November 14, 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 September 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 September 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) - September 30, 2005 1
Statements of Operations (Unaudited) - For the Three and Six
Months Ended September 30, 2005 and 2004 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Six Months Ended September 30, 2005 3
Statements of Cash Flows (Unaudited) - For the
Six Months Ended September 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
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
September 30, 2005
(Unaudited)
Assets
Cash and cash equivalents $ 1,992,217
Investment securities, at fair value (Note 1) 2,476,118
Investments in Local Limited Partnerships (Note 2) 5,872,125
Other assets 19,351
---------------
Total Assets $ 10,359,811
===============
Liabilities and Partners' Equity
Due to affiliates $ 105,385
Accrued expenses 39,295
---------------
Total Liabilities 144,680
General, Initial and Investor Limited Partners' Equity 10,220,268
Net unrealized losses on investment securities (5,137)
---------------
Total Partners' Equity 10,215,131
---------------
Total Liabilities and Partners' Equity $ 10,359,811
===============
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 and Six Months Ended September 30, 2005 and 2004
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------- ---------------- ---------------- ---------------
Revenue
Investment $ 42,851 $ 6,772 $ 76,728 $ 7,851
Other 618 816,532 101,278 842,215
---------------- ---------------- ---------------- ---------------
Total Revenue 43,469 823,304 178,006 850,066
---------------- ---------------- ---------------- ---------------
Expenses:
Asset management fees, affiliate 34,542 45,978 69,084 91,956
Provision for valuation of advances
to Local Limited Partneships (Note 2) 477 - 17,976 5,685
Provision for valuation of investments of
advances in Local Limited Partnerships - 349,587 - 349,587
General and administrative
(includes reimbursement to affiliate
in the amounts of $64,190 and
$147,388 in 2005 and 2004,
respectively) 77,485 109,707 159,511 213,615
Amortization 7,124 10,170 14,249 20,340
---------------- ---------------- ---------------- ---------------
Total Expense 119,628 515,442 260,820 681,183
---------------- ---------------- ---------------- ---------------
Income (Loss) before equity in income (losses) of Local Limited Partnerships and
gain on sale of investments in Local
Limited Partnerships (76,159) 307,862 (82,814) 168,883
Equity in income (losses) of Local Limited
Partnerships (Note 2) (67,158) 10,051 (204,071) (12,105)
Gain on sale of investments in Local
Limited Partnerships (Note 2) 4,167 - 4,167 -
---------------- ---------------- ---------------- ---------------
Net Income (Loss) $ (139,150) $ 317,913 $ (282,718) $ 156,778
================ ================ ================ ===============
Net Income (Loss) allocated:
General Partners $ (1,391) $ 3,179 $ (2,827) $ 1,568
Limited Partners (137,759) 314,734 (279,891) 155,210
---------------- ---------------- ---------------- ---------------
$ (139,150) $ 317,913 $ (282,718) $ 156,778
================ ================ ================ ===============
Net Income (Loss) Per Limited Partner
Unit (68,043) Units $ (2.02) $ 4.62 $ (4.11) $ 2.28
================ ================ ============== ===============
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 Six Months Ended September 30, 2005
(Unaudited)
Net
Initial Investor Unrealized
General Limited Limited Gains
Partners Partner Partners (Losses) Total
Balance of March 31, 2005 $ (486,057) $ 5,000 $ 10,984,043 $ - $ 10,502,986
-------------- -------------- -------------- -------- -------------
Comprehensive Loss:
Change in net unrealized
gains on investment
securities available for sale - - - (5,137) (5,137)
Net Loss (2,827) - (279,891) - (282,718)
-------------- -------------- -------------- -------------- -------------
Comprehensive Loss (2,827) - (279,891) (5,137) (287,855)
-------------- -------------- -------------- -------------- -------------
Balance at September 30, 2005 $ (488,884) $ 5,000 $ 10,704,152 $ (5,137) $ 10,215,131
============== ============== ============== ============== =============
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 Six Months Ended September 30, 2005 and 2004
(Unaudited)
2005 2004
------------- -------------
Net cash used for operating activities $ (54,582) $ (322,682)
Net cash provided by (used for) investing activities (2,429,404) 5,005,493
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,483,986) 4,682,811
Cash and cash equivalents, beginning 4,476,203 560,614
------------- -------------
Cash and cash equivalents, ending $ 1,992,217 $ 5,243,425
============= =============
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 June 30, 2005 and 2004.
1. Investment Securities
The Partnership's investment securities are classified as "Available for Sale"
and 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.
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
September 30, 2005:
Capital contributions and advances paid to Local Limited Partnerships
and purchase price paid to withdrawing partners of Local Limited Partnerships $ 38,104,234
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $13,755,239) (21,395,089)
Cumulative cash distributions received from Local Limited Partnerships (9,066,614)
---------------
Investments in Local Limited Partnerships before adjustments 7,642,531
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 3,092,293
Cumulative amortization of acquisition fees and expenses (1,019,699)
---------------
Investments in Local Limited Partnerships before impairment allowance 9,715,125
Impairment allowance on investments in Local Limited Partnerships (3,843,000)
---------------
Investments in Local Limited Partnerships $ 5,872,125
===============
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 six months ended September 30, 2005, the Partnership advanced $17,976 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 six months ended September 30, 2005 is $681,963. For the six months ended
September 30, 2005, the Partnership has not recognized $692,342 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 $214,450 were
included in losses recognized in the six months ended September 30, 2005.
During the six months ended September 30, 2005, the Partnerships received
additional proceeds from the sale of its interest in two Local Limited
Partnerships which occurred during the year ended March 31, 2005, resulting in
the recognition of a net gain of $4,167.
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 six months ended September 30, 2005 and 2004:
Leawood Associates, L.P. A Limited Partnership 2005 2004
---------------------------------------------- ------------- -------------
Revenue $ 979,639 $ 807,319
Net Loss $ (126,380) $ (266,803)
Prince Street Towers L.P. A Limited Partnership 2005 2004
----------------------------------------------- ------------- -------------
Revenue $ 903,427 $ 888,967
Net Loss $ (111,237) $ (3,980)
Sencit Towne House L.P. 2005 2004
------------------------ ------------- -------------
Revenue $ 989,082 $ 970,502
Net Income $ 73,540 $ 87,566
Kenilworth Associates LTD A Limited Partnership 2005 2004
----------------------------------------------- ------------- -------------
Revenue $ 2,384,273 $ 2,275,309
Net Income (Loss) $ 26,310 $ (387,412)
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 as of March 31, 2005.
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 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 ($5,872,125 at September 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.
<page>
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)
Liquidity and Capital Resources
The Partnership had a decrease in cash and cash equivalents of $2,483,986 from
$4,476,203 at March 31, 2005 to $1,992,217 at September 30, 2005. The decrease
is primarily attributable to purchases of investment securities, advances to one
Local Limited Partnership and cash used for operations 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 September 30, 2005, $4,468,335 of cash, cash equivalents and
investment securities has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $1,473,000 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
September 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 $4,858,000 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 September 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 six months ended September 30, 2005.
Results of Operations
Three Month Period
The Partnership's results of operations for the three months ended September 30,
2005 resulted in a net loss of $139,150 as compared to a net income of $317,913
for the same period in 2004. The decrease in net income is primarily
attributable to a decrease in other revenue and a decrease in equity in income
of Local Limited Partnerships, partially offset by a decrease in provision for
valuation of investments in Local Limited Partnerships an increase in investment
revenue and a decrease in general and administrative expenses. The decrease in
other revenue is primarily due to a decrease in distributions from Local Limited
Partnerships with carrying values of zero. The decrease in equity in income 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 and an increase in unrecognized losses by the Partnership of Local
Limited Partnerships with carrying values of zero. The decrease in provision for
valuation of investments in Local Limited Partnerships is due to the Partnership
recording an impairment allowance for its investments in certain Local Limited
Partnerships in the prior year. The increase in investment revenue is primarily
attributable to an increase investment securities arising from sale proceeds
received in 2005 and the Partnership investing in more lucrative securities.
General and administrative expenses decreased primarily due to decreased charges
from an affiliate of the General Partner for administrative expenses necessary
for the operation of the Partnership.
<page>
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)
Six Month Period
The Partnership's results of operations for the six months ended September 30,
2005 resulted in a net loss of $282,718 as compared to a net income of $156,778
for the same period in 2004. The decrease in net income is primarily
attributable to a decrease in other revenue and a increase in equity in losses
of Local Limited Partnerships, partially offset by a decrease in provision for
valuation of investments in Local Limited Partnerships an increase in investment
revenue and a decrease in general and administrative expenses. The decrease in
other revenue is primarily due to a decrease in distributions from Local Limited
Partnerships with carrying values of zero. 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 and an increase in unrecognized losses by the Partnership of Local
Limited Partnerships with carrying values of zero. The decrease in provision for
valuation of investments in Local Limited Partnerships is due to the Partnership
recording an impairment allowance for its investments in certain Local Limited
Partnerships in the prior year. The increase in investment revenue is primarily
attributable to an increase investment securities arising from sale proceeds
received in 2005 and the Partnership investing in more lucrative securities.
General and administrative expenses decreased primarily due to decreased charges
from an affiliate of the General Partner for administrative expenses necessary
for the operation of the Partnership.
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
the Partnership and its purported general partners (collectively, the
"Defendants") in Clay County, Missouri (the "Missouri Action"), claiming that
the Defendants breached the 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, 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.
On or about October 3, 2005, the Partnership and its general partners ("BFQH
IV") commenced litigation against Park in Suffolk Superior Court, Massachusetts
and requested the court to issue a declaration that BHQH IV was not in violation
of section 5.4.2 of the Partnership Agreement by virtue of its periodic
disposition of interests in Local Limited Partnerships following expiration of
the Properties' applicable Compliance Period(s). On or about October 11, 2005,
Park sought leave of the court in the Missouri Action to amend its petition
again and moved the court for entry of a temporary restraining order prohibiting
the Defendants from entering into any agreement to sell, transfer or otherwise
convey any interest in Local Limited Partnerships. On October 14, 2005 the court
denied Park's request.
The Defendants and New Defendants maintain that Park is not entitled to review
the alleged "books and records" requested and/or use the materials in secondary
market transactions because, among other things: (i) they are not "books and
records" of the relevant partnerships; (ii) Park does not seek to review them
for a proper purpose; and (iii) 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. Likewise, the Defendants
maintain that they may continue to periodically dispose of interests in Local
Limited Partnerships because, among other things, said dispositions do not
constitute the sale "at one time" of "all or substantially all of the assets of
the partnership" pursuant to Section 5.4.2 of the Partnership Agreement. The
Defendants and New Defendants accordingly intend on defending against all of the
aforementioned claims vigorously. These entities have not, however, formed an
opinion that an unfavorable outcome is either probable or remote. Therefore,
their counsel refrains from expressing an opinion as to the likely outcome of
the case or the range of any loss.
On October 27, 2005, Bond Purchase, L.L.C. ("Bond"), an entity affiliated with
Park, commenced litigation in the district court for Johnson County, Kansas
against the Partnership and its purported general partners (collectively, the
"BFQH Defendants"), Leawood Associates, L.P. and BF Leawood Limited Partnership,
claiming, among other things: (i) that section 5.4.2 of the Partnership
Agreement prohibits the BFQH Defendants from engaging in their plan to dispose
of interests in Local Limited Partnerships; (ii) that the BFQH Defendants
violated the Partnership Agreement by failing to submit Bond's request to amend
the Partnership Agreement to the Partnership's limited partners for a vote,
instead calling a meeting; (iii) that the BFQH Defendants breached the
Partnership Agreement by, among other things, failing to permit inspection of
certain alleged "books and records" of the Partnership; and (iv) that the BFQH
Defendants have violated their fiduciary duties owed to Bond. The BFQH
Defendants intend on defending against these claims vigorously, but given, among
other things, the preliminary nature of this matter, they have not formed an
opinion that an unfavorable outcome is either probable or remote. Therefore,
their counsel refrains from expressing an opinion as to the likely outcome of
the case or the range of any loss.
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 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 several other Everest 2-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 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.
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) 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 Local Limited Partnership 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.
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, an IRS audit of the 1993 tax return for Bentley Court II
Limited Partnership questioned the treatment of certain items and had findings
of non-compliance in 1993. The IRS then expanded the scope of the audit to
include the 1994 and 1995 tax returns. As a result, the IRS disallowed the
Property's Tax Credits for each of these years. 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. Based on advice of tax counsel, the Managing
General Partner recently determined to concede the disallowance of tax credits
for those three years.
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. Based
on advice of tax counsel, the Managing General Partner has determined to
continue to challenge the IRS's findings with respect to this $500,000 of
recapture, and a trial is scheduled on this issue for later this year. 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 a possible settlement with the IRS. A Partnership level settlement
could raise certain complications because a portion of the Partnership's
ownership has changed since the tax years in question as a result of Unit
transfers. In other words, not all current Unit holders are subject to the tax
liabilities associated with Bentley Count. The Managing General Partner will
study this issue to determine whether a full or partial Partnership level
settlement is appropriate. The issue may be moot because, to date, the IRS has
not expressed any interest in such a settlement. Absent 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. Subject to the
considerations stated above, it is 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, 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 expires on
December 31, 2005. The Property operated above break-even for the six months
ended June 30, 2005.
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. Site visits by the Managing General Partner have 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.
As previously reported, during 1994 the Local General Partner of Dorsett
Apartments, located in Philadelphia, Pennsylvania, transferred its interest in
the Local Limited Partnership. The IRS subsequently conducted a compliance audit
of the Property and took the position that the Property is subject to recapture
due to non-compliance issues. The Managing General Partner disagrees with the
IRS. In the opinion of the Managing General
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)
Partner, there is a risk that the Property and the Partnership could suffer
significant Tax Credit recapture. However, it is not possible to quantify the
potential amount at this time. Further, the Property suffered from poor location
and security issues. Vandalism caused an increase in maintenance and repair
expenses and negatively affected the Property's occupancy levels and tenant
profile, causing debt service coverage and working capital to drop below
appropriate levels. In 2003, the Managing General Partner and the Local General
Partner began to pursue disposition options of the Partnership's interest in the
Local Limited Partnership. On September 21, 2004, the Property was sold. The
Partnership received $25,000 in sales proceeds in December 2004 and received an
additional $50,000 in February 2005. The Partnership continued to have an
interest in this Local Limited Partnership until January 1, 2005, at which time
the Property's Compliance Period expired, and the Partnership's interest was
fully transferred. The sale resulted in a taxable loss of approximately $89,000,
or $1 per Unit. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire amount of net
proceeds in Reserves.
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,
had experienced decreasing occupancy since early 2003. The Local General Partner
replaced its own management agent affiliate with a third party local management
agent that, in an effort to increase occupancy, evicted several tenants for
non-payment. . As of June 30, 2005, occupancy has improved to an acceptable
level of 90%. Although revenues and debt service coverage have improved and
working capital levels are favorable, the Property continues to operate at a
below breakeven level due to high operating costs. 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 Local Limited Partnership 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.
As previously reported, Oakview Square, located in Chesterfield, Michigan,
continues 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 negotiations regarding a 2006 sale of the Property. The
Property's Compliance Period will end on December 31, 2005.
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)
The Partnership has policies and practices for assessing potential impairment of
its investments in Local Limited Partnerships. The Partnership analyzes these
investments to determine if impairment indicators exist and if an other then
temporary impairment adjustment is necessary. If impairment indicators are
present, the investment is further analyzed to consider the Partnership's
ability to recover the investment's carrying value. If an other than temporary
impairment in carrying value exists, an impairment loss is recorded to write
down the investment to its fair value. Fair value is primarily established from
the current market value estimate of the remaining unused Tax Credits associated
with the Properties owned by the Local Limited Partnerships. During the six
months ended September 30, 2004, the Partnership concluded one of the Local
Limited Partnerships, Carolina Woods Associates, L.P., had experienced other
than temporary declines in its carrying value, and impairment losses of
approximately $350,000 were recorded. Generally, the carrying values of most
Local Limited Partnerships will decline through losses and distributions in
amounts sufficient to prevent other than temporary impairments. However, the
Partnership may record similar impairment losses in the future if the expiration
of Tax Credits outpaces losses and distributions from any of the Local Limited
Partnerships.
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 and
Principal Financial Officer pursuant to section 302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and
Principal Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 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: November 14, 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