UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-11987 Krupp Realty Limited Partnership-IV (Exact name of registrant as specified in its charter) Massachusetts 04-2772783 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (617) 423-2233 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest 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. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: Part IV, Item 14 The exhibit index is located on pages 9-12. The total number of pages in this document is 28. PART I This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. ITEM 1.BUSINESS Krupp Realty Limited Partnership-IV ("KRLP- IV") was formed on December 1, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, are the General Partners of KRLP-IV. KRLP-IV has also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On January 18, 1983, KRLP-IV commenced the offering of up to 30,000 units of Investor Limited Partner Interests (the "Units"). As of March 31, 1983, KRLP-IV received subscriptions for all 30,000 Units at $1,000 per Unit and therefore, the public offering was successfully completed on that date. For details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. The primary business of KRLP-IV is to acquire, operate and ultimately dispose of real estate. KRLP-IV initially acquired six multi-family apartment complexes (Copper Creek, Walden Pond (formerly Westbridge), Indian Run, Fenland Field, Pavillion and Tilbury Woods Apartments), a retail center (Lakeview Plaza) and invested in a joint venture in Lakeview Tower (the "Joint Venture") with an affiliated limited partnership. KRLP-IV considers itself to be engaged only in the industry segment of investment in real estate. KRLP-IV sold Lakeview Plaza and Tilbury Woods Apartments in 1990 and 1991, respectively. Additionally, KRLP-IV received a terminating capital distribution from the Joint Venture with proceeds from the sale of Lakeview Tower in 1992. In 1990, the General Partners formed three limited partnerships: Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd. At the same time, the General Partners transferred ownership of Pavillion Apartments to Pavillion Partners, Ltd., Copper Creek Apartments to Copper Creek Partners, Ltd., and Walden Pond Apartments to Westbridge Partners, Ltd. in exchange for a 99% Limited Partner Interest in the new entities. Westcop Corporation, an affiliate of KRLP-IV, contributed a total of $11,216 in exchange for a 1% General Partner Interest in the new entities. KRLP-IV, Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd., are collectively known as Krupp Realty Limited Partnership-IV and Subsidiaries (collectively referred to herein as the "Partnership"). The Partnership endeavored to renegotiate the debt on these properties, the negotiations were unsuccessful and these partnerships subsequently petitioned for relief under federal bankruptcy laws. The Partnership's real estate investments are subject to some seasonal fluctuations resulting from changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, the availability and cost of borrowed funds, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (i) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control. As of December 31, 1997, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 1997, the Partnership had an aggregate of 1,256 apartment units. A summary of the Partnership's multi-family real estate investments is presented below. Schedule III included in Item 8 (Appendix A) to this report contains additional detailed information with respect to individual properties. Average Occupancy For the Years Ended Year of December 31, Description Acquisition Total Units199719961995 19941993 Fenland Field Apartments 1983 234 100% 98% 95%94% 90% Columbia, Maryland Indian Run Apartments 1983 256 96% 96% 93%95% 96% Abilene, Texas Pavillion Apartments 1983 350 95% 95% 94%93% 90% Garland, Texas Walden Pond Apartments 1983 416 98% 95% 93% 97% 92% Houston, Texas 1,256 Units ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or to which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The transfer of Units of Limited Partner Interest is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Investor Limited Partners as of December 31, 1997 was approximately 1,900. The Partnership made the following distributions to its Partners during the years ended December 31, 1997 and 1996: Year Ended December 31, 1997 1996 Amount Per Unit Amount Per Unit Limited Partners: Investor Limited Partners (30,000 Units outstanding) $1,119,903 $37.33 $2,419,804 $80.66 Original Limited Partner 47,158 47,158 General Partners 11,790 24,920 $1,178,851 $2,491,882 Due to improvements in the operations of the properties and the availability of cash flow, the General Partners reinstated distributions in August, 1994, at a rate of $4.67 per Unit. In 1995 and 1996, the annual distribution rates were increased to $28.00 and $37.33 per Unit, respectively. These semiannual distributions continued in 1997 at an annualized rate of $37.33 per Unit. Additionally, the Partnership made special distributions to the General Partners and Investor Limited Partners during the second quarter of 1996 with the funds received from the sale of Lakeview Tower Apartments in 1992. Pursuant to the Partnership Agreement, distributions from capital transactions, such as the sale of Lakeview Tower, are allocated 99% to Investor Limited Partners and 1% to the General Partners. For details, see Note E to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Supplementary Data, which are included in Items 7 and 8 of this report, respectively. 1997 1996 1995 1994 1993 Total revenue $7,721,285 $7,307,643 $7,108,711 $6,810,441 $6,228,685 Net income (loss) 157,116 (156,880) (21,628) (488,936) (1,468,566) Net income (loss) allocated to: Investor Limited Partners 149,260 (149,036) (20,547) (464,489) (1,395,137) Per Unit 4.98 (4.97) (.68) (15.48) (46.50) Original Limited Partner 6,285 (6,275) (865) (19,558) (58,743) General Partners 1,571 (1,569) (216) (4,889) (14,686) Total assets at December 31 16,718,318 17,605,712 20,887,877 22,305,143 24,218,655 Long-term obligations at December 31 19,544,471 19,429,196 20,193,607 20,939,499 22,180,186 Distributions: Investor Limited Partners 1,119,903 2,419,804 839,859 140,003 - Per Unit 37.33 80.66 28.00 4.67 - Original Limited Partner 47,158 47,158 35,362 5,895 - General Partners 11,790 24,920 8,841 1,474 - Prior performance of the Partnership is not necessarily indicative of future operations. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the operations of its remaining real estate investments. Such ability would also be impacted by the future availability of bank borrowings, and upon the future refinancing and sale of the Partnership's real estate investments. These sources of liquidity will be used by the Partnership for payment of expenses related to real estate operations, capital improvements, debt service and other expenses. Cash Flow, if any, as calculated under Section 8.2(a) of the Partnership Agreement, will then be available for distribution to the Partners. The Partnership funded approximately $1,500,000 of capital improvements at the properties in 1997 for appliances, carpeting, paving and other exterior building improvements. The Partnership expects to spend approximately $1,146,000 for capital improvements in 1998 consisting of internal and external enhancements which include the replacement of appliances, carpeting and vinyl flooring at the properties as well as extensive building exterior improvements at Pavillion Apartments. The Partnership expects to fund these improvements from established reserves and proceeds from the additional note, as discussed below. Due to improvements in the operations of the properties and reduced debt service, the Partnership had sufficient cash flow in 1994 to reinstate distributions at a rate of $4.67 per Unit. The annual distribution rate was increased to $28.00 per Unit in 1995 and to $37.33 per Unit in 1996, the Partnership's current distribution rate. In addition, the Partnership made a special distribution of $1,313,031, $43.33 per Unit, during the second quarter of 1996 based on the remaining proceeds from the sale of Lakeview Tower in 1992. Distributions of net cash proceeds from capital transactions are allocated in accordance with the Partnership Agreement (as described in Note E to the Consolidated Financial Statements included in Item 8 (Appendix A) of this report). The General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels of working capital reserves the Partnership should maintain. Adjustments to distributions are made when appropriate to reflect such assessments. On July 31, 1997, the General Partners obtained an additional $900,000 note for Walden Pond Apartments. The note bears interest at a rate of 9.5% per annum and matures on February 28, 1999, simultaneous with the first mortgage note. The proceeds from the note were placed in escrow and will be used to fund capital improvements at the property. The Partnership paid closing costs of $33,082 to secure the note. (For further details, see Note D to Consolidated Financial Statements included in Item 8 (Appendix A) of this report.) Operations 1997 compared to 1996 Net income increased in 1997 as compared to 1996, as the increase in revenue more than offset the increase in expenses. Rental revenue increased as a result of rental rate increases implemented at all the Partnership's properties, as well as improved average occupancy rates at two properties in 1997 as compared to 1996. This increase was slightly offset by a decrease in other income due to lower average cash balances available for investment. Total expenses, including general and administrative, management fees and depreciation, increased in 1997 as compared to 1996. General and administrative expense increased as a result of legal, mailing and printing costs related to the Partnership's response to the unsolicited tender offers to purchase Partnership Units. In addition, expenses related to the preparation and mailing of Partnership reports and other investor communications increased. Management fees increased in conjunction with higher revenues, as discussed above. Depreciation expense increased as a result of continued capital improvements at all the Partnership's properties. These increases were partially offset by a decrease in maintenance expense as a result of extensive parking lot repairs and building exterior expenditures completed in 1996 at Indian Run and Pavillion Apartments. 1996 compared to 1995 Net income decreased in 1996 as compared to 1995, as an increase in expenses more than offset an increase in revenue. Increased rental rates at the Partnership's properties were instituted at the end of 1995 and the beginning of 1996. This increase, as well as overall increased average occupancy rates, resulted in the increase in rental revenue in 1996 when compared to 1995. Other income decreased due to lower interest income earned on short-term investments as average cash balances decreased when compared to 1995. Total expenses, including operating, maintenance and real estate taxes, increased in 1996 as compared to 1995. The rise in operating expense was attributable to increases in payroll, utility, advertising and leasing expenses. Payroll was affected by a worker's compensation insurance refund received by the Partnership's properties in 1995. Additionally, severe weather contributed to the rise in operating expense, as utility expense increased with higher consumption levels. The additional consumption was also a direct result of increased occupancy at Pavillion, Walden Pond and Fenland Field as the Partnership's advertising and leasing efforts were successful in 1996. Maintenance expense increased due to external wall repairs at Indian Run, paving, landscaping and stairway repairs at both Indian Run and Walden Pond, and snow removal expenditures at Fenland Field. Real estate taxes increased due to increases in the assessed values of Indian Run and Pavillion. General and administrative expense decreased as a result of costs incurred in 1995 associated with obtaining appraisals of the Partnership's properties. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of both KRLP-IV and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-IV, is as follows: Position with Name and Age The Krupp Corporation Douglas Krupp (51) President and Co-Chairman of the Board George Krupp (53) Co-Chairman of the Board Wayne H. Zarozny (39) Treasurer Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, health care facility ownership and the management of the company. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of both Berkshire Realty Company, Inc. (NYSE-BRI) and Harborside Health care (NYSE-HBR). Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II. George Krupp is Douglas Krupp's brother. George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Mr. Krupp received his undergraduate education from the University of Pennsylvania and Harvard University Extension School, and holds a Master's degree in history from Brown University. Wayne H. Zarozny is Vice President of The Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for accounting and financial reporting, treasury, accounts payable and payroll activities. Prior to joining The Berkshire Group, he was an audit supervisor for Pannell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University and is a Certified Public Accountant. ITEM 11.EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, beneficial owners of record owning more than 5% of the Partnership's 30,000 outstanding Units were as follows: Title Name and Address Amount and Nature Percent of of of of Class Beneficial Owner Beneficial Ownership Class Investor Equity Resource Fund Limited XVII LP Partner 14 Story Street Units Cambridge, MA 02138 894.5 Units 3.0% Investor Equity Resource Fund Limited XVI LP Partner 14 Story Street Units Cambridge, MA 02138 419 Units 1.4% Investor Equity Resource Fund Limited XIX LP Partner 14 Story Street Units Cambridge, MA 02138 211 Units 0.7% Investor Equity Resource Limited Cambridge Fund LP Partner 14 Story Street Units Cambridge, MA 02138 160 Units 0.5% Investor Equity Resource Limited General Fund LP Partner 14 Story Street Units Cambridge, MA 02138 20 Units 0.1% Total 1,704.50 Units 5.7% The only interests held by management or its affiliates consist of its General Partner and Original Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. 2. Consolidated Financial Statement Schedule - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 of this Report. All other schedules are omitted as they are not applicable or not required or the information is provided in the Consolidated Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable Exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: (4.1) Amended Agreement of Limited Partnership dated as of January 12, 1983 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-80650)].* (4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on March 31, 1983 [Exhibit 4.2 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10) Material Contracts Fenland Field Apartments (10.1) Management Agreement dated December 19, 1986 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.3 to Registrant's Annual Report on Form 10-K dated December 31, 1986 (File No. 0-11987)].* (10.2) Modification and Restatement of Promissory Note dated April 28, 1993 between Krupp Realty Limited Partnership-IV and John Hancock Mutual Life Insurance Company [Exhibit 10.2 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.3) Modification and Restatement of Indemnity Deed of Trust and Security Agreement dated April 28, 1993 between Krupp Realty Limited Partnership-IV and John Hancock Mutual Life Insurance Company [Exhibit 10.3 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* Indian Run Apartments (10.4) Management Agreement dated June 2, 1983 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.16 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10.5) Multifamily Note, dated October 25, 1994 between Bank United of Texas FSB and Krupp Realty Limited Partnership-IV, a Massachusetts limited partnership. (File No. 0-11987).* (10.6) Multifamily Deed of Trust, dated October 25, 1994 by Krupp Realty Limited Partnership-IV, a Massachusetts limited partnership and Randolph C. Henson, as Trustee, and Bank United of Texas FSB. (File No. 0-11987).* Walden Pond Apartments (10.7) Management Agreement dated June 2, 1983 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.19 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10.8) Certificate of Limited Partnership of Westbridge Partners, Ltd., executed March 1, 1990. [Exhibit 19.9 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.9) Westbridge Partners, Ltd. Agreement of Limited Partnership executed March 1, 1990. [Exhibit 20.1 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.10) Bill of Sale Agreement between Krupp Realty Limited Partnership-IV and Westbridge Partners, Ltd., executed March 1, 1990. [Exhibit 20.2 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0- 11987)].* (10.11) Westbridge Partners, Ltd. First Amendment to Agreement of Limited Partnership, executed April 9, 1990. [Exhibit 20.3 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.12) Order Granting Motion of First Boston Mortgage Capital Corp. for Relief from the Automatic Stay dated January 28, 1992. [Exhibit C to Registrant's Report on Form 8-K dated March 3, 1992 (File No. 0- 11987)].* (10.13) Modification Agreement dated February 28, 1992 between Westbridge Partners, Ltd. and University Mortgage Acquisition Corp. [Exhibit 10.14 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.14) Renewal Multifamily Note dated February 28, 1992 between Westbridge Partners, Ltd. and University Mortgage Acquisition Corp. [Exhibit 10.15 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* (10.15) Renewal Multifamily Deed of Trust, Assignment of Rents and Security Agreement dated February 28, 1992 by Westbridge Partners, Ltd. and John M. Walker, Jr., as Trustee, and University Mortgage Acquisition Corp. [Exhibit 10.16 to Registrant's Annual Report on Form 10-K dated December 31, 1993 (File No. 0-11987)].* Pavillion Apartments (10.16) Management Agreement dated June 2, 1983 between Krupp Realty Limited Partnership-IV, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.25 to Registrant's Annual Report on Form 10-K dated December 31, 1983 (File No. 2-80650)].* (10.17) Certificate of Limited Partnership of Pavillion Partners, Ltd., executed March 1, 1990. [Exhibit 19.1 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.18) Pavillion Partners, Ltd. Agreement of Limited Partnership executed March 1, 1990. [Exhibit 19.2 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.19) Bill of Sale Agreement between Krupp Realty Limited Partnership-IV and Pavillion Partners, Ltd., executed March 1, 1990. [Exhibit 19.3 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0- 11987)].* (10.20) Pavillion Partners, Ltd. First Amendment to Agreement of Limited Partnership, executed April 9, 1990. [Exhibit 19.4 to Registrant's Report on Form 10-Q dated June 30, 1990 (File No. 0-11987)].* (10.21) Pavillion Partners, Ltd. Chapter 11 Voluntary Petition executed June 4, 1990 in The United States Bankruptcy Court for the Northern District of Texas, Dallas Division. [Exhibit 10.51 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-11987)].* (10.22) Pavillion Partners, Ltd., Debtor's First Amended Plan of Reorganization executed January 16, 1991 in The United States Bankruptcy Court for the Northern District of Texas, Dallas Division. [Exhibit 10.52 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-11987)].* (10.23) Promissory Note dated April 13, 1994 by and between Pavillion Partners, Ltd. and Sunlife Insurance Company of America. [Exhibit 10.1 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0- 11987)].* (10.24) Deed of Trust and Security Agreement dated April 13, 1994 between Pavillion Partners, Ltd. and Sunlife Insurance Company of America. [Exhibit 10.2 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-11987)].* * Incorporated by reference. (c) Reports on Form 8-K During the last quarter of the year ended December 31, 1997 the Partnership did not file any reports on Form 8-K. 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, on the 25th day of March, 1998. KRUPP REALTY LIMITED PARTNERSHIP-IV By: The Krupp Corporation, a General Partner By: /s/ Douglas Krupp Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the th day of March, 1998. Signatures Titles /s/ Douglas Krupp President, Co-Chairman (Principal Douglas Krupp Executive Officer) and Director of The Krupp Corporation, a GeneralPartner. /s/ George Krupp Co-Chairman (Principal Executive George Krupp Officer) and Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer of the Krupp Corporation, Wayne H. Zarozny a General Partner. APPENDIX A KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1997 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets at December 31, 1997 and December 31, 1996 F-4 Consolidated Statements of Operations For the Years Ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 1997, 1996 and 1995 F-6 Consolidated Statements of Cash Flows For the Years Ended December 31, 1997, 1996 and 1995 F-7 Notes to Consolidated Financial StatementsF-8 - F-14 Schedule III - Real Estate and Accumulated Depreciation F-15 - F-16 All other schedules are omitted as they are not applicable, not required, or the information is provided in the consolidated financial statements or the notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Limited Partnership-IV and Subsidiaries: We have audited the consolidated financial statements and the financial statement schedule of Krupp Realty Limited Partnership-IV and Subsidiaries (the "Partnership") listed in the index on page F-2 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Krupp Realty Limited Partnership-IV and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND L.L.P. January 30, 1998 KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 ASSETS 1997 1996 Multi-family apartment complexes, net of accumulated depreciation of $26,859,567 and $24,742,332, respectively (Note D) $14,947,503 $15,566,325 Cash and cash equivalents (Note C) 402,621 956,012 Replacement reserve and repair escrows (Note D) 302,985 31,951 Prepaid expenses and other assets 852,446 809,579 Deferred expenses, net of accumulated amortization of $218,977 and $156,813, respectively (Note F) 212,763 241,845 Total assets $16,718,318 $17,605,712 LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable (Note D) $20,327,586 $20,192,138 Accounts payable - 16,938 Due to affiliates (Note F) 41,571 32,392 Accrued expenses and other liabilities 1,212,728 1,206,076 Total liabilities 21,581,885 21,447,544 Partners' deficit (Note E): Investor Limited Partners (30,000 Units outstanding) (3,216,956) (2,246,313) Original Limited Partner (1,339,425) (1,298,552) General Partners (307,186) (296,967) Total Partners' deficit (4,863,567) (3,841,832) Total liabilities and Partners' deficit$16,718,318$17,605,712 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Revenue: Rental $ 7,667,293 $ 7,195,526$ 6,939,316 Other income (Note C) 53,992 112,117 169,395 Total revenue 7,721,285 7,307,643 7,108,711 Expenses: Operating (Note F) 2,169,020 2,204,240 2,011,396 Maintenance 677,491 722,959 630,222 Real estate taxes 759,158 743,584 630,957 General and administrative (Note F)153,734 120,653 166,730 Management fees (Note F) 308,841 269,428 272,061 Depreciation and amortization 2,179,399 2,106,590 2,106,589 Interest (Note D) 1,312,291 1,294,247 1,311,140 Total expenses 7,559,934 7,461,701 7,129,095 Income (loss) before minority interest 161,351 (154,058) (20,384) Minority interest (4,235) (2,822) (1,244) Net income (loss) (Note G) $ 157,116 $ (156,880)$ (21,628) Allocation of net income (loss) (Note E): Investor Limited Partners (30,000 Units outstanding) $ 149,260 $ (149,036)$ (20,547) Investor Limited Partners Per Unit $ 4.98 $ (4.97)$ (.68) Original Limited Partner $ 6,285 $ (6,275)$ (865) General Partners $ 1,571 $ (1,569)$ (216) The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1997, 1996 and 1995 Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1994$ 1,182,933$(1,208,892)$ (261,421) $ (287,380) Distributions (839,859) (35,362) (8,841) (884,062) Net loss (20,547) (865) (216) (21,628) Balance at December 31, 1995 322,527 (1,245,119) (270,478) (1,193,070) Distributions (2,419,804) (47,158) (24,920) (2,491,882) Net loss (149,036) (6,275) (1,569) (156,880) Balance at December 31, 1996 (2,246,313) (1,298,552) (296,967) (3,841,832) Distributions (Note E) (1,119,903) (47,158) (11,790) (1,178,851) Net income (Note E) 149,260 6,285 1,571 157,116 Balance at December 31, 1997$(3,216,956)$(1,339,425)$ (307,186)$(4,863,567) The per Unit distributions for the years ended December 31, 1997, 1996 and 1995 were $37.33, $80.66 and $28.00, respectively, of which $0, $43.33 and $0 represented a return of capital, respectively. The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995 1997 1996 1995 Operating activities: Net income (loss) $157,116 $(156,880) $(21,628) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,179,399 2,106,590 2,106,589 Changes in assets and liabilities: Decrease (increase) in prepaid expenses and other assets (42,867) (127,399) 71,364 Increase in accrued expenses and other liabilities 6,652 222,291 43,640 Increase (decrease) in accounts payable (10,649) (50,513) 55,353 Increase (decrease) in due to affiliates 9,179 (65,448) 88,523 Net cash provided by Operating activities 2,298,830 1,928,641 2,343,841 Investing activities: Additions to fixed assets (1,498,413) (530,823) (427,362) Deposits to replacement reserve and repair escrows (962,861) (62,861) (62,861) Withdrawals from replacement reserve and repair escrows 691,827 49,976 64,135 Increase (decrease) in accounts payable for fixed asset additions (6,289) 6,289 - Net cash used in investing activities (1,775,736) (537,419) (426,088) Financing activities: Proceeds from note payable 900,000 - - Principal payments on mortgage notes payable (764,552) (746,022) (729,129) Increase in deferred expenses(33,082) - (1,942) Distributions (1,178,851) (2,491,882) (884,062) Net cash used in financing activities (1,076,485) (3,237,904) (1,615,133) Net increase (decrease) in cash and cash equivalents (553,391) (1,846,682) 302,620 Cash and cash equivalents, beginning of year 956,012 2,802,694 2,500,074 Cash and cash equivalents, end of year $ 402,621 $ 956,012 $ 2,802,694 The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A.Organization Krupp Realty Limited Partnership-IV ("KRLP-IV") was formed on December 1, 1982 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-IV terminates on December 31, 2020, unless earlier terminated upon the sale of the last of KRLP-IV and Subsidiaries' properties or the occurrence of certain other events as set forth in the Partnership Agreement. KRLP-IV issued all of the General Partner Interests to The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of KRLP-IV, the General Partners are not required to make any additional capital contributions. KRLP-IV also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II in exchange for a capital contribution of $4,000. The Original Limited Partner is not required to make any additional capital contributions to KRLP-IV. On January 18, 1983, KRLP-IV commenced the offering of up to 30,000 Units of Investor Limited Partner Interests (the "Units"). As of March 31, 1983, KRLP-IV received subscriptions for all 30,000 Units at $1,000 per Unit and therefore, the public offering was successfully completed on that date. In 1990, the General Partners on behalf of KRLP- IV formed three limited partnerships: Pavillion Partners, Ltd., Copper Creek Partners, Ltd. and Westbridge Partners, Ltd. At the same time, the General Partners transferred ownership of Pavillion Apartments to Pavillion Partners, Ltd., Copper Creek Apartments to Copper Creek Partners, Ltd., and Walden Pond Apartments to Westbridge Partners, Ltd. in exchange for KRLP- IV's 99% Limited Partner Interest in the new entities. Westcop Corporation, an affiliate of the General Partners, contributed a total of $11,216 in cash to the entities and is the General Partner in each, with a 1% interest. On March 3, 1992, Copper Creek was foreclosed upon by the holder of the first and second mortgage notes pursuant to an agreement approved by the Bankruptcy Court. KRLP-IV, Pavillion Partners, Ltd., and Westbridge Partners, Ltd. are collectively known as Krupp Realty Limited Partnership-IV and Subsidiaries (collectively the "Partnership"). As of December 31, 1997, the Partnership owned four multi-family apartment complexes. B.Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note G). Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of Pavillion Partners, Ltd., Westbridge Partners, Ltd. and KRLP-IV (see Note A). All intercompany balances and transactions have been eliminated. At December 31, 1997 and 1996, minority interest of $21,736 and $25,971, respectively, was included in other assets. Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued Risks and Uncertainties, Continued The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates current market values. Rental Revenues Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Impairment of Long-Lived Assets Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long- lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value. Depreciation Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows: Buildings and improvements 3 to 25 years Appliances, carpeting and equipment 3 to 8 years Deferred Expenses The Partnership amortizes the costs incurred in connection with the organization of its Subsidiaries over a 5-year period using the straight-line method. Costs of obtaining and recording mortgages on the properties are amortized over the term of the related mortgage notes, using the straight- line method. Income Taxes The Partnership is not liable for federal or state income taxes as Partnership's income or loss is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in Partnership taxable income or loss, such change will be reported to the Partners. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B.Significant Accounting Policies, Continued Reclassifications Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation. C.Cash and Cash Equivalents Cash and cash equivalents consisted of the following: December 31, December 31, 1997 1996 Cash and money market accounts $ 402,621 $ 458,337 Commercial paper - 497,675 $ 402,621 $ 956,012 D.Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the respective non-recourse mortgage notes payable outstanding at December 31, 1997 and 1996. Mortgage notes payable consisted of the following: Principal Annual Interest Property 1997 1996 Rate Maturity Date Fenland Field Apartments $ 4,142,659 $ 4,259,525 9.25% June 1, 2000 Indian Run Apartments 2,647,719 2,682,342 9.51% October 1, 2004 Walden Pond Apartments 6,726,440 6,381,404 see belowFebruary 28, 1999 Pavillion Apartments 6,810,768 6,868,867 9.25% May 1, 2001 Total $20,327,586$20,192,138 Fenland Field Apartments The property is subject to a non-recourse mortgage note payable, based on a 20-year amortization, in equal monthly installments of principal and interest of $42,167. At maturity, all unpaid principal ($3,824,206) and any accrued and unpaid interest are due. The note may not be prepaid prior to June 1, 1998 and thereafter, may be prepaid subject to certain prepayment premiums. The mortgage note is collateralized by the property. Since the mortgage note cannot be prepaid prior to June 1, 1998, the fair market value cannot be determined. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D. Mortgage Notes Payable, Continued Indian Run Apartments The property is subject to a non-recourse mortgage note payable, based on a 25-year amortization, in equal monthly installments of principal and interest of $24,021. At maturity, all unpaid principal ($2,298,949) and any accrued and unpaid interest are due. The note may be prepaid at any time, subject to certain prepayment premiums. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $2,900,000 and $3,200,000 at December 31, 1997 and 1996, respectively. Walden Pond Apartments On February 28, 1992, the prior wrap-around mortgage note was modified in bankruptcy court. The modified first mortgage note with a principal balance of $5,500,000, which has a stated rate of 9.5%, is being amortized over a 30-year period and requires monthly payments of $46,247. For financial reporting purposes, generally accepted accounting principles required the Partnership to increase the outstanding principal balance of the mortgage to the sum of the future cash flow payments required under the terms of the mortgage, including a final payment on February 28, 1999 of approximately $5,200,000. All cash payments made subsequent to the restructure are recorded as a reduction of the principal balance with no interest expense recognized by the Partnership. The note may be prepaid at any time, subject to certain prepayment premiums. On July 31, 1997, the General Partners obtained a $900,000 non-recourse note (the "Note") for Walden Pond Apartments from the same lender that holds the first mortgage note. The Note bears interest at a rate of 9.5% per annum and, commencing September 1, 1997, requires monthly, interest-only payments until the maturity date. The Note matures on February 28, 1999, simultaneous with the first mortgage note, at which time all outstanding principal and any accrued interest are due. The Note may be prepaid in its entirety without penalty, upon 90 days written notice, and simultaneous payment of the first mortgage note. Proceeds from the Note were deposited into an escrow account and will be used to fund capital improvements at the property. The Partnership paid closing costs of $33,082 to obtain the Note. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $6,300,000 at December 31, 1997. At December 31, 1996, the fair market value could not be determined since the mortgage note could not prepaid until 1997. Pavillion Apartments The property is subject to a non-recourse mortgage note payable, based on a 30-year amortization, in equal monthly installments of principal and interest of $57,587. At maturity, all unpaid principal ($6,580,326) and any accrued and unpaid interest are due. The note may be prepaid at any time, subject to certain prepayment premiums. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $7,200,000 at December 31, 1997. At December 31, 1996, the fair market value could not be determined since the mortgage note could not prepaid until 1997. Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D. Mortgage Notes Payable, Continued The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2002 are $783,115, $6,421,457, $4,007,863, $6,657,438 and 55,164, respectively. The Partnership paid interest on its mortgage notes of $1,304,929, $1,294,247 and 1,311,140 during the years ended December 31, 1997, 1996 and 1995, respectively. E.Partners' Deficit Under the terms of the Partnership Agreement, profits and losses from operations are allocated 95% to the Investor Limited Partners, 4% to the Original Limited Partner and 1% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon. Thereafter, profits and losses will be allocated 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners. In accordance with the Partnership Agreement, distributions are generally made on the same basis as the allocations of profits and losses described above. Upon the occurrence of a capital transaction, as defined in the Partnership Agreement, proceeds will be applied to the payment of all debts and liabilities of the Partnership then due and then fund any reserves for contingent liabilities. Remaining net cash proceeds will then be distributed 99% to the Invested Limited Partners until they have received a return of their total invested capital and 1% to the General Partners, thereafter net cash proceeds will be distributed in accordance with the Partnership Agreement. As of December 31, 1997, the following cumulative partner contributions and allocations have been made since inception of KRLP-IV: Investor Original Limited Limited General Partners Partner Partners Total Capital contributions$ 30,000,000 $ 4,000 $ 1,000 $ 30,005,000 Syndication costs (4,050,000) - - (4,050,000) Cash distributions: Operations (7,134,116) (300,393) (75,096) (7,509,605) Capital transactions (3,299,900) - (33,333) (3,333,233) Income (loss): Operations (28,010,524) (1,340,954) (296,480) (29,647,958) Capital transactions 9,277,584 297,922 96,723 9,672,229 Balance at December 31, 1997$(3,216,956)$(1,339,425)$(307,186)$(4,863,567) Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued F.Related Party Transactions The Partnership pays property management fees to an affiliate of the General Partners' for management services. Pursuant to the management agreements, management fees are payable monthly at a rate of 5% of the gross receipts from the properties under management. The affiliate of the General Partners sold the management agreements to BRI OP Limited Partnership, a subsidiary of Berkshire Realty Company Inc., a publicly traded real estate investment trust and an affiliate of the General Partners, on February 28, 1997. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties including administrative expenses. Amounts accrued or paid to the General Partners' affiliates for the years ended December 31, 1997, 1996 and 1995 were as follows: 1997 1996 1995 Property management fees $308,841 $269,428 $272,061 Expense reimbursements 268,44 256,144 225,694 Charged to operations $577,284 $525,572 $497,755 Due to affiliates consisted of expense reimbursements of $41,571 and $32,392 at December 31, 1997 and 1996, respectively. In addition to the amounts above, refinancing costs of $101 were paid to the General Partners' affiliates during the year ended December 31, 1997. G. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property using the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost Recovery System ("MACRS") depending on which is applicable. The reconciliation of the net income (loss) for each year reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's federal income tax return for the years ended December 31, 1997, 1996 and 1995 is as follows: 1997 1996 1995 Net income (loss) per Consolidated Statement of Operations $ 157,116 $(156,880)$ (21,628) Difference in book to tax depreciation for Fenland Field and Indian Run 59,156 90,299 90,581 Difference in Partnership's share of Pavillion Partners net loss for tax purposes 17,560 31,598 37,923 Difference in Partnership's share of Westbridge Partners net income for tax purposes (401,876) (468,815) (448,394) Net loss for federal income tax purposes $(168,044)$(503,798)$(341,518) Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G.Federal Income Taxes, Continued The allocation of the net loss for federal income tax purposes for 1997 is as follows: Portfolio Passive Income Loss Total Investor Limited Partners $ 49,776 $(209,418) $(159,642) Original Limited Partner 2,096 (8,818) (6,722) General Partners 524 (2,204) (1,680) $ 52,396 $(220,440) $(168,044) During the years ended December 31, 1997, 1996 and 1995 the per Unit net loss to the Investor Limited Partners for federal income tax purposes was $(5.32), $(15.95) and $(10.81), respectively. The basis of the Partnership's assets for financial reporting purposes exceeded its tax basis by approximately $6,036,000 and $8,151,000 at December 31, 1997 and 1996, respectively. The basis of the Partnership's liabilities for financial reporting purposes is less that its tax basis by approximately $7,966,000 and $0 at December 31, 1997 and 1996, respectively. H.Subsequent Event On January 27, 1998, the General Partners entered into a Purchase and Sale Agreement for the sale of Indian Run Apartments to an unaffiliated buyer, for the selling price of $5,850,000. The outstanding mortgage note payable will be paid in conjunction with the sale. It is expected that the sale will be consummated on March 31, 1998. KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 Costs Capitalized Subsequent to Initial Cost to Partnership Acquisition Buildings & Buildings & Depreciable DescriptionEncumbrances Land Improvements Land Improvements Life Fenland Field Apartments Columbia, MD $4,142,659$365,262 $4,852,767 $407 $2,391,3153 to 25 Years Indian Run Apts. Abilene, TX 2,647,719 503,574 6,690,341 902 828,3263 to 25 Years Walden Pond Apts. Houston, TX (a) 6,143,555 906,253 12,040,217 1,211 2,173,123 3 to 25 Years Pavillion Apts. Garland, TX 6,810,768 680,621 9,042,535 1,199 1,329,017 3 to 25 Years Total $19,744,701 $2,455,710 $32,625,860 $3,719 $6,721,781 Gross Amounts Carried at End of Year Description Land Buildings and Improvemen ts Total Accumulated Depreciation Year Constructi on Completed Year Acquire d Fenland Field Apartments Columbia, MD $ 365,669 $ 7,244,082 $ 7,609,751 $ 5,169,651 1970 1983 Indian Run Apts. Abilene, TX 504,476 7,518,667 8,023,143 5,198,647 1982 1983 Walden Pond Apts. Houston, TX 907,464 14,213,340 15,120,804 9,407,689 1982 1983 Pavillion Apts. Garland, TX 681,820 10,371,552 11,053,372 7,083,580 1983 1983 Total$2,459,429$39,347,64 1 $41,807,07 0 $ 26,859,567 (a) The mortgage note payable balance per the Consolidated Balance Sheets includes all interest payable through maturity (see Note D). Continued KRUPP REALTY LIMITED PARTNERSHIP-IV AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued December 31, 1997 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1997: 1997 1996 1995 Real Estate Balance at beginning of year $40,308,657 $ 39,777,834 $ 39,350,472 Acquisition and improvements 1,498,413 530,823 427,362 Balance at end of year $ 41,807,070 $ 40,308,657 $ 39,777,834 1997 1996 1995 Accumulated Depreciation Balance at beginning of year $ 24,742,332 $22,689,200 $ 20,636,291 Depreciation expense 2,117,235 2,053,132 2,052,909 Balance at end of year$ 26,859,567$ 24,742,332$ 22,689,200 The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost of the Partnership's real estate for federal income tax purposes at December 31, 1997 is $41,807,070 and the aggregate accumulated depreciation for federal income tax purposes is $34,834,968.