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February 14, 2007
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 December 31, 2006
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
QH4-10Q3.DOC
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 December 31, 2006
--------------------------------------
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
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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) - December 31, 2006 1
Statements of Operations (Unaudited) - For the Three and Nine
Months Ended December 31, 2006 and 2005 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Nine Months Ended December 31, 2006 3
Statements of Cash Flows (Unaudited) - For the
Nine Months Ended December 31, 2006 and 2005 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 16
SIGNATURE 17
CERTIFICATIONS 18
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
BALANCE SHEET
December 31, 2006
(Unaudited)
Assets
Cash and cash equivalents $ 15,398,077
Investment securities, at fair value 746,100
Investments in Local Limited Partnerships (Note 1) 3,741,174
Other assets 27,572
Accounts receivable (Note 1) 1,050,000
---------------
Total Assets $ 20,962,923
===============
Liabilities and Partners' Equity
Due to affiliate $ 26,220
Accrued expenses 86,709
---------------
Total Liabilities 112,929
---------------
General, Initial and Investor Limited Partners' Equity 20,852,139
Net unrealized losses on investment securities (2,145)
---------------
Total Partners' Equity 20,849,994
---------------
Total Liabilities and Partners' Equity $ 20,962,923
===============
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 Nine Months Ended December 31, 2006 and 2005
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
2006 2005 2006 2005
---------------- ---------------- ---------------- ---------------
Revenue
Investment $ 161,901 $ 34,831 $ 339,281 $ 111,559
Other - 6,690 35,000 107,968
---------------- ---------------- ---------------- ---------------
Total Revenue 161,901 41,521 374,281 219,527
---------------- ---------------- ---------------- ---------------
Expenses:
Asset management fees, affiliate 26,787 34,548 80,359 103,632
Provision for valuation allowance on
advances to Local Limited Partnerships
(Note 1) 5,802 43,073 81,751 61,049
Provision for valuation of investments
in Local Limited Partnerships (Note 1) - - 250,000 -
General and administrative
(includes reimbursement to affiliate
in the amounts of $60,773 and
$84,446 for the nine months ended
December 31, 2006 and 2005,
respectively) 144,988 351,821 975,040 511,332
Amortization 6,834 7,125 20,502 21,374
---------------- ---------------- ---------------- ---------------
Total Expense 184,411 436,567 1,407,652 697,387
---------------- ---------------- ---------------- ---------------
Loss before equity in losses of Local Limited
Partnerships and gain on sale of
investments in Local Limited
Partnerships (22,510) (395,046) (1,033,371) (477,860)
Equity in losses of Local Limited
Partnerships (Note 1) (48,087) (11,159) (238,298) (215,230)
Gain on sale of investments in Local
Limited Partnerships (Note 1) 1,050,000 - 13,844,835 4,167
---------------- ---------------- ---------------- ---------------
Net Income (Loss) $ 979,403 $ (406,205) $ 12,573,166 $ (688,923)
================ ================ ================ ==============
Net Income (Loss) allocated:
General Partners $ 9,830 $ (4,062) $ 716,797 $ (6,889)
Limited Partners 969,573 (402,143) 11,856,369 (682,034)
---------------- ---------------- ---------------- ---------------
$ 979,403 $ (406,205) $ 12,573,166 $ (688,923)
================ ================ ================ ==============
Net Income (Loss) Per Limited Partner
Unit (68,043) Units $ 14.25 $ (5.91) $ 174.25 $ (10.02)
================ ================ ================ ==============
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 Nine Months Ended December 31, 2006
(Unaudited)
Initial Investor Net
General Limited Limited Unrealized
Partners Partner Partners Losses Total
------------- -------------- -------------- -------------- ----------
Balance at March 31, 2006 $ (508,297) $ 5,000 $ 8,782,270 $ (14,693) $ 8,264,280
------------- -------------- -------------- -------------- ----------
Comprehensive Income:
Change in net unrealized
losses on investment securities
available for sale - - - 12,548 12,548
Net Income 716,797 - 11,856,369 - 12,573,166
-------------- -------------- --------------- -------------- -----------
Comprehensive Income 716,797 - 11,856,369 12,548 12,585,714
------------- -------------- -------------- -------------- -----------
Balance at December 31, 2006 $ 208,500 $ 5,000 $ 20,638,639 $ (2,145) $20,849,994
============== ============== ============== -------------- ===========
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 Nine Months Ended December 31, 2006 and 2005
(Unaudited)
2006 2005
------------- --------------
Net cash used for operating activities $ (853,790) $ (226,646)
Net cash provided by (used for) investing activities 14,367,665 (2,369,153)
------------- -------------
Net increase (decrease) in cash and cash equivalents 13,513,875 (2,595,799)
Cash and cash equivalents, beginning 1,884,202 4,476,203
------------- -------------
Cash and cash equivalents, ending $ 15,398,077 $ 1,880,404
============= =============
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, 2006. 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 September 30, 2006 and 2005.
Generally, profits, losses, tax credits and cash flow from operations are
allocated 99% to the Limited Partners and 1% to the General Partners. Net
proceeds from a sale or refinancing will be allocated 95% to the Limited
Partners and 5% to the General Partners, after certain priority payments. The
General Partners may have an obligation to fund deficits in their capital
accounts, subject to limits set forth in the Partnership Agreement. However, to
the extent that the General Partners' capital accounts are in deficit positions,
certain items of net income may be allocated to the General Partners in
accordance with the Partnership Agreement.
1. Investments in Local Limited Partnerships
The Partnership has limited partnership interests in nine 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
December 31, 2006:
Capital contributions and advances paid to Local Limited Partnerships and purchase
price paid to withdrawing partners of Local Limited Partnerships $ 28,602,787
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $7,427,585) (18,818,850)
Cumulative cash distributions received from Local Limited Partnerships (2,222,719)
---------------
Investments in Local Limited Partnerships before adjustments 7,561,218
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 2,275,275
Cumulative amortization of acquisition fees and expenses (857,891)
---------------
Investments in Local Limited Partnerships before valuation allowance 8,978,602
Valuation allowance on investments in Local Limited Partnerships (5,237,428)
---------------
Investments in Local Limited Partnerships $ 3,741,174
===============
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
For the nine months ended December 31, 2006, the Partnership advanced $81,751 to
one of the Local Limited Partnerships, all of which was reserved. The
Partnership has recorded a valuation allowance for its investments in certain
Local Limited Partnerships in order to appropriately reflect the estimated net
realizable value of these investments.
The Partnership's share of the net losses of the Local Limited Partnerships for
the nine months ended December 31, 2006 is $1,501,534. For the nine months ended
December 31, 2006, the Partnership has not recognized $1,263,236 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.
The Partnership's interest in one of its investments in Local Limited
Partnerships was sold during the nine months ended December 31, 2006, resulting
in a gain of $13,844,835, which includes an additional $1,050,000 in sale
proceeds is expected to be received from the General Partner in 2007.
2. Significant Subsidiaries
The following Local Limited Partnerships invested in by the Partnership
represent more than 20% of the Partnership's total assets or equity as of
December 31, 2006 or 2005 or net losses for the three months ended either
December 31, 2006 or 2005. The following financial information represents the
performance of these Local Limited Partnerships for the three months ended
September 30, 2006 and 2005:
Leawood Associates, L.P. A Limited Partnership 2006 2005
- ---------------------------------------------- --------------- --------------
Revenue $ 546,893 $ 487,885
Net Income (Loss) $ 142,280 $ (9,825)
Allentown Towne, L.P.
Revenue $ 348,267 $ 340,159
Net Loss $ (27,221) $ (30,360)
Prince Street Towers, L.P. A Limited Partnership
Revenue $ 451,543 $ 451,098
Net Income (Loss) $ (64,405) $ 20,354
Sencit Towne House, L.P.
Revenue $ 494,849 $ 483,014
Net Income (Loss) $ (84,855) $ 7,566
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 Local Limited Partnerships in which the Partnership invests are Variable
Interest Entities ("VIE"s). The Partnership is involved with the VIEs as a
non-controlling limited partner equity holder. Because the Partnership is not
the primary beneficiary of these VIEs, it accounts for its investments in the
Local Limited Partnerships using the equity method of accounting. As a result of
its involvement with the VIEs, the Partnership's exposure to economic and
financial statement losses is limited to its investments in the VIEs ($3,741,174
at December 31, 2006). The Partnership may be subject to additional losses to
the extent of any financial support that the Partnership voluntarily provides in
the future. Under the equity method, the investment is carried at cost, adjusted
for the Partnership's share of net income or loss and for cash distributions
from the Local Limited Partnerships; equity in income or loss of the Local
Limited Partnerships is included currently in the Partnership's operations.
Under the equity method, a Local Limited Partnership investment will not be
carried below zero. To the extent that equity in losses are incurred when the
Partnership's carrying value of the respective Local Limited Partnership has
been reduced to a zero balance, the losses will be suspended and offset against
future income. Income from Local Limited Partnerships, where cumulative equity
in losses plus cumulative distributions have exceeded the total investment in
Local Limited Partnerships, will not be recorded until all of the related
unrecorded losses have been offset. To the extent that a Local Limited
Partnership with a carrying value of zero distributes cash to the Partnership,
that distribution is recorded as income on the books of the Partnership and is
included in "other revenue" in the accompanying financial statements.
The Partnership has implemented policies and practices for assessing
other-than-temporary declines in values of its investments in Local Limited
Partnerships. Periodically, the carrying values of the investments are compared
to their respective fair values. If an other-than-temporary decline in carrying
value exists, a provision to reduce the asset to fair value, as calculated based
primarily on remaining tax benefits, will be recorded in the Partnership's
financial statements. 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)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
The Partnership had an increase in cash and cash equivalents of $13,513,875 from
$1,884,202 at March 31, 2006 to $15,398,077 at December 31, 2006. The increase
is primarily attributable to proceeds received from the sale of investments in
Local Limited Partnerships, the maturity of investment securities and cash
distributions from Local Limited Partnerships, partially offset by cash used for
operating activities and advances to 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 December 31, 2006, $16,144,177 of cash, cash equivalents and
investment securities has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $1,885,000 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
December 31, 2006, the Partnership has advanced approximately $1,654,000 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 $17,266,000 of
operating funds and proceeds from liquidation of interests in Local Limited
Partnerships 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 December 31, 2006, 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 nine months ended December 31, 2006.
Results of Operations
Three Month Period
The Partnership's results of operations for the three months ended December 31,
2006 resulted in a net income of $979,403, as compared to a net loss of $406,205
for the same period in 2005. The increase in net income is primarily
attributable to an increase in gain on sale of investments in Local Limited
Partnerships, a decrease in general and administrative expense, an increase in
investment income and a decrease in provision for valuation allowance on
advances to Local Limited Partnerships partially offset by an increase in equity
in losses in Local Limited Partnerships. The increase in gain on sale of
investments in Local Limited Partnerships is due to the transfer of one Local
Limited Partnership during the current year. General and administrative expenses
decreased primarily due to a decrease in legal fees associated with litigation
in which the Partnership is currently involved. The increase in investment
income is primarily attributable to an increase in investment securities arising
from sale proceeds received during the nine months ended December 31, 2006 and
the Partnership investing in more lucrative securities.
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)
Three Month Period (continued)
The decrease in provision for valuation allowance on advances to Local Limited
Partnerships is the result of a decrease in advances made to one Local Limited
Partnership during the quarter ended December 31, 2006 as compared to the same
three month period of December 31, 2005. The increase in equity in losses of
Local Limited Partnerships is primarily due to an increase in operating expenses
at some of the Properties.
Nine Month Period
The Partnership's results of operations for the nine months ended December 31,
2006 resulted in a net income of $12,573,166, as compared to a net loss of
$688,923 for the same period in 2005. The increase in net income is primarily
attributable to an increase in gain on sale of investments in Local Limited
Partnerships, an increase in investment income and a decrease in asset
management fees partially offset by an increase in general and administrative
expense, an increase in provisions for valuation of investments in Local Limited
Partnerships, a decrease in other income, an increase in equity in losses and an
increase in provisions for valuation allowance on advances to Local Limited
Partnerships. The increase in gain on sale of investments in Local Limited
Partnerships is due to the transfer of one Local Limited Partnership during the
current year. The increase in investment income is primarily attributable to an
increase in investment securities arising from sale proceeds received during the
nine months ended December 31, 2006 and the Partnership investing in more
lucrative securities. The decrease in asset management fees is due to the
Partnership's sale of interests in four Local Limited Partnerships; since asset
management fees are charged per Local Limited Partnership, the previous year's
sales reduced the current year's charges. General and administrative expenses
increased primarily due to increased legal fees associated with litigation in
which the Partnership is currently involved. Provision for valuation of
investments in Local Limited Partnership's increased due to the Partnership
recording an impairment allowance for its investment in certain Local Limited
Partnerships. The decrease in other income is due to a decrease in distributions
from Local Limited Partnerships with carrying values of zero.
Portfolio Update
The Partnership was formed on March 30, 1989 under the laws of the Commonwealth
of Massachusetts for the primary purpose of investing, as a limited partner, in
Local Limited Partnerships which own and operate apartment complexes, most of
which benefit from some form of federal, state or local assistance program and
each of which qualifies for low-income housing tax credits. The Partnership's
objectives are to: (i) provide current tax benefits in the form of tax credits
which qualified investors may use to offset their federal income tax liability;
(ii) preserve and protect the Partnership's capital; (iii) provide limited cash
distributions which are not expected to constitute taxable income during
Partnership operations; and (iv) provide cash distributions from sale or
refinancing transactions. The General Partners of the Partnership are Arch
Street VIII, Inc., which serves as the Managing General Partner, and Arch Street
IV L.P., which also serves as the Initial Limited Partner. Both of the General
Partners are affiliates of MMA Financial, Inc. The fiscal year of the
Partnership ends on March 31.
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)
As of December 31, 2006, the Partnership's investment portfolio consisted of
limited partnership interests in nine Local Limited Partnerships, each of which
owns and operates a multi-family apartment complex and each of which has
generated Tax Credits. Since inception, the Partnership has generated Tax
Credits, net of recapture, of approximately $1,287 per Limited Partner Unit. The
aggregate amount of Tax Credits generated by the Partnership was consistent with
the objective specified in the Partnership's prospectus.
Properties that receive low income housing Tax Credits must remain in compliance
with rent restriction and set-aside requirements for at least 15 calendar years
from the date the property is placed in service. Failure to do so would result
in recapture of a portion of the property's Tax Credits. The Compliance Periods
of the nine remaining Properties in which the Partnership has an interest had
all expired on or before December 31, 2006.
The Managing General Partner has negotiated an agreement that will ultimately
allow the Partnership to dispose of its interest in one Local Limited
Partnership; it is unlikely that the disposition of this Local Limited
Partnership interest will generate a material cash distribution to the
Partnership. One of the Local Limited Partnerships in which the Partnership had
an interest was disposed of during the nine months ended December 31, 2006.
The Managing General Partner will continue to closely monitor the operations of
the Properties and will formulate disposition strategies with respect to the
Partnership's remaining Local Limited Partnership interests. The Partnership
shall dissolve and its affairs shall be wound up upon the disposition of the
final Local Limited Partnership interest and other assets of the Partnership.
Investors will continue to be Limited Partners, receiving K-1s and quarterly and
annual reports, until the Partnership is dissolved.
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, 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"). 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 for a
temporary restraining order, and on November 15, 2004 it granted the request to
amend the Petition.
In October, 2005, Park again sought leave of the court in the Missouri action to
amend its Petition, claiming that the Defendants were in violation of the
Partnership Agreement by disposing of interests in Local Limited Partnerships
following expiration of the Compliance Period(s) without first obtaining Limited
Partner consent. On or about October 11, 2005, Park moved the court for 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 for a
temporary restraining order. In December 2005, the court granted Park's request
to amend its Petition to include the alleged claim regarding disposition of
Local Limited Partnership interests. The Defendants and New Defendants have
filed a motion to dismiss the second amended petition. The motion to dismiss has
not yet been decided. The originally scheduled final hearings in August and
October 2006 were adjourned at the request of the parties as discussions
concerning a possible negotiated resolution of the matter are ongoing. If a
settlement is not reached, the final hearing likely will take place in February
2007 or March 2007.
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 Defendants and 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 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 the Partnership may continue to periodically dispose of interests in Local
Limited Partnerships because, among other things, the 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.
Therefore, the Defendants and New Defendants accordingly intend on defending
against the claims vigorously. Discovery is ongoing with respect to the alleged
claim against the Defendants regarding disposition of the Local Limited
Partnership interests. The Defendants and New Defendants have not formed an
opinion that an unfavorable outcome is either probable or remote, and their
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 several 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 and the general partners moved
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. The Court granted this Motion. Discovery is
continuing in this matter, but no activity has taken place in recent months as
the parties have been discussing whether a negotiated resolution of the matter
is possible.
The Partnerships and their general partners 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 and their general partners have not formed an
opinion that an unfavorable outcome is either probable or remote, and 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, claiming, among
other things, that: (i) section 5.4.2 of the Partnership Agreement prohibited
the defendants from engaging in their alleged plan to dispose of interests in
Local Limited Partnerships; (ii) the 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) the defendants breached the Partnership Agreement by, among other things,
failing to permit inspection of certain alleged "books and records" of the
Partnership; and (iv) the defendants violated their fiduciary duties to Bond. On
January 6, 2006, Bond filed a motion to voluntarily dismiss its lawsuit without
prejudice. On April 3, 2006, the court dismissed the lawsuit.
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 October 3, 2005, the Partnership and its General Partners commenced
litigation against Park in Suffolk Superior Court, Massachusetts and requested
the Court to issue a declaration that they were not in violation of section
5.4.2 of the Partnership Agreement by virtue of the Partnership's periodic
disposition of interests in Local Limited Partnerships following expiration of
the Compliance Period(s). In November 2005, the plaintiffs amended the complaint
to include Bond as a defendant and to claim: (i) that the plaintiffs need not
furnish the purported "books and records" of the Partnership requested by Bond,
since, among other things, Bond's request is clearly designed to elicit
information concerning the assets and operations of the Local Limited
Partnerships; and (ii) that Park and Bond intentionally and improperly took
action to undermine the sale of Leawood Manor, resulting in the withdrawal of
the highest bid and depriving the Partnership of an economic opportunity.
On December 19, 2005, Park and Bond moved to dismiss for lack of personal
jurisdiction and failure to join other limited partners, and their motion was
denied on June 2, 2006. No activity has taken place in the matter since denial
of the motion to dismiss, as the parties have been discussing whether a
negotiated resolution is possible. If a settlement is not reached, the
plaintiffs likely will serve a motion for summary judgment seeking to obtain a
declaration from the Court that (i) the plaintiffs are not acting in violation
of the Partnership Agreement by periodically disposing of interests in Local
Limited Partnerships without Limited Partner consent and/or (ii) Bond is not
entitled to access to the purported "books and records" that it has requested.
Property Discussions
A majority of the Properties in which the Partnership has an interest had
stabilized operations and operated above breakeven as of September 30, 2006.
Some Properties generate cash flow deficits that the Local General Partners of
those Properties fund through project expense loans, subordinated loans or
operating escrows. However, a few Properties have had persistent operating
difficulties that could either: (i) have an adverse impact on the Partnership's
liquidity; (ii) result in their foreclosure; or (iii) result in the Managing
General Partner deeming it appropriate for the Partnership to dispose of its
interest in the Local Limited Partnership. Also, the Managing General Partner,
in the normal course of the Partnership's business, may arrange for the future
disposition of its interest in certain Local Limited Partnerships. The following
Property discussions focus only on such Properties.
As previously reported, an IRS audit of the 1993 tax return for the Bentley
Court II Limited Partnership questioned the treatment of certain items and had
findings of non-compliance in 1993. The IRS then expanded the scope of the audit
to include the 1994 and 1995 tax returns. As a result, the IRS disallowed the
Property's Tax Credits for each of these years (the disallowance of the 1993,
1994 and 1995 Tax Credits applies only to the Limited Partners of the
Partnership that claimed Tax Credits for those years and the recapture applies
to all current Limited Partners of the Partnership). On behalf of the
Partnership, the Managing General Partner retained counsel to appeal the IRS's
findings in order to minimize the loss of Tax Credits. This administrative
appeal has been unsuccessful and the IRS has not retracted its position of
disallowing Tax Credits for 1993, 1994 and 1995, a total of $2,562,173, plus
accrued interest of approximately $3,000,000, or approximately $80 per Unit.
Based on advice of tax counsel, the Managing General Partner determined to
concede the disallowance of Tax Credits for those three years.
In addition, the Local General Partner received notification that the IRS was
expanding its claims to recapturing $502,472 of Tax Credits taken in 1990, 1991
and 1992, plus accrued interest of approximately $800,000, or approximately $20
per Unit. Based on advice tax counsel, the Managing General Partner determined
to challenge the IRS's findings with respect to this $502,472 of recapture, and
a trial was held on this issue in November 2005. Last year, the Tax Court ruled
against the Partnership. Upon advice of counsel, this decision was not appealed
by the Managing General Partner.
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)
It is possible that the IRS will further expand its claims for additional
amounts with respect to other years. However, counsel has advised that the
statute of limitations has expired for the tax years 1996, 1997 and 1998. The
Managing General Partner anticipates that the IRS will forward the assessments
for disallowance and recapture directly to the affected Limited Partners and
that this could occur in 2007. Tax counsel has advised that Limited Partners
that acquired Units after 1998 will not be affected by these assessments. The
Managing General Partner strongly recommends that Limited Partners consult with
their tax advisors regarding the appropriate treatment of any disallowance or
recapture assessments.
As previously reported, the Managing General Partner negotiated an agreement
with an unaffiliated entity to have the ability to transfer its interest to the
unaffiliated entity or its designee with respect to the following Local Limited
Partnerships: Canfield Crossing, located in Milan, Michigan, Whitehills II,
located in Howell, Michigan and Orchard View, located in Gobles, Michigan.
Although these Properties did not share a common Local General Partner, they
were all Rural Housing Section 515 ("FMHA") properties. The Managing General
Partner had the right to put its interest in any of the Local Limited
Partnerships at any time in exchange for a contingent note that granted the
Partnership 50% of all future net cash receipts from such Local Limited
Partnership interest. If the Partnership disposed of its interest in the
above-mentioned Properties in any other manner, the Partnership would have been
required to pay a $2,500 termination fee, per Property, to the unaffiliated
entity. Effective January 1, 2005, the Managing General Partner transferred the
Partnership's interest in Canfield Crossing and Whitehills II to the
unaffiliated entity. The Partnership received $4,166 in exchange for the sale of
the contingent notes that were created in conjunction with put options entered
into with the above-mentioned unaffiliated third party. These two sales resulted
in 2005 taxable income of $663,002, or $9.74 per Unit. Effective January 1,
2006, the Partnership put its interest in Orchard View to the unaffiliated
entity for approximately $2,100 in lieu of the Partnership carrying a remaining
interest in the form of a contingent note. This transfer will result in 2006
taxable income of approximately $299,000, or $4 per Unit. The Managing General
Partner, in accordance with and as permitted by the Partnership Agreement,
retained the entire amount of net proceeds from these sale in Reserves. The
Managing General Partner determined the values in these Properties to be less
than their outstanding debt, and therefore the sale of the Partnership's
interests in these Properties for nominal amounts was determined to be in the
best interest of the Partnership. The Compliance Periods ended on December 31,
2004 for Canfield Crossing and Whitehills II and ended on December 31, 2005 for
Orchard View. The Partnership no longer has an interest in these three Local
Limited Partnerships.
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 had 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. Effective January 1, 2006, the Managing
General Partner transferred its interest in the Local Limited Partnership to the
Local General Partner for $4,000, or $0.06 per Unit. This transfer was
consummated with the receipt of these proceeds in April 2006. This transfer is
projected to result in 2006 taxable income of approximately $207,000, or
approximately $3 per Unit. The Property has generated all of its Tax Credits,
and the Property's Compliance Period ended on December 31, 2005. The Partnership
no longer has an interest in this Local Limited Partnership.
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.
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 Managing General Partner exercised its right to put the Partnership's
remaining interest to the new Local General Partner, effective February 24,
2006. This transfer is projected to result in 2006 taxable income of
approximately $140,000, or $2 per Unit. The Compliance Period expired on
December 31, 2005. The Partnership no longer has an interest in this Local
Limited Partnership.
As previously reported, Carolina Woods, located in Greensboro, North Carolina,
experienced decreasing levels of 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. Throughout the three-month period ended December 31,
2005 occupancy was 92%. Although revenues, debt service coverage and working
capital levels remained favorable, the Property, due to high operating costs,
continued to operate at a below breakeven level as of December 31, 2005. The
Local General Partner had advanced funds as necessary to ensure the Property
remain current on its debt service obligations. The Property's Compliance Period
expired on December 31, 2004 and therefore posed minimal recapture risk to the
Partnership. On March 22, 2006, Carolina Woods was sold, causing the
Partnership's disposition of its interest in this Local Limited Partnership. As
expected, the Property's sales price was insufficient to produce any net
proceeds to the Partnership. This sale will result in a 2006 taxable loss
projected to be approximately $480,000, or $7 per Unit. The Partnership no
longer has an interest in this Local Limited Partnership.
As previously reported, Lakeside Square, located in Chicago, Illinois, 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, 2005, 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, 2005. 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. Effective January 2, 2006, the
Managing General Partner exercised its put option on this Local Limited
Partnership, receiving $304,020 in return for its interest in this Local Limited
Partnership. The Managing General Partner, in accordance with and as permitted
by the Partnership Agreement, retained the entire amount of net proceeds from
this sale in Reserves. This transfer will result in 2006 taxable income
projected to be approximately $1,000,000, or $15 per Unit. The Partnership no
longer has an interest in this Local Limited Partnership.
As previously reported, the Managing General Partner negotiated an agreement to
transfer the Local General Partner interest in West Pine, located in Findlay,
Pennsylvania, to an affiliate of the Allegheny County Housing Authority
("ACHA"), contingent upon receiving approval from the U.S. Department of Housing
and Urban Development ("HUD"). HUD approval was received, and the Local General
Partner interest was transferred on October 17, 2003. In addition, the ACHA had
informed the Managing General Partner of its interest in acquiring the
Partnership's interest in the Local Limited Partnership, pending their
assumption of the Local General Partner interest. Concurrent with the
replacement of the Local General Partner, another ACHA affiliate acquired 30% of
the Partnership's limited partner interest in the Local Limited Partnership. As
part of this transaction, the Partnership acquired a put option for the
remaining 70% exercisable for $1 anytime after the expiration of the Compliance
Period on December 31, 2006. West Pine generated its final year of Tax Credits
in 2001.
As previously reported, although monthly occupancy levels at 46th and Vincennes,
located in Chicago, Illinois, have stabilized, increases in utility costs have
resulted in unfavorable debt service coverage while working capital levels
remain well below appropriate levels as of September 30, 2006. A site visit by
the Managing General Partner in October 2005 found the Property in need of some
capital improvements. Although advances from the Local 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 have enabled the Property to remain current on its loan obligations, the
Managing General Partner believes that the Local General Partner and its
affiliated management company are not adequately performing their
responsibilities with respect to the Property. The Managing General Partner has
expressed these concerns to the Local General Partner and will continue to
closely monitor the Property's operations. Based on the results of a recent
market valuation the Managing General Partner will most likely enter into a put
agreement, pending HUD's approval of a Transfer of Physical Assets Application,
and subsequently transfer the Partnership's interest in the Local Limited
Partnership during 2007. The Property's Compliance Period ended on December 31,
2005.
The Partnership's interest in the Local Limited Partnership that owns Mayfair
Mansions, located in Washington, DC, was terminated upon the July 2006 sale of
the Property to an unaffiliated entity. The Partnership received net sales
proceeds of $12,794,835, or $188.04 per Unit, resulting in taxable income
projected to be approximately $16,400,000, or $241 per Unit. The Managing
General Partner believed that the Partnership had a claim of up to an additional
$1,500,000 of sale proceeds under the terms of the partnership agreement and
investment documents for this Local Limited Partnership. The Local General
Partners disputed that at least a portion of this amount is due. On behalf of
the Partnership, the Managing General Partner retained counsel and filed suit in
the Superior Court of the District of Columbia (Civil Action No. 0006755-06)
seeking a declaratory judgment and damages. The Local General Partners filed
counter-claims and disputed the Partnership's claims. On January 10, 2007,
representatives of the Managing General Partner and the Local General Partners
reached a settlement during court-ordered mediation with regard to all of the
above referenced legal claims. The settlement requires an additional
distribution to the Partnership in the amount of approximately $1,050,000, or
$15.23 per Unit. This payment is anticipated to be received in the first quarter
of the fiscal year ending March 31, 2008, upon the receipt by the Local Limited
Partnership of all outstanding amounts due from the sale of the Property
including lender held escrows and reserves. All pending legal matters were
subsequently dismissed with prejudice. The Partnership no longer has an interest
in this Local Limited Partnership.
The Managing General Partner anticipates that the Partnership's interest in the
Local Limited Partnership that owns Oakview Square, located in Chesterfield,
Michigan, will be terminated upon the sale of the Property in early 2007. Under
the current terms, this sale is expected to result in net proceeds to the
Partnership of approximately $75,000, or $1.10 per Unit. This sale would result
in 2007 taxable income projected to be approximately $719,000, or $10.57 per
Unit.
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
(b) 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
Reports on Form 8-K were filed during the quarter ended December
31, 2006:
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: February 14, 2007
BOSTON FINANCIAL QUALIFIED
HOUSING TAX CREDITS L.P. IV
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Gary Mentesana
Gary Mentesana
President
Arch Street, VIII, Inc.