August 15, 2005
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Boston Financial Qualified Housing Tax Credits L.P. IV
Report on Form 10-QSB for the Quarter Ended June 30, 2005
File Number 0-19765
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, filed herewith a copy of subject report.
Very truly yours,
/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------------
Commission file number 0-19765
Boston Financial Qualified Housing Tax Credits L.P. IV
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3044617
- --------------------------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
- ----------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
----------------------------
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 .
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Balance Sheet (Unaudited) - June 30, 2005 1
Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 2005 and 2004 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30, 2005 3
Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 2005 and 2004 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Controls and Procedures 14
PART II - OTHER INFORMATION
Items 1-6 15
SIGNATURE 16
CERTIFICATIONS 17
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
BALANCE SHEET
June 30, 2005
(Unaudited)
Assets
Cash and cash equivalents $ 3,018,914
Investment securities, at fair value (Note 1) 1,490,255
Investments in Local Limited Partnerships (Note 2) 5,946,407
Other assets 13,350
---------------
Total Assets $ 10,468,926
===============
Liabilities and Partners' Equity
Due to affiliate $ 69,083
Accrued expenses 40,425
---------------
Total Liabilities 109,508
General, Initial and Investor Limited Partners' Equity 10,359,418
---------------
Total Liabilities and Partners' Equity $ 10,468,926
===============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
2005 2004
---------------- ----------
Revenue:
Investment $ 33,877 $ 1,079
Other 100,660 25,683
---------------- ---------------
Total Revenue 134,537 26,762
---------------- ---------------
Expense:
Asset management fees, affiliate 34,542 45,978
Provision for valuation of advances to Local
Limited Partnerships (Note 2) 17,499 5,685
General and administrative (includes
reimbursements to an affiliate in the amount
of $34,593 and $74,490 in 2005 and
2004, respectively) 82,026 103,908
Amortization 7,125 10,170
---------------- ---------------
Total Expense 141,192 165,741
---------------- ---------------
Loss before equity in losses of Local Limited Partnerships (6,655) (138,979)
Equity in losses of Local Limited Partnerships (Note 2) (136,913) (22,156)
---------------- ---------------
Net Loss $ (143,568) $ (161,135)
================ ===============
Net Loss allocated:
General Partners $ (1,436) $ (1,611)
Limited Partners (142,132) (159,524)
---------------- ---------------
$ (143,568) $ (161,135)
================ ===============
Net Loss per Limited Partner Unit
(68,043 Units) $ (2.09) $ (2.34)
=============== ===============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
For the Three Months Ended June 30, 2005
(Unaudited)
Initial Investor
General Limited Limited
Partners Partner Partners Total
Balance at March 31, 2005 $ (486,057) $ 5,000 $ 10,984,043 $ 10,502,986
Net Loss (1,436) - (142,132) (143,568)
------------- -------------- -------------- --------------
Balance at June 30, 2005 $ (487,493) $ 5,000 $ 10,841,911 $ 10,359,418
============= ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2005 and 2004
(Unaudited)
2005 2004
------------- --------
Net cash used for operating activities $ (15,195) $ (151,808)
Net cash used for investing activities (1,442,094) (5,002)
------------- -------------
Net decrease in cash and cash equivalents (1,457,289) (156,810)
Cash and cash equivalents, beginning 4,476,203 560,614
------------- -------------
Cash and cash equivalents, ending $ 3,018,914 $ 403,804
============= =============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These statements should be read in
conjunction with the financial statements and notes thereto included with the
Partnership's Form 10-KSB for the year ended March 31, 2005. In the opinion of
the Managing General Partner, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Partnership's financial position and results of operations.
The results of operations for the periods may not be indicative of the results
to be expected for the year.
The Managing General Partner of the Partnership has elected to report results of
the Local Limited Partnerships in which the Partnership has a limited
partnership interest on a 90 day lag basis because the Local Limited
Partnerships report their results on a calendar year basis. Accordingly, the
financial information of the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 2005 and 2004.
1. Investment Securities
The Partnership's investment securities may be classified as "Available for
Sale" or "Held to Maturity". Those classified as "Available for Sale" are
carried at fair value (as reported by the brokerage firms at which they are
held), with unrealized gains or losses excluded from earnings and reported as a
separate component of partner's equity. Those classified as "Held to Maturity",
with maturity dates ranging from 2005 to 2007, are reported at amortized cost.
For securities held-to-maturity, the fair value at June 30, 2005 is
approximately $1,491,000. There were no sales of investment securities during
the quarter ended June 30, 2005.
2. Investments in Local Limited Partnerships
The Partnership has limited partnership interests in fifteen Local Limited
Partnerships which were organized for the purpose of owning and operating
multi-family housing complexes, all of which are government-assisted. The
Partnership's ownership interest in each Local Limited Partnership is 99%,
except for Leawood Manor where the Partnership's ownership interest is 89%. The
Partnership may have negotiated or may negotiate options with the Local General
Partners to purchase or sell the Partnership's interests in the Local Limited
Partnerships at the end of the Compliance Period at nominal prices. In the event
that Properties are sold to a third party or upon dissolution of the Local
Limited Partnerships, proceeds will be distributed according to the terms of
each Local Limited Partnership agreement.
The following is a summary of investments in Local Limited Partnerships at June
30, 2005:
Capital contributions and advances paid to Local Limited Partnerships
and purchase price paid to withdrawing partners of Local Limited Partnerships $ 38,103,757
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $13,460,943) (21,327,931)
Cumulative cash distributions received from Local Limited Partnerships (9,066,614)
---------------
Investments in Local Limited Partnerships before adjustments 7,709,212
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 3,092,293
Cumulative amortization of acquisition fees and expenses (1,012,575)
---------------
Investments in Local Limited Partnerships before impairment allowance 9,788,930
Impairment allowance on investments in Local Limited Partnerships (3,842,523)
---------------
Investments in Local Limited Partnerships $ 5,946,407
===============
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Investments in Local Limited Partnerships (continued)
For the three months ended June 30, 2005, the Partnership advanced $17,499 to
one of the Local Limited Partnerships, all of which was impaired. The
Partnership has recorded an impairment allowance for its investments in certain
Local Limited Partnerships in order to appropriately reflect the estimated net
realizable value of these investments.
The Partnership's share of the net losses of the Local Limited Partnerships for
the three months ended June 30, 2005 is $320,509. For the three months ended
June 30, 2005, the Partnership has not recognized $426,146 of equity in losses
relating to certain Local Limited Partnerships in which cumulative equity in
losses and cumulative distributions exceeded its total investments in these
Local Limited Partnerships. Previously unrecognized losses of $242,550 were
included in losses recognized in the three months ended June 30, 2005.
3. Significant Equity Investee
Four Local Limited Partnerships invested in by the Partnership represent more
than 20% of the Partnership's consolidated assets, equity or net losses. The
following financial information represents the Local Limited Partnerships'
performance for the quarters ended June 30, 2005 and 2004:
Leawood Manor, L.P. A Limited Partnership 2005 2004
----------------------------------------- ------------- -------------
Revenue $ 446,800 $ 427,066
Net Loss $ (132,700) $ (131,448)
Allentown Towne House, L.P. 2005 2004
---------------------------- ------------- -------------
Revenue $ 346,300 $ 344,000
Net Loss $ (35,800) $ (28,000)
Sencit Towne House, L.P. 2005 2004
------------------------- ------------- -------------
Revenue $ 487,200 $ 488,000
Net Income $ 41,900 $ 40,000
Kenilworth Associates, LTD A Limited Partnership
a.k.a Mayfair Mansions 2005 2004
----------------------- ------------- -------------
Revenue $ 1,231,300 $ 1,214,000
Net Loss $ (105,000) $ (118,000)
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements and is including this statement
for purposes of complying with these safe harbor provisions. Although the
Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that its expectations will be
attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.
Critical Accounting Policies
The Partnership's accounting policies include those that relate to its
recognition of investments in Local Limited Partnerships using the equity method
of accounting. The Partnership's policy is as follows:
The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting. Under the equity method, the investment is
carried at cost, adjusted for the Partnership's share of net income or loss and
for cash distributions from the Local Limited Partnerships; equity in income or
loss of the Local Limited Partnerships is included currently in the
Partnership's operations. Under the equity method, a Local Limited Partnership
investment will not be carried below zero. To the extent that equity in losses
are incurred when the Partnership's carrying value of the respective Local
Limited Partnership has been reduced to a zero balance, the losses will be
suspended and offset against future income. Income from Local Limited
Partnerships, where cumulative equity in losses plus cumulative distributions
have exceeded the total investment in Local Limited Partnerships, will not be
recorded until all of the related unrecorded losses have been offset. To the
extent that a Local Limited Partnership with a carrying value of zero
distributes cash to the Partnership, that distribution is recorded as income on
the books of the Partnership and is included in "Other Revenue" in the
accompanying financial statements.
The Partnership has implemented policies and practices for assessing potential
impairment of its investments in Local Limited Partnerships. The investments are
reviewed for impairment whenever events or changes in circumstances indicate
that the Partnership may not be able to recover its carrying value. If an other
than temporary impairment in carrying value exists, a provision to reduce the
asset to fair value will be recorded in the Partnership's financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("Interpretation"),
"Consolidation of Variable Interest Entities", which provides new criteria for
determining whether or not consolidation accounting is required. The
Interpretation, which was modified in December 2003 in order to address certain
technical and implementation issues, requires the Partnership to consider
consolidation or provide additional disclosures of financial information for
Local Limited Partnerships meeting the definition of a Variable Interest Entity
("VIE"). The Partnership is required to apply the Interpretation to the Local
Limited Partnerships meeting the definition of a VIE.
This Interpretation requires consolidation by the Partnership of the Local
Limited Partnerships' assets and liabilities and results of operations if the
Partnership determined that the Local Limited Partnerships were VIEs and that
the Partnership was the "Primary Beneficiary". Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other investors. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies (continued)
assessed the Interpretation and concluded that it is not the Primary Beneficiary
of any of the Local Limited Partnerships that meet the definition of a VIE. The
Partnership is involved with those VIEs as a non-controlling limited partner
equity holder. The Partnership is required to disclose its maximum exposure to
economic and financial statement losses as a result of its involvement with the
VIEs. The Partnership's exposure to economic and financial statement losses from
the VIEs is limited to its investment in the VIEs ($5,946,407 at June 30, 2005).
The Partnership may be subject to additional losses to the extent of any
financial support that the Partnership voluntarily provides in the future.
Liquidity and Capital Resources
The Partnership had a decrease in cash and cash equivalents of $1,457,289 from
$4,476,203 at March 31, 2005 to $3,018,914 at June 30, 2005. The decrease is
primarily attributable to cash used for operations, purchases of marketable
securities and advances to a Local Limited Partnership partially offset by cash
distributions received from Local Limited Partnerships.
The Managing General Partner originally designated 4% of the Gross Proceeds as
Reserves, as defined in the Partnership Agreement. The Reserves were established
to be used for working capital of the Partnership and contingencies related to
the ownership of Local Limited Partnership interests. The Managing General
Partner may increase or decrease such Reserves from time to time, as it deems
appropriate. At June 30, 2005, $4,509,169 of cash, cash equivalents and
marketable securities has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $1,471,000 have been paid from Reserves. To date, Reserve funds in
the amount of approximately $304,000 also have been used to make additional
capital contributions to one Local Limited Partnership. In the event a Local
Limited Partnership encounters operating difficulties requiring additional
funds, the Managing General Partner might deem it in its best interest to
voluntarily provide such funds in order to protect its investment. As of June
30, 2005, the Partnership has advanced approximately $1,329,000 to Local Limited
Partnerships to fund operating deficits.
The Managing General Partner believes that the investment income earned on the
Reserves, along with cash distributions received from Local Limited
Partnerships, to the extent available, will be sufficient to fund the
Partnership's ongoing operations. Reserves may be used to fund Partnership
operating deficits, if the Managing General Partner deems funding appropriate.
If Reserves are not adequate to cover the Partnership's operations, the
Partnership will seek other financing sources including, but not limited to, the
deferral of Asset Management Fees paid to an affiliate of the Managing General
Partner or working with Local Limited Partnerships to increase cash
distributions. To date, the Partnership has used approximately $4,891,000 of
operating funds to replenish Reserves.
Since the Partnership invests as a limited partner, the Partnership has no
contractual obligation to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, at June 30, 2005, the Partnership had no
contractual or other obligation to any Local Limited Partnership which had not
been paid or provided for.
Cash Distributions
No cash distributions were made during the three months ended June 30, 2005.
Results of Operations
The Partnership's results of operations for the three months ended June 30, 2005
resulted in a net loss of $143,568, as compared to a net loss of $161,135 for
the same period in 2004. The decrease in net loss is primarily attributable to
an increase in investment income, an increase in distribution income received
from Local Limited Partnerships,
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
a decrease in asset management fees and a decrease in general and administrative
expense partially offset by an increase in provision for valuation of advances
to Local Limited Partnerships and an increase in equity in losses of Local
Limited Partnerships. Investment income increased due to the Partnership
investing in more lucrative securities and an increase in cash. The increase in
other income is primarily attributable to the receipt of cash distributions
received from Local Limited Partnerships with carrying values of zero during the
period ended June 30, 2005. Distribution income increased because a Local
Limited Partnership made a guaranteed distribution to the Partnership in the
quarter ended June 30, 2005. The decrease in asset management fees is due to the
Partnership's sale of interests in seven Local Limited Partnerships during the
year ended March 31, 2005; since asset management fees are charged per Local
Limited Partnership, the previous year's sale reduced the current year's
charges. General and administrative expense decreased primarily due to decreased
charges from an affiliate of the Managing General Partner for administrative
expenses necessary for the operation of the Partnership. The increase in
provision for valuation of advances to Local Limited Partnerships is the result
of a reserve for advances made to one Local Limited Partnership during the
quarter ended June 30, 2005. The increase in equity in losses of Local Limited
Partnerships is primarily due to the Partnership recognizing previously
unrecognized losses relating to Local Limited Partnerships where cumulative
equity in losses and cumulative distributions have exceeded its total
investment, partially offset by the Partnership not recognizing losses on seven
Local Limited Partnerships that were sold during the year ended March 31 2005.
Portfolio Update
The Partnership's investment portfolio consists of limited partnership interests
in fifteen Local Limited Partnerships, each of which owns and operates a
multi-family apartment complex and each of which has generated Tax Credits.
Since inception, the Partnership has generated Tax Credits, net of recapture, of
approximately $1,287 per Limited Partner Unit with an immaterial amount of Tax
Credits expected to be generated during 2005. The aggregate amount of net Tax
Credits generated by the Partnership is consistent with the objective specified
in the Partnership's prospectus.
Properties that receive low income housing Tax Credits must remain in compliance
with rent restriction and set-aside requirements for at least 15 years from the
date the property is completed. Failure to do so would result in recapture of a
portion of the property's Tax Credits. Between 2003 and continuing through 2006,
the Compliance Period of the fifteen Properties in which the Partnership has an
interest will expire. The Managing General Partner has negotiated agreements
that will ultimately allow the Partnership to dispose of its interest in five
Local Limited Partnerships. It is unlikely that the disposition of any of these
Local Limited Partnership interests will generate any material cash
distributions to the Partnership.
The Managing General Partner will continue to closely monitor the operations of
the Properties during the Compliance Period and will formulate disposition
strategies with respect to the Partnership's remaining Local Limited Partnership
interests. It is unlikely that the Managing General Partner's efforts will
result in the Partnership disposing of all of its remaining Local Limited
Partnership interests concurrently with the expiration of each Property's
Compliance Period. The Partnership shall dissolve and its affairs shall be wound
up upon the disposition of the final Local Limited Partnership interest and
other assets of the Partnership. Investors will continue to be Limited Partners,
receiving K-1s and quarterly and annual reports, until the Partnership is
dissolved.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Portfolio Update (continued)
On or about July 13, 2004, Park G.P., Inc. ("Park") commenced litigation against
Boston Financial Qualified Housing Tax Credits L.P. IV and its purported general
partners (collectively, the "Defendants") in Clay County, Missouri, claiming
that the Defendants breached the relevant partnership agreement and their
fiduciary duties owed to Park by, among other things, failing to permit
inspection of certain alleged "books and records" of the Partnership. On or
about October 7, 2004, Park sought leave of the court to amend its petition to
include claims for inspection of the alleged "books and records" against Boston
Financial Qualified Housing Limited Partnership, Boston Financial Qualified
Housing Tax Credits L.P. II, Boston Financial Qualified Housing Tax Credits L.P.
III, Boston Financial Qualified Housing Tax Credits L.P. V, Boston Financial Tax
Credit Fund Plus, A Limited Partnership, Boston Financial Tax Credit Fund VII, A
Limited Partnership, and their purported general partners (collectively, the
"New Defendants"). The court granted the amendment on November 15, 2004, and the
New Defendants subsequently moved to dismiss the amended complaint in its
entirety. That motion is currently pending (along with a concurrently filed
motion for entry of a blanket protective order), and oral arguments on the
motion took place on February 16, 2005. On or about October 8, 2004, Park moved
the court for entry of a temporary restraining order compelling the Defendants
and the New Defendants to turn over the alleged "books and records" in
conjunction with a transaction Park was proposing entering into. On October 12,
2004, the court denied Park's request.
After Park served a deposition notice duces tecum that requested the production
of confidential non-public documents, the New Defendants filed a Motion for a
Protective Order on March 23, 2005. After a short hearing on April 21, 2005, the
Court "overrruled" the Motion in a brief docket entry on May 16, 2005 without
any findings of fact, conclusions of law, or other explanation. On or about June
9, 2005, the New Defendants petitioned the Missouri Court of Appeals for a writ
ordering the Circuit Court to set aside the prior order and grant the New
Defendants' request for a protective order.
The New Defendants maintain that Park is not entitled to review the materials
requested and/or use the materials in secondary market transactions because,
among other things: (i) they are not "books and records" of the New Defendants;
(ii) Park does not seek to review them for a proper purpose; and (iii) that
selective disclosure of the information to Park would give it an unfair
informational advantage in secondary market transactions and may violate federal
and/or state securities laws. The New Defendants accordingly intend on defending
against the claims vigorously. The New Defendants have not formed an opinion
that an unfavorable outcome is either probable or remote. Therefore, the New
Defendants' counsel refrains from expressing an opinion as to the likely outcome
of the case or the range of any loss.
On August 24, 2004, the Partnership, Boston Financial Qualified Housing Limited
Partnership, Boston Financial Qualified Housing Tax Credits L.P. II, Boston
Financial Qualified Housing Tax Credits L.P. III, Boston Financial Qualified
Housing Tax Credits L.P. V, Boston Financial Tax Credit Fund Plus, A Limited
Partnership, Boston Financial Tax Credit Fund VII, A Limited Partnership, and
Boston Financial Tax Credit Fund VIII, A Limited Partnership (collectively, the
"Partnerships"), and their general partners commenced litigation against Everest
Housing Investors 2, LLC ("Everest 2") and three other Everest-related entities
(collectively , the "Everest Entities") in Massachusetts state court, seeking a
declaratory judgment that certain materials the Everest Entities sought to
inspect are not "books and records" of the Partnerships and that the Everest
Entities are in any case not entitled to inspect said information under
applicable partnership agreements, partnership law or otherwise. On October 7,
2004, the Everest Entities filed an answer and counterclaim against the
Partnerships and their purported general partners, claiming that they breached
applicable partnership agreements, partnership law and their fiduciary duties to
the Everest Entities by failing to make the purported "books and records"
available. On January 12, 2005, the Partnerships served a motion to amend their
complaint to, among other things, add a claim based on Everest 2's breach of a
November 24, 2003 letter agreement which compelled Everest 2 to keep
confidential certain information contemporaneously disseminated by four of the
Partnerships to Everest 2. Having received no opposition within the specified
time, the Partnerships filed the motion to amend with the proposed first amended
complaint on January 31, 2005. The Court has granted this Motion.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Portfolio Update (continued)
The Partnerships maintain that the Everest Entities are not entitled to review
the materials requested and/or use the materials in secondary market
transactions because, among other things: (i) they are not "books and records"
of the Partnerships; (ii) the Everest Entities do not seek to review them for a
proper purpose; and (iii) that selective disclosure of the information to the
Everest Entities would give them an unfair informational advantage in secondary
market transactions and may violate federal and/or state securities laws. The
Partnerships have not formed an opinion that an unfavorable outcome is either
probable or remote. Therefore, the Partnerships' counsel refrains from
expressing an opinion as to the likely outcome of the case or the range of any
loss.
Property Discussions
Most of the Properties in which the Partnership has an interest have stabilized
operations and operate above break-even. Some Properties generate cash flow
deficits that the Local General Partners of those Properties fund through
project expense loans, subordinated loans or operating escrows. However, a few
Properties have had persistent operating difficulties that could either: i) have
an adverse impact on the Partnership's liquidity; ii) result in their
foreclosure; or iii) result in the Managing General Partner deeming it
appropriate for the Partnership to dispose of its interest in the Local Limited
Partnership prior to the expiration of the Compliance Period. Also, the Managing
General Partner, in the normal course of the Partnership's business, may arrange
for the future disposition of its interest in certain Local Limited
Partnerships. The following Property discussions focus only on such Properties.
As previously reported, the Local General Partner of Green Tree Village, located
in Greenville, Georgia, expressed to the Managing General Partner some concerns
over the long-term financial health of the Property. In response to these
concerns and to reduce possible future risk, the Managing General Partner
entered into a put agreement with the Local General Partner in which the
Partnership has the right to ultimately transfer ownership of the Local Limited
Partnership to the Local General Partner for a nominal price after the
expiration of the Compliance Period. The plan includes provisions to minimize
the risk of recapture. The Property has generated all of its Tax Credits and the
Compliance Period ends on December 31, 2005.
As previously reported, the Managing General Partner negotiated an agreement
with an unaffiliated entity to have the ability to transfer its interest in
Orchard View, located in Gobles, Michigan, to the unaffiliated entity or its
designee. The Managing General Partner has the right to put its interest in the
Local Limited Partnership at any time in exchange for a contingent note that
grants the Partnership 50% of all future net cash receipts from such Local
Limited Partnership interest. Should the Partnership dispose of its interest in
the Property in any other manner, the Partnership will be required to pay a
$2,500 termination fee to the unaffiliated entity. The Compliance Period for the
Property will end on December 31, 2005.
As previously reported, in June of 1998, the Managing General Partner was
informed that the Local General Partner of Bentley Court, located in Columbia,
South Carolina, was indicted on various criminal charges and pled guilty on
certain counts. The Managing General Partner replaced the Local General Partner
and the site management company. Furthermore, an IRS audit of the 1993 tax
return for the Local Limited Partnership questioned the treatment of certain
items and had findings of non-compliance in 1993. The IRS then expanded the
scope of the audit to include the 1994 and 1995 tax returns. As a result, the
IRS disallowed the Property's Tax Credits for each of these years. On behalf of
the Partnership, the Managing General Partner retained counsel to appeal the
IRS's findings in order to minimize the loss of Tax Credits. This administrative
appeal has been unsuccessful and the IRS continues to take the position of
disallowing Tax Credits for 1993, 1994 and 1995, a total of approximately
$2,562,000, or $38 per Unit, not including interest.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
In addition, the Local General Partner received formal notification that the IRS
was expanding its claims to recapturing approximately $500,000 of Tax Credits
deducted in 1990, 1991 and 1992, or $7 per Unit, not including interest. In
2004, the Managing General Partner filed a Petition for Readjustment with the
United States Tax Court (Case No. 5393-04) in order to further appeal the IRS's
position. It is possible that the IRS will further expand its claims for
additional amounts with respect to other years. However, counsel has advised
that the statute of limitations expired for the tax years 1996, 1997 and 1998.
The Managing General Partner is currently considering its options including Tax
Court and possible settlement with the IRS. In addition, the Managing General
Partner is considering using Partnership Reserves to place a $1 million or
greater "cash bond" with the IRS to serve as a source of possible settlement of
all or a portion of the claim. By so doing, after the date of the cash bond, no
interest would accrue on that portion of the IRS's claim. If the settlement
reached with the IRS is less than the bonded amount, the Partnership would
recover the difference. Absent a successful litigation or a settlement, it is
anticipated that the IRS will contact Limited Partners directly for any
adjustments that need to be made to returns for those years. It is also possible
that the Managing General Partner may decide to use additional Partnership
Reserves or sell Bentley Court to generate proceeds that may be used in
connection with the tax liabilities described above.
As previously reported, on April 28, 2000, the Managing General Partner, on
behalf of the Partnership, filed suit against the former Local General Partner
of Bentley Court and certain affiliates of the former Local General Partner
alleging mismanagement of the Local Limited Partnership. During May 2001, the
former Local General Partner authorized the release of funds held in escrow in
the amount of approximately $640,000 to the Partnership that was used to
reimburse the Partnership for advances made in previous years. Previously, weak
market conditions had caused Bentley Court to be unable to establish a
stabilized occupancy. However, strong occupancy has enabled the Property to
operate above breakeven for the last several quarters while maintaining
appropriate debt service coverage and working capital levels over the same
period. Previously, both the Local General Partner and the Managing General
Partner had advanced the Property funds to enable it to stay current on its
financial obligations.
As previously reported, in February 1997, due to concerns about the Property's
long-term viability, the Managing General Partner consummated a transfer of 50%
of the Partnership's interest in capital and profits of BK Apartments, located
in Jamestowne, North Dakota, to the Local General Partner. The Property
generated its final year of Tax Credits in 2001 and the Partnership retained its
full share of the Property's Tax Credits through such time period. The Local
General Partner subsequently transferred its general partner interest to a new,
nonprofit general partner. The Managing General Partner also has the right to
put the Partnership's remaining interest to the new Local General Partner any
time after December 1, 2001. In addition, the new Local General Partner has the
right to call the remaining interest after the Compliance Period has expired.
The Property operated above break-even during 2004.
As previously reported, although the Chicago, Illinois neighborhood in which
46th & Vincennes is located has improved in the last few years, potential
tenants are reluctant to occupy the Property due to its location and curb
appeal. As a result, maintaining occupancy, and therefore revenues, continues to
be an issue, and debt service coverage and working capital are below appropriate
levels. A site visit by the Managing General Partner found the Property in need
of some minor improvements but in overall fair condition. However, the Managing
General Partner believes that the Local General Partner and its affiliated
management company are not adequately performing their responsibilities with
respect to the Property. The Managing General Partner has expressed these
concerns to the Local General Partner and will continue to closely monitor the
Property's operations. Advances from the Local General Partner have enabled the
Property to stay current on its loan obligations.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, the Managing General Partner negotiated an agreement to
transfer the Local General Partner interest in West Pine, located in Findlay,
Pennsylvania, to an affiliate of the Allegheny County Housing Authority
("ACHA"), contingent upon receiving approval from the U.S. Department of Housing
and Urban Development ("HUD"). HUD approval was received, and the Local General
Partner interest was transferred on October 17, 2003. In addition, the ACHA had
informed the Managing General Partner of its interest in acquiring the
Partnership's interest in the Local Limited Partnership, pending their
assumption of the Local General Partner interest. Concurrent with the
replacement of the Local General Partner, another ACHA affiliate acquired 30% of
the Partnership's Limited Partner interest in the Local Limited Partnership. As
part of this transaction, the Partnership acquired a put option for the
remaining 70% exercisable for $1 upon the expiration of the Compliance Period,
December 31, 2006. West Pine generated its final year of Tax Credits in 2001.
As previously reported, Carolina Woods, located in Greensboro, North Carolina,
has experienced decreasing occupancy since early 2003. In an effort to increase
occupancy, the Local General Partner replaced its own management agent affiliate
with a third party local management agent. The new management agent has evicted
several tenants for non-payment. Revenues have decreased, and the Property has
experienced operating deficits. The Local General Partner has advanced funds as
necessary to ensure the Property remains current on its debt service
obligations. The Property's Compliance Period expired on December 31, 2004 and
therefore poses minimal risk to the Partnership. The Managing General Partner is
working with the Local General Partner to develop an exit strategy for the
Partnership's interest in the Property now that the Property's Compliance Period
has expired.
As previously reported, Lakeside Square, located in Chicago, Illinois, has
enjoyed very strong operations for a number of years. In 2003, the Local General
Partner requested approval for a refinancing of the Property. In return for the
Partnership's approval, the Managing General Partner obtained a put option to
transfer the Partnership's interest at any time after December 31, 2006, the end
of the Property's Compliance Period, for $300,000. As part of the agreement, the
Local General Partner received a call option to be exercised any time after
December 31, 2006. The Partnership received Sale or Refinancing Proceeds, as
defined in the Local Limited Partnership Agreement, of $4,922,665 from the
refinancing, which closed on August 31, 2004. The Managing General Partner, in
accordance with and as permitted by the Partnership Agreement, retained the
entire amount of net proceeds in Reserves.
Oakview Square, located in Chesterfield, MI, is beginning to show the combined
effects of a softening local economy and a surplus of affordable single-family
homes. Job losses have adversely impacted a number of residents at the Property.
Despite current asking rents well below the maximum LIHTC rents, the Property
struggles to compete with a number of affordable and market-rate properties in
the area. However, the Property remains current on its debt obligations. The
Managing General Partner and the Local General Partner are in early negotiations
regarding a sale of the Property before December 31, 2005, which coincides with
the end of the Compliance Period. The Local General Partner is working with a
national broker to prepare marketing materials and basic terms and conditions
for a prospective sale.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
CONTROLS AND PROCEDURES
Controls and Procedures
Based on the Partnership's evaluation as of the end of the period covered by
this report, the Partnership's officer has concluded that the Partnership's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that the Partnership files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
There have been no significant changes in the Partnership's internal controls or
in other factors that could significantly affect those controls subsequent to
the date of their evaluation.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and
Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 2005
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
SIGNATURE
Pursuant to the requirements 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.
DATED: August 15, 2005 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Jenny Netzer
Jenny Netzer
Executive Vice President
MMA Financial, LLC