- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
---------------------------
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11973
---------------------------
CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP
Maryland 52-1321492
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
Securities registered under Section 12(g) of the
Exchange Act:
UNITS OF LIMITED PARTNER INTEREST
---------------------------
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.
Yes |_| No |X|
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 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-K or any amendment to this
Form 10-K |X|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |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|
The units of limited partner interest of the Registrant are not traded in any
market. Therefore, the units of limited partner interest had neither a market
selling price nor an average bid or asked price.
DOCUMENTS INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
2008 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
PART I
Item 1. Business........................................................ I-1
Item 2. Properties...................................................... I-3
Item 3. Legal Proceedings............................................... I-3
Item 4. Submission of Matters to a Vote of Security Holders............. I-3
PART II
Item 5. Market for the Registrant's Partnership Interests
and Related Partnership Matters .............................. II-1
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... II-2
Item 8. Financial Statements............................................ II-4
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure........................ II-5
Item 9A. Controls and Procedures......................................... II-5
Item 9B. Other Information............................................... II-5
PART III
Item 10. Directors and Executive Officers of the Registrant.............. III-1
Item 11. Executive Compensation.......................................... III-2
Item 12. Security Ownership of Certain Beneficial Owners and Management.. III-2
Item 13. Certain Relationships and Related Transactions.................. III-3
Item 14. Principal Accountant Fees and Services.......................... III-3
PART IV
Item 15. Exhibits and Financial Statements............................... IV-1
PART I
------
ITEM 1. BUSINESS
--------
Capital Realty Investors-II Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on March 23, 1983. On May 6, 1983, the Partnership commenced
offering 50,000 units of additional limited partner interest through a public
offering managed by Merrill Lynch, Pierce, Fenner and Smith, Incorporated. The
Partnership closed the offering on June 20, 1983, when it became fully
subscribed. As of December 31, 2008, 85 units of limited partner interest had
been abandoned.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI.
Services for the Partnership are performed by CRI, as the Partnership has no
employees of its own.
The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding limited
partner interests in limited partnerships (Local Partnerships). The Partnership
originally made investments in 22 Local Partnerships. As of December 31, 2008,
the Partnership retains its investment in one Local Partnership. The Local
Partnership owns a state government-assisted apartment complex, which provides
housing principally to the elderly and/or to individuals and families of low or
moderate income. The original objectives of these investments, not necessarily
in order of importance, were to:
(i) preserve and protect the Partnership's capital;
(ii) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners could use to offset income from other sources;
(iii) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(iv) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.
See Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.
The Local Partnerships in which the Partnership invested were organized by
private developers who acquired the sites, or options thereon, applied for
mortgage financing and applicable mortgage insurance and/or subsidies and who
generally remained as the local general partners in the Local Partnerships. In
most cases, the local general partners of the Local Partnerships retained
responsibility for maintaining, operating and managing the projects. However,
under certain circumstances, the Local Partnerships' partnership agreements
permit removal of the local general partner and replacement with another local
general partner or with an affiliate of the Partnership's Managing General
Partner.
See Part I, Item 4, hereof, for a discussion of the Partnership's Plan of
Liquidation and Dissolution, which was approved by a majority of the units of
limited partner interest on March 22, 2004.
I-1
PART I
------
ITEM 1. BUSINESS - Continued
--------
As a result of its investment in the Local Partnerships, the Partnership
became the principal limited partner in 22 (one remaining as of December 31,
2008) Local Partnerships. As a limited partner, the Partnership's legal
liability for obligations of the Local Partnerships is limited to its
investment. An affiliate of the Managing General Partner of the Partnership is a
general partner in the one remaining Local Partnership. Affiliates of the
Managing General Partner may operate other apartment complexes which may be in
competition for eligible tenants with the Local Partnership's apartment complex.
Although the Local Partnership in which the Partnership remains invested
owns an apartment complex that must compete in the marketplace for tenants,
interest subsidies and/or rent supplements from governmental agencies generally
make it possible to offer certain of the dwelling units to eligible tenants at a
cost significantly below the market rate for comparable conventionally financed
dwelling units. Based on available data, the Managing General Partner believes
there to be no material risk of market competition in the operations of the
apartment complex described below which would adversely impact the Partnership.
A schedule of the apartment complex owned by the Local Partnership in which
the Partnership has an investment as of December 31, 2008, follows.
SCHEDULE OF THE APARTMENT COMPLEX OWNED BY THE LOCAL
PARTNERSHIP IN WHICH CAPITAL REALTY INVESTORS-II LIMITED
PARTNERSHIP HAS AN INVESTMENT(1)
Units
Mortgage Authorized for Expiration
Name and Location Payable at Financed and/or Insured Number of Low Income of
of Apartment Complex 12/31/08 (2) and/or Subsidized Under Rental Units Subsidies HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
Westgate Tower Apts. $1,045,050 Michigan State Housing Develop- 148 0 --
Westland, MI ment Authority/236
---------- --- --
Totals (1 Property) $1,045,050 148 0
========== === ==
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location ------------------------------------ ------------------------------------------------------
of Apartment Complex 2008 2007 2006 2005 2004 2008 2007 2006 2005 2004
- -------------------- ---- ---- ---- ---- ---- ------- ------- ------- ------- -------
Westgate Tower Apts. 91% 95% 92% 95% 96% $ 4,623 $ 4,743 $ 4,597 $ 4,498 $ 4,412
Westland, MI
--- --- --- --- --- ------- ------- ------- ------- -------
Totals (1 Property) (1) 91% 95% 92% 95% 96% $ 4,623 $ 4,743 $ 4,597 $ 4,498 $ 4,412
=== === === === === ======= ======= ======= ======= =======
(1) The property is a multifamily housing complex. No single tenant rents
10% or more of the rentable square footage. Residential leases are
typically one year or less in length, with varying expiration dates,
and substantially all rentable space is for residential purposes.
(2) The amount provided is the balance of the first mortgage loan payable
by the Local Partnership as of December 31, 2008.
On December 31, 2007, the Partnership's interest in Golden Acres was sold.
See the notes to financial statements for additional information concerning the
sale.
On December 31, 2007, the Partnership's interest in Orangewood Plaza was
sold. See the notes to financial statements for additional information
concerning the sale.
I-2
PART I
------
ITEM 2. PROPERTIES
----------
Through its ownership of a limited partner interest in one Local
Partnership, Capital Realty Investors-II Limited Partnership indirectly holds an
interest in the real estate owned by the Local Partnership. See Part I, Item 1,
for information concerning these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material pending legal proceedings to which the Partnership is
a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 2008.
On February 4, 2004, the Partnership filed a Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it
to limited partners to solicit consents for approval of the following:
(1) The sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution, and the
amendment of the Partnership's Limited Partnership Agreement to permit
the Managing General Partner, CRI, to be eligible to receive increased
property disposition fees from the Partnership on the same basis as
such fees may currently be paid to Local General Partners, real estate
brokers or other third party intermediaries employed to sell
Partnership properties, to the extent that CRI markets and sells the
Partnership's properties instead of such persons (a "Disposition
Fee");
(2) The amendment of the Partnership's Limited Partnership Agreement to
permit CRI to be eligible to receive a partnership liquidation fee in
the amount of $500,000, payable only if the Managing General Partner
is successful in liquidating all of the Partnership's investments
within 36 months from the date the liquidation was approved [March 22,
2004], in recognition that one or more of the properties in which the
Partnership holds an interest might not be saleable to parties not
affiliated with the respective Local Partnership due to the amount
and/or terms of their current indebtedness (the "Partnership
Liquidation Fee"); and
(3) To authorize the Managing General Partner, in its sole discretion, to
elect to extend the period during which Consents of Limited Partners
may be solicited and voted, but not beyond sixty (60) days from the
date that the Consent Solicitation Statement was sent to the Limited
Partners.
The matters for which consent was solicited are collectively referred to as
the "Liquidation."
I-3
PART I
------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Continued
---------------------------------------------------
The record date for voting was December 31, 2003, and the final voting
deadline was March 22, 2004. A tabulation of votes received by the voting
deadline follows.
FOR AGAINST ABSTAIN TOTAL
----------------- ----------------- ------------------ -----------------
Units of Units of Units of Units of
limited limited limited limited
partner partner partner partner
Description interest Percent interest Percent interest Percent interest Percent
----------- -------- ------- -------- ------- -------- ------- -------- -------
Sale, dissolution and
five percent
Disposition Fee 28,699 57.6% 1,264 2.5% 268 0.5% 30,231 60.6%
$500,000 Partnership
Liquidation Fee 25,841 51.8% 3,546 7.1% 844 1.7% 30,231 60.6%
Extension of
solicitation period 27,975 56.1% 1,767 3.5% 489 1.0% 30,231 60.6%
The Partnership was not liquidated within 36 months from the approved
liquidation date of March 22, 2004, therefore no liquidation fee was taken by
the Managing General Partner. The Managing General Partner is continuing towards
liquidation of all the Partnership's investments.
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
I-4
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS
-------------------------------------------------
AND RELATED PARTNERSHIP MATTERS
-------------------------------
(a) There is no established market for the purchase and sale of units of
additional limited partner interest (Units) in the Partnership,
although various informal secondary market services exist. Due to the
limited markets, however, investors may be unable to sell or otherwise
dispose of their Units.
On October 29, 2008, Peachtree Partners (Peachtree) initiated an
unregistered tender offer to purchase up to 4.9% of the outstanding
Units in the Partnership at a price of $31 per Unit. Aside from
Limited Partner interests held by its affiliates in the Partnership,
Peachtree is unaffiliated with the Partnership or the Managing General
Partner. The price offered was determined solely at the discretion of
Peachtree and does not necessarily represent the fair market value of
each Unit. In its Press Release, the Managing General Partner
recommended that Limited Partners reject the unregistered tender offer
because it viewed the offer price as inadequate.
On or about January 28, 2009, Peachtree initiated an unregistered
tender offer to purchase up to 4.9% of the outstanding Units in the
Partnership at a price of $35 per Unit. Aside from Limited Partner
interests held by its affiliates in the Partnership, Peachtree is
unaffiliated with the Partnership or the Managing General Partner. The
price offered was determined solely at the discretion of Peachtree and
does not necessarily represent the fair market value of each Unit. In
its Press Release, the Managing General partner recommended that
Limited Partners reject that unregistered tender offer because it
viewed the offer price as inadequate.
(b) As of March 26, 2009, there were approximately 2,959 registered
holders of Units in the Partnership.
(c) No distributions were declared in the years 2008 and 2007.
II-1
PART II
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors-II Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section is based on the financial statements, and contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including national and local economic
conditions, the general level of interest rates, governmental regulations
affecting the Partnership and interpretations of those regulations, the
competitive environment in which the Partnership operates, and the availability
of working capital.
Critical Accounting Policies
----------------------------
The Partnership has disclosed its selection and application of significant
accounting policies in Note 1 of the notes to financial statements included in
this annual report on Form 10-K at December 31, 2008. The Partnership accounts
for its remaining investment in partnership (Local Partnership) using the equity
method because the Partnership is a limited partner in the Local Partnership. As
such, the Partnership has no control over the selection and application of
accounting policies, or the use of estimates, by the Local Partnership.
Environmental and operational trends, events and uncertainties that might affect
the property owned by the Local Partnership would not necessarily have a
significant impact on the Partnership's application of the equity method of
accounting.
General
-------
The Partnership has invested, through Local Partnerships, primarily in
federal or state government-assisted apartment complexes intended to provide
housing to low and moderate income tenants. In conjunction with such
governmental assistance, which includes federal and/or state financing at
below-market interest rates and rental subsidies, certain of the Local
Partnerships agreed to regulatory limitations on (i) cash distributions, (ii)
use of the properties, and (iii) sale or refinancing. These limitations
typically were designed to remain in place for the life of the mortgage.
The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties, through the Partnership's investment in Local Partnerships.
Regulatory restrictions on cash distributions from the properties limited the
original projections of annual cash distributions from property operations.
The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986, which virtually eliminated many of the incentives
for the new construction or the sale of existing low income housing properties
by limiting the use of passive loss deductions. Therefore, C.R.I., Inc. (the
Managing General Partner) concentrated on transferring the source of investment
yield from tax benefits to cash flow wherever possible, thereby potentially
enhancing the ability of the Partnership to share in the appreciated value of
the properties.
II-2
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Managing General Partner has received consent from the holders of a
majority of the units of limited partner interest for the liquidation of the
Partnership. (See Part I, Item 4.) There can be no assurance that the
Liquidation will be completed pursuant to the Plan of Liquidation and
Dissolution. The following paragraphs discuss the operations of the Partnership
and the property in which it is invested during this period of liquidation.
The Managing General Partner has sold certain properties by utilizing
opportunities presented by federal affordable housing legislation, favorable
financing terms and preservation incentives available to tax credit and
not-for-profit purchasers. The remaining rental property owned by the Local
Partnership is financed by a state housing agency. Programs developed by the
agency may include opportunities to sell a property to a qualifying purchaser
who would agree to maintain the property as low to moderate income housing. The
Managing General Partner continues to monitor certain state housing agency
programs, and/or programs provided by certain lenders, to ascertain whether the
property would qualify within the parameters of a given program and whether
these programs would provide an appropriate economic benefit to the Limited
Partners of the Partnership. However, it appears unlikely that a sale under any
of the agency's current programs would produce sufficient cash to pay off the
Partnership's purchase money note secured by its interest in the Local
Partnership. Moreover, the Managing General Partner has been unable to locate a
number of the holders of the note to obtain their consent to sell the property
for a lesser amount. It is exploring judicial means of obtaining declaratory
relief to proceed with disposition of the property.
The Managing General Partner continues to seek strategies to deal with
affordable housing requirements. While the Managing General Partner cannot
predict the outcome at this time, the Managing General Partner will continue to
work with the Local Partnership to develop strategies that maximize the benefits
to investors.
Financial Condition/Liquidity
-----------------------------
As of December 31, 2008, the Partnership had approximately 2,966 investors
who held a total of 49,910 units of additional limited partner interest which
were originally sold for the aggregate amount of $49,910,000. The Partnership
originally made investments in 22 Local Partnerships, of which one remains at
December 31, 2008. The Partnership's liquidity, with unrestricted cash resources
of $4,137,701 as of December 31, 2008, is expected to be adequate to meet its
current and anticipated operating cash needs. As of March 26, 2009, there were
no material commitments for capital expenditures.
During 2008 and 2007, the Partnership received no cash distributions from
the remaining Local Partnership.
The Partnership's remaining obligation with respect to its investment in
Westgate Tower Limited Dividend Housing Association (Westgate), in the form of a
nonrecourse purchase money note which matured September 1, 2003, has a principal
balance of $1,400,000 plus accrued interest of $3,256,262 as of December 31,
2008, and is payable in full upon the earliest of: (i) sale or refinancing of
the respective Local Partnership's rental property; (ii) payment in full of the
respective Local Partnership's permanent loan; or (iii) maturity.
The purchase money note, which is nonrecourse to the Partnership, is
secured by the Partnership's interest in the Westgate Local Partnership, which
owns Westgate Tower Apartments. The underlying property does not have sufficient
appreciation and equity to enable the Partnership to pay the purchase money
note's principal and accrued interest. The Managing General Partner and the
representatives of the purchase money noteholders have signed a contract for the
assignment of the Partnership's interest in Westgate in satisfaction of the
II-3
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
purchase money note. The gain on this assignment would be taxed at a federal tax
rate of up to 35 percent. There can be no assurance that a transfer of the
Partnership's interest in Westgate will occur.
The Managing General Partner has received consent from a majority of Unit
Holders for the liquidation of the Partnership. (See Part I, Item 4.) It is
anticipated that the Partnership's obligation, discussed above, would be retired
in conjunction with such Liquidation. There can be no assurance that the
Liquidation will be completed pursuant to the Plan of Liquidation and
Dissolution.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the year ended December 31, 2008, existing cash resources were adequate to
support net cash used in operating activities. Cash and cash equivalents
decreased $450,410 during 2008, primarily due to net cash used in operating
activities. The Partnership does not expect to receive distributions from the
remaining Local Partnership in future years.
Results of Operations
---------------------
2008 Versus 2007
- ----------------
The Partnership's net loss for the year ended December 31, 2008, increased
compared to 2007, primarily due to decreased interest revenue, partially offset
by increased share of income from partnerships and lower professional fees.
Interest revenue decreased due to lower cash and cash equivalent balances and
interest rates in 2008. Share of income from partnerships increased primarily
due to lower operating expenses at Westgate. Professional fees are lower due to
a reduction in audit fee expense associated with the timing of services
provided.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which the Partnership's real
property investments were purchased.
The rental revenues of the Partnership's remaining property for the five
years ended December 31, 2008, follow. Rental revenue amounts have been adjusted
to reflect property sales and interests transferred in 2008 and in prior years.
For the years ended December 31,
------------------------------------------------------------------------------------------------
2008 2007 2006 2005 2004
-------- -------- -------- -------- --------
Rental Revenue $684,189 $701,989 $680,348 $665,740 $652,980
Annual Percentage
(Decrease) increase (2.5%) 3.2% 2.2% 2.0%
ITEM 8. FINANCIAL STATEMENTS
--------------------
The information required by this item is contained in Part IV.
II-4
PART II
-------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
-----------------------
In January 2009, representatives of the Managing General Partner of the
Partnership carried out an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures, pursuant to
Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not
expect that the Partnership's disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that
as of December 31, 2008, our disclosure controls and procedures were effective
to ensure that (i) the information required to be disclosed by us in the reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
was recorded, processed, summarized or reported within the time periods
specified in the SEC's rules and forms and (ii) such information was accumulated
and communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure. In addition, there have been no significant changes in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
-----------------
There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended December 31, 2008, but not reported, whether
or not otherwise required by this Form 10-K at December 31, 2008.
Certain states may assert claims against the Partnership for failure to
withhold and remit state income tax on operating profit or where the sale(s) of
property in which the Partnership was invested failed to produce sufficient cash
proceeds with which to pay the state tax and/or to pay statutory partnership
filing fees. The Partnership is unable to quantify the amount of such potential
claims at this time. The Partnership has consistently advised its Partners that
they should consult with their tax advisors as to the necessity of filing
non-resident returns in such states with respect to their proportional taxes
due.
II-5
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a) and (b)
The Partnership has no directors, executive officers or significant
employees of its own.
(a) and (b)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the
Partnership, follow.
William B. Dockser, 72, has been the Chairman of the Board and a Director of CRI
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed
publicly held limited partnerships created to invest in low and moderate income
multifamily apartment properties. Prior to joining Kaufman and Broad, he served
in various positions at HUD, culminating in the post of Deputy FHA Commissioner
and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where
he was responsible for all federally insured housing production programs. Before
coming to the Washington, D.C., area, Mr. Dockser was a practicing attorney in
Boston and served as a special Assistant Attorney General for the Commonwealth
of Massachusetts. He holds a Bachelor of Laws degree from Yale University Law
School and a Bachelor of Arts degree, cum laude, from Harvard University.
H. William Willoughby, 62, has been President, Secretary and a Director of CRI
since January 1990, and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. Effective May 7, 2005, he assumed the duties
of Principal Financial Officer and Principal Accounting Officer of CRI. He is
principally responsible for the financial management of CRI and its associated
partnerships. Prior to joining CRI in 1974, he was Vice President of Shelter
Corporation of America and a number of its subsidiaries dealing principally with
real estate development and equity financing. Before joining Shelter
Corporation, he was a senior tax accountant with Arthur Andersen & Co. He holds
a Juris Doctor degree, a Master of Business Administration degree and a Bachelor
of Science degree in Business Administration from the University of South
Dakota.
(c) There is no family relationship between any of the foregoing directors
and executive officers.
(d) Involvement in certain legal proceedings.
None.
III-1
PART III
--------
ITEM 11. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), and (h)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required by this Item 10 is incorporated herein by
reference to Notes 3 and 4 of the notes to financial statements
contained in Part III.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
(a) Security ownership of certain beneficial owners.
The following table sets forth certain information concerning any
person (including any "group") who is known by the Partnership to be
the beneficial owner of more than five percent of the issued and
outstanding units of additional limited partner interest (Units), at
March 26, 2009.
% of Total
Name and Address Amount and Nature Units Issued
of Beneficial Owner of Beneficial Ownership and Outstanding
------------------------- ----------------------- ----------------
Equity Resource, 10,516 Units 21.1%
Investments, LLC
1280 Massachusetts Avenue
4th Floor
Cambridge, MA 02138
(b) Security ownership of management.
The following table sets forth certain information concerning all
Units beneficially owned, as of March 26, 2009, by each director and
by all directors and officers as a group of the Managing General
Partner of the Partnership.
% of Total
Name of Amount and Nature Units Issued
Beneficial Owner of Beneficial Ownership and Outstanding
---------------- ----------------------- ---------------
William B. Dockser None 0.0%
H. William Willoughby None 0.0%
All Directors and Officers
as a Group (2 persons) None 0.0%
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership Agreement
which allows, under certain circumstances, the ability to change
control.
III-2
PART III
--------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) and (b)
Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 10 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to financial statements contained in Part III, which contains
disclosure of related party transactions, is also incorporated herein
by reference.
(c) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
12(a).
(d) Transactions with promoters.
Not applicable.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
During the years ended December 31, 2008 and 2007, the Partnership retained
Grant Thornton LLP to provide services as follows.
Year Ended December 31,
----------------------------
2008 2007
-------- --------
Audit fees $ 74,200 $107,500
Audit-related fees -- --
Tax fees (1) 12,500 29,020
All other fees -- --
-------- --------
Total $ 86,700 $136,520
======== ========
(1) Preparation of Partnership federal and state tax returns.
The Partnership has no directors or officers. The Board of Directors of the
Managing General Partner of the Partnership, serving as the audit committee, has
approved in advance 100% of the fees paid to, and services provided by, Grant
Thornton LLP. Prior to approving Grant Thornton LLP's providing any non-audit
services, the Board of Directors of the Managing General Partner of the
Partnership would assess whether the provision of those services would
compromise Grant Thornton LLP's independence. Grant Thornton LLP provided
partnership tax return preparation services during the years ended December 31,
2008 and 2007, which services it was determined did not compromise Grant
Thornton LLP's independence.
III-3
PART IV
-------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS
---------------------------------
1. Financial Statements
a. The following documents are included as part of this report:
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Partners' (Deficit) Capital
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules
None.
(3) Exhibits
Index of Exhibits (Listed according to the number assigned in the
table in Item 601 of Regulation S-K.)
Exhibit No. 2 - Plan of acquisition, reorganization, arrangement,
liquidation, or succession.
a. Definitive Proxy Statement. (Incorporated by reference to
Registrant's Definitive Proxy Statement dated February 4,
2004.)
Exhibit No. 3 - Articles of Incorporation and bylaws.
a. Certificate of Limited Partnership of Capital Realty
Investors-II Limited Partnership. (Incorporated by reference
to Exhibit No. 4 to Registrant's Registration Statement on
Form S-11, as amended, dated April 28, 1983.)
Exhibit No. 4 - Instruments defining the rights of security
holders, including indentures.
a. Limited Partnership Agreement of Capital Realty Investors-II
Limited Partnership. (Incorporated by reference to Exhibit
No. 4 to Registrant's Registration Statement on Form S-11,
as amended, dated April 28, 1983.)
Exhibit No. 10 - Material Contracts.
a. Management Services Agreement between CRI and Capital Realty
Investors- II Limited Partnership. (Incorporated by
reference to Exhibit No. 10(b) to Registrant's Registration
Statement on Form S-11, as amended, dated April 28, 1983.)
IV-1
PART IV
-------
ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS - Continued
---------------------------------
Exhibit No. 31.1 - Certification of Principal Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit No. 31.2 - Certification of Principal Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit No. 32 - Certification of Principal Executive Officer and
Principal Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Exhibit No. 99 - Additional Exhibits.
a. Prospectus of the Partnership, dated May 6, 1983. (Incorporated
by reference to Registrant's Registration Statement on Form S-11,
as amended, dated April 28, 1983.)
IV-2
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS-II
LIMITED PARTNERSHIP
----------------------------------------------
(Registrant)
by: C.R.I., Inc.
-----------------------------------------
Managing General Partner
March 26, 2009 by: /s/ William B. Dockser
- -------------- ------------------------------------
DATE William B. Dockser,
Director, Chairman of the Board,
and Treasurer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
March 26, 2009 by: /s/ H. William Willoughby
- -------------- ------------------------------------
DATE H. William Willoughby,
Director, President, Secretary,
Principal Financial Officer and
Principal Account Officer
IV-3
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Capital Realty Investors-II Limited Partnership
Report of Independent Registered Public Accounting Firm................... IV-5
Balance Sheets as of December 31, 2008 and 2007........................... IV-6
Statements of Operations for the Years Ended
December 31, 2008, 2007 and 2006........................................ IV-7
Statements of Changes in Partners' (Deficit) Capital for the Years
ended December 31, 2008, 2007 and 2006.................................. IV-8
Statements of Cash Flows for the Years Ended
December 31, 2008, 2007 and 2006........................................ IV-9
Notes to Financial Statements............................................. IV-10
IV-4
Report of Independent Registered Public Accounting Firm
The Partners
Capital Realty Investors-II Limited Partnership.
We have audited the accompanying balance sheets of Capital Realty Investors-II
Limited Partnership (a Maryland limited partnership) (the Partnership) as of
December 31, 2008 and 2007 and the related statements of operations, partners'
(deficit) capital, and cash flows for each of the three years in the period
ended December 31, 2008. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free from material misstatement. The Partnership is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Partnership's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
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, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Realty Investors-II
Limited Partnership as of December 31, 2008 and 2007, and the results of its
operations, and its cash flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.
As described in Note A to the financial statements, the Partnership has received
limited partner approval of the Partnership's plan to sell all of the
Partnership's assets and dissolve the Partnership pursuant to a Plan of
Liquidation and Dissolution. There can be no assurance that the Liquidation will
be completed pursuant to the Plan of Liquidation and Dissolution.
/s/ Grant Thornton LLP
McLean, Virginia
March 26, 2009
IV-5
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
December 31,
----------------------------
2008 2007
------------ ------------
Investment in partnership held for sale or transfer ............................... $ 436,484 $ 392,458
Cash and cash equivalents ......................................................... 4,137,701 4,588,111
Other assets ...................................................................... 4,559 31,741
------------ ------------
Total assets ................................................................... $ 4,578,744 $ 5,012,310
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Due on investment in partnership .................................................. $ 1,400,000 $ 1,400,000
Accrued interest payable .......................................................... 3,256,262 3,130,262
Accounts payable and accrued expenses ............................................. 64,927 149,718
------------ ------------
Total liabilities .............................................................. 4,721,189 4,679,980
------------ ------------
Commitments and contingencies
Partners' (deficit) capital:
Capital paid in:
General Partners .............................................................. 2,000 2,000
Limited Partners .............................................................. 50,015,000 50,015,000
------------ ------------
50,017,000 50,017,000
Less:
Accumulated distributions to partners ......................................... (34,752,903) (34,752,903)
Offering costs ................................................................ (5,278,980) (5,278,980)
Accumulated losses ............................................................ (10,127,562) (9,652,787)
------------ ------------
Total partners' (deficit) capital ........................................... (142,445) 332,330
------------ ------------
Total liabilities and partners' (deficit) capital ........................... $ 4,578,744 $ 5,012,310
============ ============
The accompanying notes are an integral
part of these financial statements.
IV-6
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the years ended
December 31,
-----------------------------------------
2008 2007 2006
----------- ----------- -----------
Share of income (loss) from partnerships ......................... $ 44,026 $ (185) $ (118,017)
----------- ----------- -----------
Other revenue and expenses:
Revenue:
Interest and other ........................................... 125,469 249,851 270,649
----------- ----------- -----------
125,469 249,851 270,649
----------- ----------- -----------
Expenses:
Management fee ............................................... 249,996 249,996 249,996
General and administrative ................................... 213,252 214,705 232,413
Interest ..................................................... 126,000 126,000 126,000
Professional fees ............................................ 55,022 143,306 166,330
----------- ----------- -----------
644,270 734,007 774,739
----------- ----------- -----------
Total other revenue and expenses ........................... (518,801) (484,156) (504,090)
----------- ----------- -----------
Loss before gain on disposition of investment in partnerships .... (474,775) (484,341) (622,107)
Gain on disposition of investment in partnerships ................ -- 12,476 90,932
----------- ----------- -----------
Net loss ......................................................... $ (474,775) $ (471,865) $ (531,175)
=========== =========== ===========
Net loss allocated to General Partners (1.51%) ................... $ (7,169) $ (7,125) $ (8,021)
=========== =========== ===========
Net loss allocated to Initial and Special Limited Partners (1.49%) $ (7,074) $ (7,031) $ (7,914)
=========== =========== ===========
Net loss allocated to Additional Limited Partners (97%) .......... $ (460,532) $ (457,709) $ (515,240)
=========== =========== ===========
Net loss per unit of Additional Limited Partner Interest,
based on 49,910 units outstanding .............................. $ (9.23) $ (9.17) $ (10.32)
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
IV-7
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ----------- -----------
Partners' (deficit) capital, January 1, 2006 . $ (310,037) $ (251,225) $ 2,149,494 $ 1,588,232
Net loss ................................... (8,021) (7,914) (515,240) (531,175)
Tax distribution on behalf of
Additional Limited Partners .............. -- -- (252,862) (252,862)
----------- ----------- ----------- -----------
Partners' (deficit) capital, December 31, 2006 (318,058) (259,139) 1,381,392 804,195
----------- ----------- ----------- -----------
Net loss ................................... (7,125) (7,031) (457,709) (471,865)
----------- ----------- ----------- -----------
Partners' (deficit) capital, December 31, 2007 (325,183) (266,170) 923,683 332,330
----------- ----------- ----------- -----------
Net loss ................................... (7,169) (7,074) (460,532) (474,775)
----------- ----------- ----------- -----------
Partners' (deficit) capital, December 31, 2008 $ (332,352) $ (273,244) $ 463,151 $ (142,445)
=========== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
IV-8
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the years ended
December 31,
------------------------------------------
2008 2007 2006
------------ ------------ ------------
Cash flows from operating activities:
Net loss .................................................................. $ (474,775) $ (471,865) $ (531,175)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of (income) loss from partnerships ................................ (44,026) 185 118,017
(Gain) loss on disposition of investment in partnerships ................ -- (12,476) 12,567
Additional gain on disposition of investment in partnerships ............ -- -- (103,499)
Changes in assets and liabilities:
Decrease (increase) in other assets ................................... 27,182 86,065 (115,915)
Increase in accrued interest payable .................................. 126,000 126,000 126,000
(Decrease) increase in accounts payable and accrued expenses .......... (84,791) 1,869 7,426
Increase in accrued interest receivable on advances ................... -- -- (1,250)
----------- ----------- -----------
Net cash used in operating activities ............................... (450,410) (270,222) (487,829)
----------- ----------- -----------
Cash flows from investing activities:
Collection of sale proceeds receivable .................................... -- -- 797,693
Additional proceeds from disposition of investment in partnerships ........ -- -- 103,499
Receipt of distributions from partnerships ................................ -- -- 37,636
Proceeds from disposition of investment in partnerships receivable ........ -- 12,476 --
----------- ----------- -----------
Net cash provided by investing activities ........................... -- 12,476 938,828
----------- ----------- -----------
Cash flows from financing activities:
Tax distribution on behalf of Additional Limited Partners ................. -- -- (252,862)
----------- ----------- -----------
Net cash used in financing activities ............................... -- -- (252,862)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents ........................ (450,410) (257,746) 198,137
Cash and cash equivalents, beginning of year ................................ 4,588,111 4,845,857 4,647,720
----------- ----------- -----------
Cash and cash equivalents, end of year ...................................... $ 4,137,701 $ 4,588,111 $ 4,845,857
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
IV-9
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-II Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on March
23, 1983, and shall continue until December 31, 2037, unless sooner
dissolved in accordance with the terms of the Partnership Agreement. (See
Note 1.k., below, for a discussion on the Partnership's Plan of Liquidation
and Dissolution.) The Partnership was formed to invest in real estate by
acquiring and holding limited partner interests in limited partnerships
(Local Partnerships) that own and operate federal or state
government-assisted apartment properties which provide housing principally
to the elderly or to individuals and families of low or moderate income,
located throughout the United States.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, and current and former shareholders of
CRI. The Initial Limited Partner is Rockville Pike Associates Limited
Partnership-II, a limited partnership which includes certain current
officers and former employees of CRI or its affiliates. The Special Limited
Partner had been Two Broadway Associates II, a limited partnership
comprised of an affiliate and employees of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated. Effective January 1, 2002, Two Broadway Associates II
transferred its interest to MLH Merger Corporation and three individuals.
The Partnership sold 50,000 units at $1,000 per unit of additional
limited partner interest through a public offering. The offering period was
terminated on June 20, 1983. As of December 31, 2008, 85 units of
additional limited partner interest had been abandoned.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in conformity with accounting principles
generally accepted in the United States of America.
c. Investment in partnership
-------------------------
The remaining investment in the Local Partnership (see Note 2) is
accounted for by the equity method because the Partnership is a limited
partner in the Local Partnership. Under this method, the carrying amount of
the investment in the Local Partnership is (i) reduced by distributions
received and (ii) increased or reduced by the Partnership's share of
earnings or losses, respectively, of the Local Partnership. As of December
31, 2008 and 2007, the remaining Local Partnership had no cumulative loss.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
d. Investment in partnership held for sale or transfer
---------------------------------------------------
Due to the possible sale or transfer of the Westgate Tower Limited
Dividend Housing Associates (Westgate) property, the Partnership's
investment in Westgate has been reclassified to investment in partnership
held for sale or transfer in the accompanying balance sheets at December
31, 2008 and 2007. When investments are reclassified to investment in
partnerships held for sale or transfer, amortization of acquisition fees
IV-10
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
and property purchase costs are discontinued. Assets held for sale or
transfer are not recorded in excess of their estimated net realizable
value.
e. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time and
demand deposits, and repurchase agreements with original maturities of
three months or less. Interest income is recognized as earned.
f. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
has been made for income taxes in these financial statements.
g. Use of estimates
----------------
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, the
Partnership is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
h. Fair value of financial instruments
-----------------------------------
In September 2006, the Financial Accounts Standards Board (FASB)
issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157
establishes a formal framework for measuring fair value under US GAAP.
Although SFAS No. 157 applies (amends) the provisions of existing FASB and
AICPA pronouncements, it does not require any new fair value measurements,
nor does it establish valuation standards. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. We adopted the recognition
and disclosure provisions of SFAS No. 157 for financial assets and
financial liabilities and for nonfinancial assets and nonfinancial
liabilities that are re-measured at least annually effective January 1,
2008. The adoption did not have a material impact on our financial
position, results of operations or cash flows. In accordance with FSP SFAS
No. 157-2, "Effective Date of FASB Statement No. 157", we are required to
adopt the provisions of SFAS No. 157 for all other nonfinancial assets and
nonfinancial liabilities effective January 1, 2009 and do not expect the
adoption to have a material impact on our financial position, results of
operations or cash flows.
SFAS No. 157 establishes a hierarchy for inputs used in measuring fair
value as follows:
1. Level 1 Inputs -- quoted prices in active markets for identical assets
of liabilities.
2. Level 2 Inputs -- observe inputs other than quoted prices in active
markets for identical assets and liabilities.
3. Level 3 Inputs -- unobservable inputs.
IV-11
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level within which the fair value measurement is categorized
is based on the lowest level input that is significant to the fair value
measurement.
The Partnership has determined that the fair value of the purchase
money note is de minimus.
i. Definitive Proxy Statement
--------------------------
On February 4, 2004, the Partnership filed a Definitive Proxy
Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934,
and mailed it to limited partners to solicit consents for approval of the
following:
(1) The sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution, and the
amendment of the Partnership's Limited Partnership Agreement to permit
the Managing General Partner, CRI, to be eligible to receive increased
property disposition fees from the Partnership on the same basis as
such fees may currently be paid to Local General Partners, real estate
brokers or other third party intermediaries employed to sell
Partnership properties, to the extent that CRI markets and sells the
Partnership's properties instead of such persons (a "Disposition
Fee");
(2) The amendment of the Partnership's Limited Partnership Agreement to
permit CRI to be eligible to receive a partnership liquidation fee in
the amount of $500,000, payable only if the Managing General Partner
is successful in liquidating all of the Partnership's investments
within 36 months from the date the liquidation was approved [March 22,
2004], in recognition that one or more of the properties in which the
Partnership holds an interest might not be saleable to parties not
affiliated with the respective Local Partnership due to the amount
and/or terms of their current indebtedness (the "Partnership
Liquidation Fee"); and
(3) To authorize the Managing General Partner, in its sole discretion, to
elect to extend the period during which Consents of Limited Partners
may be solicited and voted, but not beyond sixty (60) days from the
date that the Consent Solicitation Statement was sent to the Limited
Partners.
The matters for which consent was solicited are collectively referred to as
the "Liquidation."
The record date for voting was December 31, 2003, and the final voting
deadline was March 22, 2004. A tabulation of votes received by the voting
deadline follows.
IV-12
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
FOR AGAINST ABSTAIN TOTAL
------------------ ------------------ ------------------- ------------------
Units of Units of Units of Units of
limited limited limited limited
partner partner partner partner
Description interest Percent interest Percent interest Percent interest Percent
----------- -------- ------- -------- ------- -------- ------- -------- -------
Sale, dissolution and
five percent
Disposition Fee 28,699 57.6% 1,264 2.5% 268 0.5% 30,231 60.6%
$500,000 Partnership
Liquidation Fee 25,841 51.8% 3,546 7.1% 844 1.7% 30,231 60.6%
Extension of
solicitation period 27,975 56.1% 1,767 3.5% 489 1.0% 30,231 60.6%
The Partnership was not liquidated within 36 months from the approved
liquidation date of March 22, 2004, therefore no liquidation fee was taken
by the Managing General Partner. The Managing General Partner is continuing
towards liquidation of the Partnership's remaining investment.
There can be no assurance that the Liquidation will be completed
pursuant to the Plan of Liquidation and Dissolution.
j. Allocation of net income (loss)
-------------------------------
Net income (loss) is allocated based on respective partnership
interest or units outstanding. The Partnership has no dilutive interests.
k. New accounting pronouncement
----------------------------
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115" ("SFAS No. 159"). This standard permits entities to
choose to measure many financial instruments and certain other items at
fair value and is effective for the first fiscal year beginning after
November 15, 2007. We did not make this fair value election when we adopted
SFAS No. 159 effective January 1, 2008, and, therefore, it did not have an
impact on our financial position, results of operations, or cash flows.
2. INVESTMENT IN PARTNERSHIP
a. Due on investment in partnerships and accrued interest payable
--------------------------------------------------------------
As of December 31, 2008 and 2007, the Partnership held a limited
partner interest in one Local Partnership which was organized to develop,
construct, own, maintain and operate the rental apartment property. The
remaining amounts due on the Partnership's investment in one Local
Partnership follow.
December 31,
---------------------------
2008 2007
---------- ----------
Purchase money note $1,400,000 $1,400,000
Accrued interest payable 3,256,262 3,130,262
---------- ----------
Total $4,656,262 $4,530,262
========== ==========
IV-13
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
The remaining purchase money note, which matured September 1, 2003
(see below), has a stated interest rate of 9%. The purchase money note is
nonrecourse, but its terms provide for payment in full upon the earliest
of: (i) sale or refinancing of the Local Partnership's rental property;
(ii) payment in full of the Local Partnership's permanent loan; or (iii)
maturity.
The purchase money note outstanding at December 31, 2008, which is
nonrecourse to the Partnership, is secured by the Partnership's interest in
the Westgate Local Partnership, which owns Westgate Tower Apartments. The
underlying property does not have sufficient appreciation and equity to
enable the Partnership to pay the purchase money note's principal and
accrued interest. The Managing General Partner and the representatives of
the purchase money noteholders have signed a contract for the assignment of
the Partnership's interest in Westgate in satisfaction of the purchase
money note. The gain on this assignment would be taxed at a federal tax
rate of up to 35 percent. There can be no assurance that a transfer of
Westgate will occur.
Interest expense on the Partnership's Westgate purchase money note for
each of the years ended December 31, 2008, 2007 and 2006, was $126,000. The
accrued interest payable on the purchase money note of $3,256,262 and
$3,130,262 as of December 31, 2008 and 2007, respectively, is in default.
Westgate
--------
The Partnership defaulted on its one remaining purchase money note,
related to Westgate, on September 1, 2003, when the note (as extended)
matured and was not paid. The default amount included principal and accrued
interest of $1,400,000 and $2,584,492, respectively. As of March 26, 2009,
principal and accrued interest of $1,400,000 and $3,285,604, respectively,
were due.
Due to the possible assignment of the property related to Westgate,
the Partnership's basis in the Local Partnership, along with the net
unamortized amount of acquisition fees and property purchase costs, which
totaled $436,484 and $392,458 as of December 31, 2008 and December 31,
2007, respectively, has been reclassified to investment in partnerships
held for sale or transfer in the accompanying balance sheets.
b. Interests in profits, losses and cash distributions made by the
----------------------------------------------------------------
Local Partnerships
------------------
The Partnership has a 97.99% interest in profits, losses and cash
distributions (as restricted by state housing agencies) (collectively, the
Agencies) in the remaining Local Partnership. An affiliate of the Managing
General Partner of the Partnership is also a general partner of the Local
Partnership. As stipulated by the Local Partnership's partnership
agreement, the Local Partnership is required to make annual cash
distributions from surplus cash flow, if any. During 2008 and 2007, the
Partnership did not receive cash distributions from rental operations of
the remaining Local Partnership. As of both December 31, 2008 and 2007, the
remaining Local Partnership did not have aggregate surplus cash, as defined
by their respective regulatory Agencies.
The cash distributions to the Partnership from the operations of the
Local Partnerships may be limited by the Agencies' regulations. Such
regulations limit annual cash distributions to a percentage of the owner's
equity investment in a rental property. Funds in excess of those which may
IV-14
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
be distributed to owners are generally required to be placed in a residual
receipts account held by the governing state or federal agency for the
benefit of the property. In addition, local general partners have the
authority to withhold funds if needed for property repairs, improvements,
or other property needs.
Upon sale or refinancing of a property owned by a Local Partnership,
or upon the liquidation of a Local Partnership, the proceeds from such
sale, refinancing or liquidation shall be distributed in accordance with
the respective provisions of each Local Partnership's partnership
agreement. In accordance with such provisions, the Partnership would
receive from such proceeds its respective percentage interest of any
remaining proceeds, after payment of (i) all debts and liabilities of the
Local Partnership and certain other items, (ii) the Partnership's capital
contributions plus certain specified amounts as outlined in each
partnership agreement, and (iii) certain special distributions to general
partners and related entities of the Local Partnership.
c. Completed sales
---------------
Golden Acres
------------
On December 31, 2007, the Partnership's interest in Chowchilla Elderly
Associates, Ltd. (Golden Acres) was sold. The sale resulted in gain on
disposition of investment in partnerships of $2,476 for financial statement
purposes and in gain of $922,645 for federal tax purposes.
Orangewood Plaza
----------------
On December 31, 2007, the Partnership's interest in Orangewood Plaza
Limited Partnership (Orangewood Plaza) was sold. The sale resulted in gain
on disposition of investment in partnerships of $10,000 for financial
statement purposes and in gain of $1,330,147 for federal tax purposes.
d. Asset held for sale or transfer
-------------------------------
Westgate
--------
See Note 2.a., above.
e. Summarized financial information
--------------------------------
The balance sheet and statement of operations for the remaining Local
Partnership in which the Partnership is invested as of December 31, 2008,
follow. The information for the remaining Local Partnership has investment
basis (equity method).
IV-15
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
BALANCE SHEET
December 31, 2008
Equity
Method
----------
Number of Local Partnerships 1
=
Rental property, at cost, net of accumulated
depreciation of $3,453,216 $1,053,112
Land 153,473
Other assets 424,211
----------
Total assets $1,630,796
==========
Mortgage note payable $1,045,050
Other liabilities 192,310
----------
Total liabilities 1,237,360
Partners' capital 393,436
----------
Total liabilities and partners' capital $1,630,796
==========
STATEMENT OF OPERATIONS
For the year ended December 31, 2008
Equity
Method
----------
Number of Local Partnerships 1
=
Revenue:
Rental $ 684,189
Other 40,007
----------
Total revenue 724,196
----------
Expenses:
Operating 568,470
Interest (48,901)
Depreciation and amortization 159,698
----------
Total expenses 679,267
----------
Net income $ 44,929
==========
Cash distributions $ --
==========
Partnership's share of
Local Partnership net income 44,026
----------
Share of income from partnership $ 44,026
==========
The balance sheet and statement of operations for the remaining Local
Partnership in which the Partnership was invested as of December 31, 2007,
follow. The information is for the remaining Local Partnership has
investment basis (equity method).
IV-16
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
BALANCE SHEET
December 31, 2007
Equity
Method
----------
Number of Local Partnerships 1
=
Rental property, at cost, net of accumulated
depreciation of $3,293,518 $1,204,071
Land 153,473
Other assets 363,975
----------
Total assets $1,721,519
==========
Mortgage note payable $1,176,655
Other liabilities 196,357
----------
Total liabilities 1,373,012
Partners' capital 348,507
----------
Total liabilities and partners' capital $1,721,519
==========
STATEMENT OF OPERATIONS
For the year ended December 31, 2007
Equity
Method
----------
Number of Local Partnerships 1
=
Revenue:
Rental $ 701,989
Other 28,381
----------
Total revenue 730,370
----------
Expenses:
Operating 606,371
Interest (39,011)
Depreciation and amortization 163,199
----------
Total expenses 730,559
----------
Net loss $ (189)
==========
Cash distributions $ --
==========
Partnership's share of
Local Partnership net loss (185)
----------
Share of loss from partnership $ (185)
==========
Combined balance sheets and combined statements of operations for the
three Local Partnerships in which the Partnership was invested as of
December 31, 2006, follow. The information is presented separately for one
Local Partnership which has investment basis (equity method), and for two
Local Partnerships for which the Partnership's carrying value is zero
(equity method suspended).
IV-17
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
COMBINED BALANCE SHEETS
December 31, 2006
Equity
Method Suspended Total
---------- ----------- -----------
Number of Local Partnerships 1 2 3
= = =
Rental property, at cost, net of
accumulated depreciation of
$3,130,319, $1,669,515, and
$4,799,834, respectively $1,347,896 $ 1,442,412 $ 2,790,308
Land 153,473 127,960 281,433
Other assets 338,082 276,238 614,320
---------- ------------ -----------
Total assets $1,839,451 $ 1,846,610 $ 3,686,061
========== ============ ===========
Mortgage notes payable $1,298,371 $ 2,978,929 $ 4,277,300
Other liabilities 192,384 236,261 428,645
Due to general partners -- 1,385 1,385
---------- ----------- -----------
Total liabilities 1,490,755 3,216,575 4,707,330
Partners' capital (deficit) 348,696 (1,369,965) (1,021,269)
---------- ----------- -----------
Total liabilities
and partners' deficit $1,839,451 $ 1,846,610 $ 3,686,061
========== =========== ===========
COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 2006
Equity
Method Suspended Total
----------- ----------- -----------
Number of Local Partnerships 1 2 3
= = =
Revenue:
Rental $ 680,348 $ 427,734 $ 1,108,082
Other 28,885 155,433 184,318
----------- ----------- -----------
Total revenue 709,233 583,167 1,292,400
----------- ----------- -----------
Expenses:
Operating 613,459 707,856 1,321,315
Interest (35,865) 40,987 5,122
Depreciation and amortization 162,735 108,703 271,438
----------- ----------- -----------
Total expenses 740,329 857,546 1,597,875
----------- ----------- -----------
Net loss $ (31,096) $ (274,379) $ (305,475)
=========== =========== ===========
Cash distributions $ -- $ 37,636 (1) $ 37,636
=========== =========== ===========
Cash distributions recorded as income $ -- $ 37,636 (1) $ 37,636
Partnership's share of
Local Partnership net loss (30,471) (123,933) (154,404)
Interest on advance -- (1,249) (1,249)
----------- ----------- -----------
Share of loss from partnerships $ (30,471) $ (87,546) $ (118,017)
=========== =========== ===========
(1) Includes Troy Manor transferred in December 2006.
IV-18
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT IN PARTNERSHIP - Continued
Cash distributions recorded as income are included in share of income
from partnerships on the statements of operations for the respective years,
and are recorded as cash receipts on the respective balance sheets. Cash
distributions recorded as a reduction of the related investment are
recorded as cash receipts on the respective balance sheets, and are
recorded as a reduction of investment in partnerships.
g. Reconciliation of the Local Partnerships' financial
---------------------------------------------------
statement net loss to taxable income
------------------------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (i) certain revenue and the related assets are recorded when
received rather than when earned; (ii) certain costs are expensed when paid
or incurred rather than capitalized and amortized over the period of
benefit; and (iii) a shorter life is used to compute depreciation on the
property as permitted by the Internal Revenue Code and underlying
regulations. These returns are subject to examination and, therefore,
possible adjustment by the IRS.
A reconciliation of the Local Partnerships' financial statement net
loss reflected above to taxable income follows.
For the years ended
December 31,
--------------------------------------------
2008 2007 2006
---------- ---------- -----------
Financial statement net income (loss) $ 44,929 $ (189) $ (305,475)
Differences between financial statement
and tax depreciation, amortization,
and miscellaneous differences 116,585 214,453 161,464
---------- ---------- ----------
Taxable income (loss) $ 161,514 $ 214,264 $ (144,011)
========== ========== ==========
3. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
paid the Managing General Partner a fee for services in connection with the
review, selection, evaluation, negotiation and acquisition of the interests in
the Local Partnerships. The fee amounted to $1,000,000, which is equal to two
percent of the Additional Limited Partners' capital contributions to the
Partnership. The acquisition fee was capitalized and was being amortized over a
30-year period using the straight-line method. At December 31, 2004, each of the
Partnership's investments in Local Partnerships was reclassified to investment
in partnerships held for sale and amortization of this fee ceased.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner or its affiliates for its
direct expenses in connection with managing the Partnership. For the years ended
December 31, 2008, 2007 and 2006, the Partnership paid $172,998, $175,260 and
$174,952, respectively, as direct reimbursement of expenses incurred on behalf
of the Partnership. Such expenses are included in general and administrative
expenses in the accompanying statements of operations.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to pay the Managing General Partner an annual incentive management
fee (Management Fee) after all other expenses of the Partnership are paid. The
amount of the Management Fee shall not exceed 0.25% of invested assets, as
IV-19
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
3. RELATED PARTY TRANSACTIONS - Continued
defined in the Partnership Agreement, and shall be payable from the
Partnership's cash available for distribution, as defined in the Partnership
Agreement, as of the end of each calendar year, as follows:
(i) First, on a monthly basis as an operating expense before any
distributions to limited partners in the amount computed as described
in the Partnership Agreement, provided that such annual amount shall
not be greater than $250,000; and
(ii) Second, after distributions to the limited partners in the amount of
one percent of the gross proceeds of the offering, the balance of such
0.25% of invested assets.
For each of the years ended December 31, 2008, 2007 and 2006, the Partnership
paid the Managing General Partner a Management Fee of $249,996.
Pursuant to approval of the Partnership's Consent Solicitation Statement on
March 22, 2004, the Managing General Partner is eligible to receive a fee of not
more than five percent of the sale price of an investment in a Local Partnership
or the property it owns, payable upon the sale of an investment in a Local
Partnership or the property it owns, to the extent the Managing General Partner
markets and sells a property instead of a real estate broker or unrelated Local
General Partner. The disposition fee on sales of partnership interests (as
opposed to sales of real property) is calculated as up to five percent of the
imputed sale price, which is the amount the Local Partnership's property would
have to be sold for to produce the same distribution to the investors as the
sale of the partnership interests. No such disposition fees were paid with
respect to the sales of interests in Golden Acres or Orangewood Plaza.
In addition, the Managing General Partner was authorized pursuant to the
approved proxy statement to receive a Partnership Liquidation Fee in the amount
of $500,000, payable only if the Managing General Partner was successful in
liquidating all of the Partnership's investments within 36 months from the date
the liquidation was approved. As the liquidation was not completed by March 22,
2007, the Managing General Partner did not earn the fee.
4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS
All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partner and
1.51% to the General Partners. Upon admission of the Special Limited Partner and
the Additional Limited Partners, the interest of the Initial Limited Partner was
reduced to 0.49%. Pursuant to the Consent Solicitation Statement approved March
22, 2004, the net proceeds resulting from the liquidation of the Partnership or
the Partnership's share of the net proceeds from any sale or refinancing of the
Local Partnerships or their rental properties which are not reinvested shall be
distributed and applied as follows:
(i) to the payment of debts and liabilities of the Partnership (including
all expenses of the Partnership incident to the sale or refinancing)
other than loans or other debts and liabilities of the Partnership to
any partner or any affiliate; such debts and liabilities, in the case
of a non-liquidating distribution, to be only those which are then
required to be paid or, in the judgment of the Managing General
Partner, required to be provided for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership (including
the Partnership Liquidation Fee);
IV-20
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued
(iii) to each partner in an amount equal to the positive balance in his
capital account as of the date of the sale or refinancing, adjusted
for operations and distributions to that date, but before allocation
of any profits for tax purposes realized from such sale or refinancing
and allocated pursuant to Section 4.03(d) of the Partnership
Agreement;
(iv) to the Limited Partners (A) an aggregate amount of proceeds from sale
or refinancing and all prior sales or refinancings equal to their
capital contributions, without reduction for prior cash distributions
other than prior distributions of sale and refinancing proceeds, plus
(B) an additional amount equal to a cumulative non-compounded six
percent return on each limited partner's capital contribution, reduced
by (1) an amount equal to 50% of the losses for tax purposes allocated
to such limited partner and (2) distributions of net cash flow to each
limited partner, such return, losses for tax purposes and net cash
flow distributions commencing on the first day of the month in which
the capital contribution was made;
(v) to the repayment of any unrepaid loans theretofore made by any partner
or any affiliate to the Partnership for Partnership obligations and to
the payment of any unpaid amounts owing to the General Partners
pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital contributions;
(vii) thereafter, for services to the Partnership, to General Partner
Martin C. Schwartzberg (or his designee), whether or not he is then a
General Partner, 0.333% of the gross proceeds resulting from (A) such
sale (if the proceeds are from a sale rather than a refinancing) and
(B) any prior sales from which such fee was not paid to the General
Partner or his designee; and
(viii) the remainder, 12% to the General Partners (or their assignees), 3%
to the Special Limited Partner and 85% to the Initial and Additional
Limited Partners (or their assignees).
Notwithstanding and in addition to the foregoing, the Managing General
Partner may receive a fee (not to exceed five percent of the sales price of
Apartment Complexes) from the Partnership or the Local Partnership for services
provided by the Managing General Partner and/or its Affiliates in connection
with the marketing and sale of Apartment Complexes. Such fee (a "Disposition
Fee"), which shall be payable pursuant to Section 4.02(a)(i), shall only be
payable upon the sale of an Apartment Complex or a sale of the Partnership's
interest in the Local Partnership (a sale in either of such formats is referred
to in this Section 4.02(a) as a "sale of an Apartment Complex"), and shall be
subject to the following restrictions: (i) all property disposition fees and any
other commissions payable upon the sale of any Apartment Complex, inclusive of
any fees to the General Partners and/or their Affiliates, shall not exceed the
lesser of the competitive rate paid to third parties for similar services or six
percent of the sales price of the applicable Apartment Complex, (ii) the
Managing General Partner and/or its Affiliates must provide substantial services
in connection with the marketing and sales effort (as determined by the General
Partners), and (iii) Dockser and Willoughby shall waive their respective shares
of the one percent fee payable under Section 4.02(a)(vii) above.
Notwithstanding any other provision of this Agreement to the contrary and
in addition to the foregoing, the Managing General Partner was authorized
pursuant to the approved proxy statement to receive a partnership liquidation
fee of $500,000, payable only if the Managing General Partner is successful in
liquidating all of the Partnership's investments within 36 months from the date
the liquidation was approved. As the liquidation was not completed by March 22,
2007, the Managing General Partner did not earn the liquidation fee.
IV-21
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued
Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment properties, shall not in
the aggregate exceed the lesser of the competitive rate or six percent of the
sale price of the apartment properties.
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
Additional Limited Partners, 1% to the Special Limited Partner, 0.49% to the
Initial Limited Partner and 1.51% to the General Partners after payment of the
Management Fee (see Note 3), as specified in the Partnership Agreement.
As defined in the Partnership Agreement, after the establishment of any
reserves deemed necessary by the Managing General Partner and after payment of
the Management Fee, the Partnership had no remaining cash available for
distribution for the years ended December 31, 2008 and 2007. The Managing
General Partner currently intends to retain all of the Partnership's remaining
undistributed cash for operating cash reserves pending further distributions
under its Plan of Liquidation and Dissolution.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET INCOME
TO TAXABLE INCOME
For federal income tax purposes, the Partnership reports on a basis
whereby: (i) certain expenses are amortized rather than expensed when incurred;
(ii) certain costs are amortized over a shorter period for tax purposes, as
permitted by the Internal Revenue Code and underlying regulations, and (iii)
certain costs are amortized over a longer period for tax purposes. The
Partnership records its share of income or losses from its investments in
limited partnerships for federal income tax purposes as reported on the Local
Partnerships' federal income tax returns (see Note 2.g.), including losses in
excess of related investment amounts. These returns are subject to examination
and, therefore, possible adjustment by the IRS.
A reconciliation of the Partnership's financial statement net loss to
taxable income follows.
For the years ended
December 31,
---------------------------------------------
2008 2007 2006
----------- ---------- -----------
Financial statement net loss $ (474,775) $ (471,865) $ (531,175)
Adjustments:
Differences between financial statement net
income and taxable income related to the
Partnership's equity in the Local Partnerships'
income or losses and accrued expenses 240,242 364,508 118,894
Differences between financial statement
gain (loss) and tax gain (loss) from the
sale or transfer of properties -- 2,240,316 1,141,826
---------- ---------- ----------
Taxable income $ (234,533) $2,132,959 $ 729,545
========== ========== ==========
IV-22
CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
6. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains four
cash accounts. As of December 31, 2008, the uninsured portion of the cash
balances was $4,317,716.
Number of Bank Balance Insured Uninsured
Bank Accounts 12/31/08 12/31/08 12/31/08
- ---------------------- -------- ------------ -------- ----------
Dreyfus Inst Preferred
Money Market Fund 2 $4,317,000 $0 $4,317,000
SunTrust Bank 2 $18,716 $18,000 $716
# # #
IV-23