance with the Partnership Agreement, an affiliate of the Managing General Partner is paid an annual fee for services in connection with the administration of the affairs of the Partnership. The affiliate receives the base amount of $5,500 (annually adjusted by the CPI factor) per Local Limited Partnership as the annual Asset Management Fee. Fees earned in each of the two years ended March 31, 2008 are as follows:
2008 2007 -------------- ---------- Asset management fees $ 78,453 $ 100,952 Salaries and Benefits Expense Reimbursements An affiliate of the Managing General Partner is reimbursed for the cost of the Partnership's salaries and benefits expenses. The reimbursements are based upon the size and complexity of the Partnership's operations. Reimbursements paid or payable in each of the two years ended March 31, 2008 are as follows: 2008 2007 -------------- ---------- Salaries and benefits expense reimbursements $ 73,951 $ 77,349
Cash Distributions Paid to the General Partners In accordance with the Partnership Agreement, the General Partners of the Partnership, Arch Street VIII, Inc. and Arch Street IV L.P., receive 1% of cash distributions paid to partners. A cash distribution of $155,482 was made to the General Partners during the year ended March 31, 2008. Additional information concerning cash distributions and other fees paid or payable to the Managing General Partner and its affiliates and the reimbursement of expenses paid or payable to MMA and its affiliates during each of the two years ended March 31, 2008 is presented in Note 4 to the Financial Statements. Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as a part of this Report In response to this portion of Item 13, the financial statements and the auditors' reports relating thereto are submitted as a separate section of this Report. See Index to the Financial Statements on page F-1 hereof. All other financial statement schedules and exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable and therefore have been omitted. (b) Exhibits 31.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Item 14. Principal Accountant Fees and Services The Partnership paid or accrued fees for services rendered by the principal accountants for the two years ended March 31, 2008 as follows:
2008 2007 -------------- ---------- Audit fees $ 72,768 $ 87,530 Tax fees $ 2,500 $ 2,400 No other fees were paid or accrued to the principal accountants during the two years ended March 31, 2008.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV By: Arch Street VIII, Inc. its Managing General Partner By: /s/Greg Judge Date: June 30, 2008 ---------------------------------- ------------- Greg Judge President Arch Street VIII, Inc. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Managing General Partner of the Partnership and in the capacities and on the dates indicated: By: /s/ Greg Judge Date:June 30, 2008 ----------------------------------- ------------- Greg Judge President Arch Street VIII, Inc. By: /s/Michael H. Gladstone Date: June 30, 2008 ----------------------------- ------------- Michael H. Gladstone Vice President Arch Street VIII, Inc. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV (A Limited Partnership) (A Limited Partnership) Annual Report on Form 10-KSB For the Year Ended March 31, 2008 Index
Page No. Report of Independent Registered Public Accounting Firm for the years ended March 31, 2008 F-2 Report of Independent Registered Public Accounting Firm F-3 for the years ended March 31, 2007 Financial Statements Balance Sheet - March 31, 2008 F-4 Statements of Operations - For the years ended March 31, 2008 and 2007 F-5 Statements of Changes in Partners' Equity - For the years ended March 31, 2008 and 2007 F-6 Statements of Cash Flows - For the years ended March 31, 2008 and 2007 F-7 Notes to the Financial Statements F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners of Boston Financial Qualified Housing Tax Credits L.P. IV We have audited the accompanying balance sheet of Boston Financial Qualified Housing Tax Credits L.P. IV as of March 31, 2008, and the related statements of operations, changes in partners' equity and cash flows for the years then ended. 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 audit. We did not audit the financial statements of certain operating limited partnerships as of and for the year ended March 31, 2008 in which the Partnership owns a limited partnership interest. Investments in such partnerships are stated at $700,283 at March 31, 2008 and the Partnership's equity in loss of these operating limited partnerships is stated at $399,718 for the year then ended. The financial statements of those operating limited partnerships were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to information relating to those operating limited partnerships, is based solely on the reports of the other auditors. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Boston Financial Qualified Housing Tax Credits L.P. IV as of March 31, 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick Group, P.C. Vienna, Virginia June 30, 2008 Report of Independent Registered Public Accounting Firm To the Partners of Boston Financial Qualified Housing Credits Limited Partnership IV In our opinion, based on our audits and the report of other auditors, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Boston Financial Qualified Housing Tax Credits Limited Partnership IV ("the Partnership") at March 31, 2007, and the results of its operations and its cash flows for the year ended March 31, 2007 in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers, LLP Boston, Massachusetts June 22, 2007 DERRICK, STUBBS 55 STITH, L.L,P. CERTIFIED PUBLIC ACCOUNTANTS David Master, CPA 508 Hampton Street, 1st Floor Post Office Box 36 Charles R. Statler, Jr., CPA Columbia, South Carolina 29202-0036 Alan F. Grimsley, CPA Telephone: (803) 799-5810 . Facsimile: 803-799-5554 Hugh R. Penney, CPA,CISA, CBA H. Warren Counts, Jr. CPA K. Todd Daily, CPA CVA Timothy M. Monahan, CPA RSM McGladrey Network INDEPENDENT AUDITOR'S REPORT To the Partners Bentley Court II Limited Partnership Columbia, South Carolina in our opinion, the accompanying balance sheet and the related statements of operations, partners' equity (deficit) and cash flows present fairly, in all material aspects, the financial position of Bentley Court 11 Limited Partnership as of December 31, 2007 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note I to the financial statements, the Partnership has suffered recurring losses from operations and its total liabilities exceed its total assets. This raises substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management plans to continue financial support of the Partnership as described in Note I. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Derrick Stubbs & Stith, L.L.P. Columbia, South Carolina February 15, 2008 CARTER & COMPANY Certified Public Accountants, LLC 548 Highway 98 Fast Suite 201 Destin, Florida 82b41 Phone 850-650-0125 Fax 850-650-016 Report of Independent Auditors To the Partners Sencit Towne House Limited Partnership (A Limited Partnership) In our opinion, the accompanying balance sheet and the related statement of operations, changes in partners' equity (deficiency) and cash flows present fairly, in all material aspects, the financial position of Sencit Towne House Limited Partnership (A Limited Partnership) as of December 31, 2007 and the results of its operations and its cash flows for the year ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion, Destin, Florida January 21, 2008 Carter & Company Certified Public Accountants, LLC 548 Highway 98 Fast Suite 201 Destin, Florida 82b41 Phone 850-650-0125 Fax 850-650-016 Report of Independent Auditors To the Partners Allentown Towne House Limited Partnership (A Limited Partnership) In our opinion, the accompanying balance sheet and the related statement of operations, changes in partners' equity .(deficiency) and cash flows present fairly, in all material aspects, the financial position of Allentown Towne House Limited Partnership (A Limited Partnership) as of December 31, 2007 and the results of its operations and its cash flows for the year ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Destin, Florida January 24, 2008 Carter & Company Certified Public Accountants, LLC 548 Highway 98 Fast Suite 201 Destin, Florida 82b41 Phone 850-650-0125 Fax 850-650-016 Report of Independent Auditors To the Partners Prince Street Towers Limited Partnership In our opinion, the accompanying balance sheet and the related statement of operations, changes in partners' equity (deficiency) and cash flows present fairly, in all material aspects, the financial position of Prince Street Towers Limited Partnership as of December 31, 2007 and the results of its operations and its cash flows for the year ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Destin, Florida February 19, 2008 BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV (A Limited Partnership) BALANCE SHEET March 31, 2008
Assets Cash and cash equivalents $ 2,704,392 Investments in Local Limited Partnerships (Note 3) 691,419 Accounts receivable (Note 3) 7,146 --------------- Total Assets $ 3,402,957 =============== Liabilities and Partners' Equity Due to affiliate (Note 4) $ 755,070 Accrued expenses 297,974 --------------- Total Liabilities 1,053,044 General, Initial and Investor Limited Partners' Equity 2,349,913 --------------- Total Liabilities and Partners' Equity $ 3,402,957 ===============
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV (A Limited Partnership) STATEMENTS OF OPERATIONS For the Years Ended March 31, 2008 and 2007
2008 2007 ---------------- ---------- Revenue: Investment $ 663,481 $ 347,589 Other - 43,100 ---------------- ---------------- Total Revenue 663,481 390,689 ---------------- ---------------- Expense: Asset management fees, affiliate (Note 4) 78,453 100,952 Provision for (recovery of) valuation allowance on advances to Local Limited Partnerships (Note 3) 22,093 (118,248) Impairment on investments in Local Limited Partnerships (Note 3) 2,406,000 250,000 General and administrative (includes reimbursements to an affiliate in the amount of $73,951 and $77,349 in 2008 and 2007, respectively) 1,182,705 1,103,804 Amortization 2,757 27,336 --------- ------ Total Expense 3,692,008 1,363,844 ---------------- ---------------- Loss before equity in losses of Local Limited Partnerships and gain on sale of investments in Local Limited Partnerships (3,028,527) (973,155) Equity in losses of Local Limited Partnerships (Note 3) (97,718) (388,242) Gain on sale of investments in Local Limited Partnerships (Note 3) 186,917 13,919,835 ---------------- ---------------- Net Income (Loss) $ (2,939,328) $ 12,558,438 ================ ================ Net Income (Loss) allocated: General Partners $ (29,393) $ 716,668 Limited Partners (2,909,935) 11,841,770 ---------------- ---------------- $ (2,939,328) $ 12,558,438 ================ ================ Net Income (Loss) per Limited Partner Unit (68,043 Units) $ (42.77) $ 174.03 =============== ================
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the Years Ended March 31, 2008 and 2007
Initial Investor Net General Limited Limited Unrealized Partners Partner Partners Loss Total Balance at March 31, 2006 $ (508,297) $ 5,000 $ 8,782,270 $ (14,693) $ 8,264,280 ------------- -------------- -------------- -------------- -------------- Comprehensive Income: Change in net unrealized losses on investment securities available for sale - - - 14,445 14,445 Net Income 716,668 - 11,841,770 - 12,558,438 ------------- ---------------- -------------- -------------- -------------- Comprehensive Income 716,668 - 11,841,770 14,445 12,572,883 ------------- ---------------- -------------- -------------- ------------- Balance at March 31, 2007 208,371 5,000 20,624,040 (248) 20,837,163 ------------- -------------- -------------- - ------------- -------------- Cash distribution (155,482) - (15,392,688) - (15,548,170) ------------- -------------- ---------------- -------------- -------------- Comprehensive Income (Loss): Change in net unrealized losses on investment securities available for sale - - - 248 248 Net Loss (29,393) - (2,909,935) - (2,939,328) ------------- -------------- -------------- -------------- ------------ Comprehensive Income (Loss) (29,393) - (2,909,935) 248 (2,939,080) ------------- -------------- -------------- -------------- ------------- Balance at March 31, 2008 $ 23,496 $ 5,000 $ 2,321,417 $ - $ 2,349,913 ============= ============== ============== ============== ===========
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) STATEMENTS OF CASH FLOWS For the Years Ended March 31, 2008 and 2007
2008 2007 ---------------- ---------- Cash flows from operating activities: Net Income (Loss) $ (2,939,328) $ 12,558,438 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Equity in losses of Local Limited Partnerships 97,718 388,242 Gain on sale of investments in Local Limited Partnerships (186,917) (13,919,835) Provision for (recovery of) valuation allowance on advances to Local Limited Partnerships 22,093 (118,248) Impairment on investments in Local Limited Partnerships 2,406,000 250,000 Amortization 2,757 27,336 Cash distributions included in net income - (35,000) Other non cash item (222) (8,892) Increase (decrease) in cash arising from changes in operating assets and liabilities: Other assets 6,332 12,701 Due to affiliate 734,477 (106,196) Accrued expenses 221,234 (31,175) ---------------- ---------------- Net cash provided by (used for) operating activities 364,144 (982,629) ---------------- ---------------- Cash flows from investing activities: Proceeds from maturities of investment securities 500,000 1,750,000 Advances to Local Limited Partnerships (22,093) (81,752) Reimbursement of advances to Local Limited Partnerships - 200,000 Cash distributions received from Local Limited Partnerships 236,502 290,582 Proceeds received from sale of investments in Local Limited Partnerships 186,917 13,919,835 Accounts receivable from sale of investments in Local Limited Partnerships 1,117,854 (1,111,000) ---------------- ---------------- Net cash provided by investing activities 2,019,180 14,967,665 ---------------- ---------------- Cash flows from financing activities: Cash distribution (15,548,170) - ---------------- ---------------- Net cash used for financing activities (15,548,170) - ---------------- ---------------- Net increase (decrease) in cash and cash equivalents (13,164,846) 13,985,036 Cash and cash equivalents, beginning 15,869,238 1,884,202 ---------------- ---------------- Cash and cash equivalents, ending $ 2,704,392 $ 15,869,238 ================ ================
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS 1. Organization Boston Financial Qualified Housing Tax Credits L.P. IV (the "Partnership") was formed on March 30, 1989 under the laws of the Commonwealth of Massachusetts for the primary purpose of investing, as a limited partner, in other limited partnerships ("Local Limited Partnerships") which own and operate apartment complexes, most of which benefit from some form of federal, state or local assistance program and each of which qualifies for low-income housing tax credits. The Partnership's objectives are to: (i) provide current tax benefits in the form of tax credits which qualified investors may use to offset their federal income tax liability; (ii) preserve and protect the Partnership's capital; (iii) provide limited cash distributions which are not expected to constitute taxable income during Partnership operations; and (iv) provide cash distributions from sale or refinancing transactions. The General Partners of the Partnership are Arch Street VIII, Inc., which serves as the Managing General Partner, and Arch Street IV L.P., which also serves as the Initial Limited Partner. Both of the General Partners are affiliates of MMA Financial, Inc. ("MMA"). The fiscal year of the Partnership ends on March 31. The Partnership's partnership agreement ("Partnership Agreement") authorized the sale of up to 100,000 units of Limited Partnership Interest ("Units") at $1,000 per Unit, adjusted for certain discounts. The Partnership raised $67,653,000 ("Gross Proceeds"), net of discounts of $390,000, through the sale of 68,043 Units. Such amounts exclude five unregistered Units previously acquired for $5,000 by the Initial Limited Partner, which is also one of the General Partners. The offering of Units terminated on January 31, 1990. Under the terms of the Partnership Agreement, the Partnership originally designated 4.00% of the Gross Proceeds from the sale of Units as a reserve for working capital of the Partnership and contingencies related to ownership of Local Limited Partnership interests. The Managing General Partner may increase or decrease such amounts from time to time as it deems appropriate. At March 31, 2008, the Managing General Partner has designated $2,704,392 as such Reserves. Generally, profits, losses, tax credits and cash flows from operations are allocated 99% to the Limited Partners and 1% to the General Partners. Net proceeds from a sale or refinancing will be allocated 95% to the Limited Partners and 5% to the General Partners, after certain priority payments. The General Partners may have an obligation to fund deficits in their capital accounts, subject to limits set forth in the Partnership Agreement. However, to the extent that the General Partners' capital accounts are in a deficit position, certain items of net income may be allocated to the General Partners in accordance with the Partnership Agreement. 2. Significant Accounting Policies Cash Equivalents Cash equivalents represent short-term, highly liquid instruments with original maturities of 90 days or less. Concentration of Credit Risk The Partnership invests its cash primarily in money market funds with commercial banks. At times, cash balances at a limited number of banks and financial institutions may exceed federally insured amounts. Management believes it mitigates its credit risk by investing in major financial institutions. Investment Securities The Partnership's investment securities were classified as "Available for Sale" securities and reported at fair value as reported by the brokerage firm at which the securities were held. All investment securities had fixed maturities. Realized gains and losses from the sales of securities were based on the specific identification method. Unrealized gains and losses are excluded from earnings and reported as a separate component of partners' equity. Investments in Local Limited Partnerships The Local Limited Partnerships in which the Partnership invests are Variable Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a non-controlling limited partner equity holder. Because the Partnership is BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies (continued) Investments in Local Limited Partnerships (continued) not the primary beneficiary of these VIEs, it accounts for its investments in the Local Limited Partnerships using the equity method of accounting. As a result of its involvement with the VIEs, the Partnership's exposure to economic and financial statement losses is limited to its investments in the VIEs ($691,419 at March 31, 2008). The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future. Under the equity method, the investment is carried at cost, adjusted for the Partnership's share of net income or loss and for cash distributions from the Local Limited Partnerships; equity in income or loss of the Local Limited Partnerships is included currently in the Partnership's operations. A liability is recorded for delayed equity capital contributions to Local Limited Partnerships. Under the equity method, a Local Limited Partnership investment will not be carried below zero. To the extent that equity in losses are incurred when the Partnership's carrying value of the respective Local Limited Partnership has been reduced to a zero balance, the losses will be suspended and offset against future income. Income from Local Limited Partnerships, where cumulative equity in losses plus cumulative distributions have exceeded the total investment in Local Limited Partnerships, will not be recorded until all of the related unrecorded losses have been offset. To the extent that a Local Limited Partnership with a carrying value of zero distributes cash to the Partnership, that distribution is recorded as income on the books of the Partnership and is included in "other revenue" in the accompanying financial statements. The Tax Credits generated by Local Limited Partnerships are not reflected on the books of the Partnership as such credits are allocated to partners for use in offsetting their Federal income tax liability. Excess investment costs over the underlying net assets acquired have arisen from acquisition fees paid and expenses reimbursed to an affiliate of the Partnership. These fees and expenses are included in the Partnership's investments in Local Limited Partnerships and are being amortized on a straight-line basis over 35 years or until a Local Limited Partnership's respective investment balance has been reduced to zero. The Partnership may provide advances to the Local Limited Partnerships to finance operations or to make debt service payments. The Partnership assesses the collectibility of any advances at the time the advance is made and records a reserve if collectibility is not reasonably assured. The Partnership does not guarantee any of the mortgages or other debt of the Local Limited Partnerships. The Managing General Partner has elected to report results of the Local Limited Partnerships on a 90 day lag basis, because the Local Limited Partnerships report their results on a calendar year basis. Accordingly, the financial information of the Local Limited Partnerships that is included in the accompanying financial statements is as of December 31, 2007 and 2006 and for the years then ended. The Partnership, as a limited partner in the Local Limited Partnerships, is subject to risks inherent in the ownership of property which are beyond its control, such as fluctuations in occupancy rates and operating expenses, variations in rental schedules, proper maintenance and continued eligibility for tax credits. If the cost of operating a property exceeds the rental income earned thereon, the Partnership may deem it in its best interest to voluntarily provide funds in order to protect its investment. The Partnership has implemented policies and practices for assessing other-than-temporary declines in values of its investments in Local Limited Partnerships. Periodically, the carrying values of the investments are compared to their respective fair values. If an other-than-temporary decline in carrying value exists, a provision to reduce the asset to fair value, as calculated based primarily on remaining tax benefits, will be recorded in the Partnership's financial statements. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, 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. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies (continued) Fair Value of Financial Instruments Statements of Financial Accounting Standards No. 107 ("SFAS No. 107"), Disclosures About Fair Value of Financial Instruments, requires disclosure for the fair value of most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. The scope of SFAS No. 107 excludes certain financial instruments, such as trade receivables and payables when the carrying value approximates the fair value and investments accounted for under the equity method, and all nonfinancial assets, such as real property. Unless otherwise described, the fair values of the Partnership's assets and liabilities which qualify as financial instruments under SFAS No. 107 approximate their carrying amounts in the accompanying balance sheet. Income Taxes No provision for income taxes has been made as the liability for such taxes is the obligation of the partners of the Partnership. In June 2006, the Financial Accounting Standards Board (`FASB") issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership's tax returns to determine whether the tax positions are more-likely-than-not of being sustained upon examination by the applicable tax authority, based on the technical merits of the tax position, and then recognizing the tax benefit that is more-likely-than-not to be realized. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current reporting period. As required, the Partnership adopted FIN 48 effective April 1, 2007 and concluded that the effect is not material to its financial statements. Accordingly, no cumulative effect adjustment related to the adoption of FIN 48 was recorded. Effect of New Accounting Principles In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"), which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS No. 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. generally accepted accounting principles and expands disclosure requirements about fair value measurements. SFAS No. 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position ("FSP") 157-2, "Effective Date of FASB Statement No. 157", which delays the effective date of SFAS No. 157 for all nonfinancial assets and liabilities except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis until November 15, 2008. The Partnership will adopt SFAS No. 157 effective April 1, 2008. The adoption of this standard is not expected to have a material impact on the Partnership's financial position, operations or cash flow. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), which permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Partnership will adopt SFAS No. 159 effective April 1, 2008. The adoption of this standard is not expected to have a material impact on the Partnership's financial position, operations or cash flow. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Investments in Local Limited Partnerships The Partnership has limited partnership interests in seven Local Limited Partnerships which were organized for the purpose of owning and operating multi-family housing complexes, all of which are government-assisted. The Partnership's ownership interest in each Local Limited Partnership is 99%, except for Leawood Manor where the Partnership's ownership interest is 89%. The Partnership may have negotiated or may negotiate options with the Local General Partners to purchase or sell the Partnership's interests in the Local Limited Partnerships at the end of the Compliance Period at nominal prices. In the event that Properties are sold to a third party or upon dissolution of the Local Limited Partnerships, proceeds will be distributed according to the terms of each Local Limited Partnership agreement.
The following is a summary of investments in Local Limited Partnerships at March 31, 2008: Capital contributions and advances paid to Local Limited Partnerships and purchase price paid to withdrawing partners of Local Limited Partnerships $ 22,811,783 Cumulative equity in losses of Local Limited Partnerships (excluding cumulative unrecognized losses of $7,287,836) (14,112,692) Cumulative cash distributions received from Local Limited Partnerships (2,609,221) --------------- Investments in Local Limited Partnerships before adjustments 6,089,870 Excess investment costs over the underlying assets acquired: Acquisition fees and expenses 2,004,230 Cumulative amortization of acquisition fees and expenses (765,735) --------------- Investments in Local Limited Partnerships before valuation allowance 7,328,365 Valuation allowance on investments in Local Limited Partnerships (6,636,946) --------------- Investments in Local Limited Partnerships $ 691,419 ===============
For the year ended March 31, 2008, the Partnership advanced $22,093 to one of the Local Limited Partnerships, all of which was reserved. The Partnership has also recorded a valuation allowance for its investments in certain Local Limited Partnerships in order to appropriately reflect the estimated net realizable value of these investments. Summarized combined financial information of the Local Limited Partnerships in which the Partnership has invested as of December 31, 2007 and 2006 (due to the Partnership's policy of reporting the financial information of its Local Limited Partnership interests on a 90 day lag basis) is as follows: BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Investments in Local Limited Partnerships (continued) Summarized Balance Sheets - as of December 31,
2007 2006 ---------------- --------- Assets: Investment property, net $ 34,196,411 $ 44,777,700 Other assets 6,153,746 6,434,117 ---------------- ---------------- Total Assets $ 40,350,157 $ 51,211,817 ================ ================ Liabilities and Partners' Deficiency: Mortgage notes payable $ 34,594,257 $ 42,829,668 Other liabilities 7,541,583 7,861,063 ---------------- ---------------- Total Liabilities 42,135,840 50,690,731 ---------------- ---------------- Partnership's deficiency (2,130,799) (1,171,670) Other partners' equity 345,116 1,692,756 ---------------- ---------------- Total Partners' Equity (Deficiency) (1,785,683) 521,086 ---------------- ---------------- Total Liabilities and Partners' Equity (Deficiency) $ 40,350,157 $ 51,211,817 ================ ================ Summarized Statements of Operations - for the years ended December 31, 2007 2006 ---------------- ------------ Rental and other income $ 11,366,445 $ 15,269,576 ---------------- ---------------- Expenses: Operating 6,854,320 9,900,968 Interest 2,775,350 3,993,333 Depreciation and amortization 2,808,763 3,813,233 ---------------- ---------------- Total Expenses 12,438,433 17,707,534 ---------------- ---------------- Net Loss $ (1,071,988) $ (2,437,958) ================ ================ Partnership's share of Net Loss $ (1,044,887) $ (2,385,141) ================ ================ Other partners' share of Net Loss $ (27,101) $ (52,817) ================ ================
For the years ended March 31, 2008 and 2007, the Partnership has not recognized $947,169 and $1,996,899, respectively, of equity in losses relating to certain Local Limited Partnerships in which cumulative equity in losses and distributions exceeded its total investment in these Local Limited Partnerships. The Partnership's deficiency as reflected by the Local Limited Partnerships of ($2,130,799) differs from the Partnership's investments in Local Limited Partnerships before adjustments of $6,089,870 primarily due to: (i) cumulative unrecognized losses as described above; (ii) advances to Local Limited Partnerships that the Partnership included in investments in Local Limited Partnerships; and (iii) differences in the accounting treatment of miscellaneous items. For the year end March 31, 2008, one of the Local Limited Partnerships with a carrying value of zero was considered to have operating issues significant enough to warrant audit reports that raised substantial doubt about the Local Limited Partnership's ability to continue as a going concern. However, the Partnership believes Local General Partner obligations and adequate reserve levels will likely mitigate substantial risk to the Partnership. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Investments in Local Limited Partnerships (continued) The Partnership received proceeds of $20,000 from the sale of one Local Limited Partnership during the year ended March 31, 2008. The Partnership also received additional proceeds of $159,771 during the year end March 31, 2008 related to the sale of two Local Limited Partnerships during the previous year. In addition, the Partnership recorded sale proceeds receivable of $7,146 related to the prior year sale of one of these Local Limited Partnerships. 4. Transactions with Affiliates An affiliate of the Managing General Partner receives the base amount of $5,500 (annually adjusted by the CPI factor) per Local Limited Partnership as the annual Asset Management Fee for administering the affairs of the Partnership. Asset Management Fees for the years ended March 31, 2008 and 2007 were $78,453 and $100,952, respectively. During the years ended March 31, 2008 and 2007, Asset Management Fees of $82,372 and $107,148, respectively, were paid out of available cash flow. As of March 31, 2008, $16,674 is payable to an affiliate of the Managing General Partner for Asset Management Fees. An affiliate of the General Partner is reimbursed for the actual cost of the Partnership's operating expenses, which includes a reimbursement for salaries and benefits. As of March 31, 2008, $738,396 is reimbursable to the affiliate. An affiliate of the Managing General Partner is reimbursed for the cost of the Partnership's salaries and benefits expenses. Included in general and administrative expenses for the years ended March 31, 2008 and 2007 is $73,951 and $77,349, respectively, which the Partnership has incurred for these expenses. During the year ended March 31, 2008 and 2007, salaries and benefits of $40,115 and $77,349, respectively, were paid to the affiliate of the Managing General Partner. As of March 31, 2008, $33,836 of reimbursements to an affiliate of the Managing General Partner remains unpaid. 5. Legal Proceedings On November 29, 2007, the Partnership and its General Partners were sued in Superior Court for the County of Los Angeles, California by a Limited Partner named Danford Baker and companies named Everest Housing Investors 2, LP and Everest Management, LLC with which Mr. Baker is affiliated (collectively, "Everest"). In the lawsuit, Everest seeks a declaration and injunction requiring the Partnership and its General Partners to honor votes obtained in Everest's consent solicitation seeking to remove the General Partners and replace them with an Everest affiliate in the event that Everest obtains votes of holders of a majority of outstanding Limited Partner Units of the Partnership in favor of Everest's proposal. The Partnership and its General Partners were never served with this lawsuit. On or about April 17, 2008, Everest filed a voluntary dismissal of the Complaint without prejudice. On January 22, 2008, the Partnership and its General Partners were sued in the District Court of Johnson County, Kansas by a Limited Partner named McDowell Investments, L.P. ("McDowell"). In the lawsuit, McDowell alleges that the Partnership and its General Partners violated the Partnership's Partnership Agreement and/or breached fiduciary duties by, among other things: (i) allegedly selling substantially all of the assets of the Partnership without a vote of the Limited Partners; (ii) allegedly selling Partnership assets to persons formerly affiliated with the Partnership or its General Partners; and (iii) allegedly increasing the cash reserves owned by the Partnership to benefit affiliates of the Partnership or its General Partners. In connection with the lawsuit, McDowell also seeks to enjoin the sale of Leawood Manor Apartments, which is real estate property owned by one of the Local Limited Partnerships of which the Partnership owns the majority of limited partnership interests. The Partnership and its General Partners deny these allegations and intend to vigorously defend against them. The Partnership and its General Partners have filed a motion to dismiss, which is currently pending with the Kansas court. The Local Limited Partnership that owns Leawood Manor Apartments and its general partner also were named in the lawsuit and will similarly defend their position. Those Local Limited Partnership entities filed a motion that asked the court to dismiss the case on various grounds, and also that the court declares that McDowell did not have an ownership interest in Leawood Manor Apartments. While the court declined to dismiss the lawsuit as to the Local Limited Partnership and its general partner, the court stated on the record that McDowell "[does not] have any interest in the property," and further that the court would work to "enable the sale" of Leawood Manor Apartments. On January 29, 2008, the Partnership and its General Partners filed suit against McDowell in the Superior Court for Suffolk County, Massachusetts alleging, among other things, that McDowell has damaged the Partnership by intentionally and unlawfully interfering with efforts of the Local Limited Partnership that owns Leawood Manor Apartments to sell that real estate. McDowell has filed a motion to dismiss, asking the Massachusetts court to dismiss the case because Massachusetts is allegedly not a convenient forum to hear the matter. The Partnership and its General Partners filed an opposition to McDowell's motion to dismiss, and the motion remains pending with the court at this time. On April 22, 2008, the Partnership and its General Partners filed suit against the following defendants: Everest Housing Investors 2, L.P.; Everest Management LLC; Everest Properties, Inc.; Everest Properties, LLC; McDowell Investments, L.P.; MGM Holdings, LLC; Park G.P., Inc., Bond Purchase, L.L.C.; Anise L.L.C.; Paco Development, L.L.C.; Maxus Realty Trust, Inc.; David L. Johnson; W. Robert Kohorst; Danford M. Baker; Monte G. McDowell; Kevan D. Acord (collectively, the "Johnson/Everest Group"), in the Superior Court for Suffolk County, Massachusetts. The Complaint asserts claims against the Johnson/Everest Group for breach of the Partnership Agreement, breach of fiduciary duty, conspiracy and tortuous interference with advantageous business relationships and for their concerted efforts to: (i) improperly gain control of the Partnership and/or certain real estate assets in which the Partnership is invested; (ii) block arms-length transactions with third parties for the sale of real estate assets in which the Partnership is invested; and (iii) gain non-public information for use in trading limited partner units at below-market prices. The Johnson/Everest Group defendants have not yet responded to the Complaint. 6. Federal Income Taxes The following schedule reconciles the reported financial statement net income (loss) for the fiscal years ended March 31, 2008 and 2007 to the net income (loss) reported on the Form 1065, U.S. Partnership Return of Income for the years ended December 31, 2007 and 2006:
2008 2007 -------------- ------------- Net Income (Loss) per financial statements $ (2,939,328) $ 12,558,438 Equity in losses of Local Limited Partnerships for financial reporting purposes in excess of equity in losses for tax purposes 58,799 911,625 Equity in losses of Local Limited Partnerships not recognized for financial reporting purposes (947,169) (1,996,899) Adjustment to reflect March 31 fiscal year end to December 31 taxable year end 559,767 (154,658) Amortization for financial reporting purposes in excess of amortization for tax purposes 2,757 27,336 Provision for valuation allowance on advances to Local Limited Partnerships not deductible for tax purposes 22,093 - Recovery of provision for valuation allowance on advances to Local Limited Partnerships, net of provision, not reportable for tax purposes - (118,248) Impairment on investments in Local Limited Partnerships not deductible for tax purposes 2,406,000 250,000
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P IV (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 6. Federal Income Taxes (continued)
2008 2007 -------------- ------------ Gain on sale of investments in Local Limited Partnerships recognized for tax purposes in excess of gain recognized for financial reporting purposes 123,606 4,752,231 Cash distributions included in net loss for financial reporting purposes - (35,000) -------------- -------------- Net Income (Loss) per tax return $ (713,475) $ 16,194,825 ============== ==============
The differences in the assets and liabilities of the Partnership for financial reporting purposes and tax purposes as of March 31, 2008 and December 31, 2007, respectively, are as follows:
Financial Reporting Tax Purposes Purposes Differences Investments in Local Limited Partnerships $ 691,419 $ (2,085,598) $ 2,770,017 ============== ============== ============== Other assets $ 2,711,538 $ 11,134,567 $ (8,423,029) ============== ============== ============== Liabilities $ 1,053,044 $ 446,050 $ 606,994 ============== ============== ==============
The differences in the assets and liabilities of the Partnership for financial reporting and tax purposes are primarily attributable to: (i) the cumulative equity in losses from Local Limited Partnerships for tax purposes is approximately $10,173,000 greater than for financial reporting purposes, including approximately $7,288,000 of losses the Partnership has not recognized relating to Local Limited Partnerships whose cumulative equity in losses exceeded its total investment; (ii) the Partnership has provided an impairment allowance of approximately $6,637,000 against its investments in Local Limited Partnerships for financial reporting purposes; (iii) approximately $766,000 of amortization has been deducted for financial reporting purposes only; and (iv) organizational and offering costs of approximately $8,352,000 have been capitalized for tax purposes and charged to Limited Partners' equity for financial reporting purposes. 7. Significant Subsidiaries The following Local Limited Partnership invested in by the Partnership represents more than 20% of the Partnership's total assets or equity as of March 31, 2008 or 2007 or net losses for the years ended either March 31, 2008 or 2007. The following financial information represents the performance of this Local Limited Partnership for the years ended December 31, 2007 and 2006:
Sencit Towne House, L.P. 2007 2006 ------------------------ --------------- ---- -------- Total Assets $ 6,902,166 $ 7,115,676 Total Liabilities $ 2,956,239 $ 3,283,732 Revenue $ 2,054,518 $ 1,979,188 Net Income $ 113,983 $ 68,618
The Partnership does not guarantee any of the mortgages or other debt of the Local Limited Partnerships.