UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19765
Boston Financial Qualified Housing Tax Credits L.P. IV
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3044617
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 Arch Street, Boston, Massachusetts 02110-1106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X__ No____ .
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ___ Accelerated Filer ___
Non-accelerated filer ___ (Do not check
if a smaller reporting company) Smaller reporting company _X__
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes____ No_X__
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Balance Sheet (Unaudited) - June 30, 2008 1
Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 2008 and 2007 2
Statement of Changes in Partners' Equity
(Unaudited) - For the Three Months Ended June 30, 2008 3
Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 2008 and 2007 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 15
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
June 30, 2008
(Unaudited)
Assets
Cash and cash equivalents $ 1,772,810
Investments in Local Limited Partnerships (Note 1) 605,780
---------------
Total Assets $ 2,378,590
===============
Liabilities and Partners' Equity
Due to affiliate $ 202,742
Accrued expenses 170,908
---------------
Total Liabilities 373,650
General, Initial and Investor Limited Partners' Equity 2,004,940
---------------
Total Liabilities and Partners' Equity $ 2,378,590
===============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
---------------- ----------------
Revenue:
Investment $ 9,356 $ 18,376
----------------- ----------------
Expense:
Asset management fees, affiliate 16,674 20,593
Provision for valuation allowance on advances to Local
Limited Partnerships (Note 1) 9,729 13,291
Provision for valuation allowance on investments in Local
Limited Partnerships (Note 1) 28,000 -
General and administrative (includes reimbursements to
an affiliate in the amount of $14,205 and $21,430 in 2008
and 2007, respectively) 289,139 71,225
Amortization 689 6,834
---------------- ----------------
Total Expense 344,231 111,943
---------------- ----------------
Loss before equity in losses of Local Limited Partnerships
and gain on sale of investments in Local Limited Partnerships (334,875) (93,567)
Equity in losses of Local Limited Partnerships (Note 1) (10,098) (97,060)
Gain on sale of investments in Local Limited Partnerships - 75,000
---------------- ----------------
Net Loss $ (344,973) $ (115,627)
================ ================
Net Loss allocated:
General Partners $ (3,450) $ (1,154)
Limited Partners (341,523) (114,473)
---------------- ----------------
$ (344,973) $ (115,627)
================ ================
Net Loss per Limited Partner Unit
(68,043 Units) $ (5.02) $ (1.68)
=============== ===============
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
For the Three Months Ended June 30, 2008
(Unaudited)
Initial Investor
General Limited Limited
Partners Partner Partners Total
Balance at March 31, 2008 $ 23,496 $ 5,000 $ 2,321,417 $ 2,349,913
Net Loss (3,450) - (341,523) (344,973)
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Balance at June 30, 2008 $ 20,046 $ 5,000 $ 1,979,894 $ 2,004,940
============= ============== ============== ==============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
------------- ---------------
Net cash used for operating activities $ (975,851) $ (46,958)
Net cash provided by investing activities 44,269 652,260
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Net increase (decrease) in cash and cash equivalents (931,582) 605,302
Cash and cash equivalents, beginning 2,704,392 15,869,238
------------- -------------
Cash and cash equivalents, ending $ 1,772,810 $ 16,474,540
============= =============
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-Q 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, 2008. In the opinion of
the Managing General Partner, these financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Partnership's financial position and results of operations.
The results of operations for the periods may not be indicative of the results
to be expected for the year.
The Managing General Partner of the Partnership has elected to report results of
the Local Limited Partnerships in which the Partnership has a limited
partnership interest on a 90 day lag basis because the Local Limited
Partnerships report their results on a calendar year basis. Accordingly, the
financial information of the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 2008 and 2007.
Generally, profits, losses, tax credits and cash flows 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 Partner' capital accounts are in a deficit position
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 seven Local Limited
Partnerships which were organized for the purpose of owning and operating
multi-family housing complexes, all of which are government-assisted. The
Partnership's ownership interest in each Local Limited Partnership is 99%,
except for Leawood Manor where the Partnership's ownership interest is 89%. The
Partnership may have negotiated or may negotiate options with the Local General
Partners to purchase or sell the Partnership's interests in the Local Limited
Partnerships at the end of the Compliance Period at nominal prices. In the event
that Properties are sold to a third party or upon dissolution of the Local
Limited Partnerships, proceeds will be distributed according to the terms of
each Local Limited Partnership agreement.
The following is a summary of investments in Local Limited Partnerships at June
30, 2008:
Capital contributions and advances paid to Local Limited Partnerships and
purchase price paid to withdrawing partners of Local Limited Partnerships $ 22,821,512
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $7,518,762) (14,122,790)
Cumulative cash distributions received from Local Limited Partnerships (2,656,073)
---------------
Investments in Local Limited Partnerships before adjustments 6,042,649
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 2,004,230
Cumulative amortization of acquisition fees and expenses (766,424)
---------------
Investments in Local Limited Partnerships before valuation allowance 7,280,455
Valuation allowance on investments in Local Limited Partnerships (6,674,675)
---------------
Investments in Local Limited Partnerships $ 605,780
===============
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 three months ended June 30, 2008, the Partnership advanced $9,729 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 three months ended June 30, 2008 is $241,024. For the three months ended
June 30, 2008, the Partnership has not recognized $230,926 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.
2. New Accounting Principle
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value Measurements" ("SFAS No. 157"), which provides enhanced
guidance for using fair value to measure assets and liabilities. SFAS No. 157
establishes a common definition of fair value, provides a framework for
measuring fair value under U.S. generally accepted accounting principles and
expands disclosure requirements about fair value measurements. SFAS No. 157 is
effective for financial statements issued in fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. In February
2008, the FASB issued FASB Staff Position 157-2, "Effective Date of FASB
Statement No. 157", which delays the effective date of SFAS No. 157 for all
nonfinancial assets and liabilities except those that are recognized or
disclosed at fair value in the financial statements on at least an annual basis
until November 15, 2008. The Partnership adopted the provisions of SFAS No. 157
for financial assets and liabilities recognized at fair value on a recurring
basis effective April 1, 2008. The partial adoption of SFAS No. 157 did not have
a material impact on the Partnership's Financial Statements. The Partnership
does not expect the adoption of the remaining provisions of SFAS No. 157 to have
a material effect on the Partnership's financial position, operations or cash
flow. This standard requires that a Partnership measure its financial assets and
liabilities using inputs from the three levels of the fair value hierarchy. A
financial asset or liability classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value
measurement. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Partnership has the
ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the
asset or liability and inputs that are derived principally from
or corroborated by observable market data by correlation or
other means (market corroborated inputs).
Level 3 - Unobservable inputs reflect the Partnership's judgments
about the assumptions market participants would use in pricing
the asset or liability since limited market data exists. The
Partnership develops these inputs based on the best information
available, including the Partnership's own data.
Financial assets accounted for at fair value on a recurring basis at June 30,
2008 include cash equivalents of $1,772,810.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
3 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 June
30, 2008 or 2007 or net losses for the three months ended either June 30, 2008
or 2007. The following financial information represents the performance of these
Local Limited Partnerships for the three months ended March 31, 2008 and 2007:
Leawood Associates, L.P. A Limited Partnership 2008 2007
- ---------------------------------------------- --------------- --------------
Revenue $ 533,600 $ 516,463
Net Loss $ (41,000) $ (71,093)
Allentown Towne House, L.P.
Revenue $ 366,600 $ 354,325
Net Loss $ (11,700) $ (23,585)
Prince Street Towers, L.P. A Limited Partnership
Revenue $ 463,500 $ 456,959
Net Loss $ (26,900) $ (27,698)
Sencit Towne House, L.P.
Revenue $ 513,600 $ 497,797
Net Income $ 28,400 $ 17,155
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 ($605,780
at June 30, 2008). 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. A liability
is recorded for delayed equity capital contributions to Local Limited
Partnerships. 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. The tax benefits for each Local Limited Partnership
consist of future tax losses, tax credits and residual receipts at disposition.
Included in the residual receipts calculation is current net operating income
capitalized at the regional rate specific to each Local Limited Partnership.
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
At June 30, 2008, the Partnership had cash and cash equivalents of $1,772,810 as
compared to $2,704,392 at March 31, 2008. The decrease is mainly attributable to
cash used for operating activities, partially offset by cash distributions
received from Local Limited Partnerships.
The Managing General Partner originally designated 4.00% of the Gross Proceeds
as Reserves, as defined in the Partnership Agreement. The Reserves were
established to be used for working capital of the Partnership and contingencies
related to the ownership of Local Limited Partnership interests. The Managing
General Partner may increase or decrease such Reserves from time to time, as it
deems appropriate. At June 30, 2008, $1,772,810 has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $2,014,000 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 Partnership's management might deem it in its best interest to
voluntarily provide such funds in order to protect its investment. As of June
30, 2008, the Partnership has advanced approximately $1,486,000 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 $2,855,000 of
operating funds to replenish Reserves.
Since the Partnership invests as a limited partner, the Partnership has no
contractual duty to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, as of June 30, 2008, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for.
Cash Distributions
No cash distributions were made during the three months ended June 30, 2008.
Results of Operations
The Partnership's results of operations for three months ended June 30, 2008
resulted in a net loss of $344,973 as compared to a net loss of $115,627 for the
same period in 2007. The increase in net loss is primarily attributable to an
increase in general and administrative expenses, a decrease in gain on sale of
investments in Local Limited Partnerships and an increase in provision for
valuation allowance on investments in Local Limited Partnerships, partially
offset by a decrease in equity in losses of Local Limited Partnerships. General
and administrative expenses increased due to an increase in legal expenses,
associated with litigation in which the Partnership was involved. The decrease
in gain on sale of investments in Local Limited Partnerships is due to sale
proceeds received from one Local Limited Partnership during 2007. Provision for
valuation allowance on investments increased due to the Partnership recording an
impairment allowance for its investments in certain Local Limited Partnerships.
The decrease in equity in losses of Local Limited Partnerships is primarily due
to an increase in unrecognized losses by the Partnership of Local Limited
Partnerships with carrying values of zero.
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
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's 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. The fiscal year of the Partnership ends on March
31.
As of June 30, 2008, the Partnership's investment portfolio consisted of limited
partnership interests in seven 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.
In October 2007, the Partnership distributed $15,392,688, or $226.22 per Unit,
to Limited Partners. The Partnership was able to make this distribution
primarily as a result of the disposition of twenty-nine of the Partnership's
thirty-seven properties or Limited Partnership interests in these properties,
most notably the sale of Mayfair Mansions, located in Washington, DC.
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 seven remaining Properties in which the Partnership has an interest all
expired before December 31, 2007. The Partnership did not dispose of any Local
Limited Partnership interest during the three months ended June 30, 2008.
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 November 29, 2007, the Partnership and its General Partners were sued in
Superior Court for the County of Los Angeles, California (the "1st California
Lawsuit") by a Limited Partner named Danford Baker and companies named Everest
Housing Investors 2, LP and Everest Management, LLC with which Mr. Baker is
affiliated (collectively, "Everest"). In the lawsuit, Everest sought a
declaration and injunction requiring the Partnership and its General Partners to
honor votes obtained in Everest's consent solicitation seeking to remove the
General Partners and replace them with an Everest affiliate in the event that
Everest obtains votes of holders of a majority of outstanding Limited Partner
Units of the Partnership in favor of Everest's proposal. The Partnership and its
General Partners were never served with a copy of the Complaint in this lawsuit.
On or about April 17, 2008, Everest filed a voluntary dismissal of the Complaint
in the 1st California Lawsuit without prejudice.
On or about, May 6, 2008, the same Everest parties referenced above in the 1st
California Lawsuit filed a nearly identical Complaint against the Partnership
and its General Partners in the same Superior Court for the County of Los
Angeles, California (the "2nd California Action"). In the 2nd California Action,
Everest once again seeks a declaration and injunction from the Court that would
order that the Partnership and its General Partners honor votes obtained in
Everest's consent solicitation. The Partnership's Managing General Partner, Arch
Street VIII, Inc., was
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)
served with a copy of the Complaint from the 2nd California Action on May 12,
2008. The Partnership and its General Partners deny the allegations in the 2nd
California Action and intend to vigorously defend the lawsuit. On July 3, 2008,
the Partnership and its General Partners filed a Demurrer with the Court seeking
dismissal of the 2nd California Action on the basis that the allegations fail to
state facts sufficient to state a cause of action.
On January 22, 2008, the Partnership and its General Partners were sued in the
District Court of Johnson County, Kansas by a Limited Partner named McDowell
Investments, L.P. ("McDowell"). In the lawsuit, McDowell alleges that the
Partnership and its General Partners violated the Partnership's Partnership
Agreement and/or breached fiduciary duties by, among other things: (i) allegedly
selling substantially all of the assets of the Partnership without a vote of the
Limited Partners; (ii) allegedly selling Partnership assets to persons formerly
affiliated with the Partnership or its General Partners; and (iii) allegedly
increasing the cash reserves owned by the Partnership to benefit affiliates of
the Partnership or its General Partners. In connection with the lawsuit,
McDowell also seeks to enjoin the sale of Leawood Manor Apartments, which is
Property owned by one of the Local Limited Partnerships of which the Partnership
owns the majority of limited partnership interests. The Partnership and its
General Partners deny these allegations and intend to vigorously defend against
them. The Local Limited Partnership that owns Leawood Manor Apartments and its
general partner also were named in the lawsuit and will similarly defend their
position. The Partnership and its General Partners filed a motion to dismiss,
which was subsequently heard by the Court on June 16, 2008. At that hearing, the
Court orally granted the Motion to Dismiss on behalf of all of the Defendants on
the grounds of forum non conveniens, and the Court stated that it was dismissing
the case without prejudice. The Court ordered the parties to submit an
appropriate written order reflecting the Court's decision, and the parties are
in the process of negotiating the form of this order. On July 3, 2008, McDowell
filed a Notice of Appeal, indicating its intent to appeal the Court's decision
to dismiss the case.
On January 29, 2008, the Partnership and its General Partners filed suit against
McDowell in the Superior Court for Suffolk County, Massachusetts alleging, among
other things, that McDowell has damaged the Partnership by intentionally and
unlawfully interfering with efforts of the Local Limited Partnership that owns
Leawood Manor Apartments to sell that real estate. McDowell has filed a motion
to dismiss, asking the Massachusetts court to dismiss the case because
Massachusetts is allegedly not a convenient forum to hear the matter. The
Partnership and its General Partners filed an opposition to McDowell's motion to
dismiss, and the motion remains pending with the court at this time.
On April 22, 2008, the Partnership and its General Partners filed suit against
the following defendants: Everest Housing Investors 2, L.P.; Everest Management
LLC; Everest Properties, Inc.; Everest Properties, LLC; McDowell Investments,
L.P.; MGM Holdings, LLC; Park G.P., Inc., Bond Purchase, L.L.C.; Anise L.L.C.;
Paco Development, L.L.C.; Maxus Realty Trust, Inc.; David L. Johnson; W. Robert
Kohorst; Danford M. Baker; Monte G. McDowell; Kevan D. Acord (collectively, the
"Johnson/Everest Group"), in the Superior Court for Suffolk County,
Massachusetts. The Complaint asserts claims against the Johnson/Everest Group
for breach of the Partnership Agreement, breach of fiduciary duty, conspiracy
and tortuous interference with advantageous business relationships and for their
concerted efforts to improperly gain control of the Partnership and/or certain
real estate assets in which the Partnership is invested, block arms-length
transactions with third parties for the sale of real estate assets in which the
Partnership is invested and gain non-public information for use in trading
Limited Partner Units at below-market prices. On June 20, 2008, McDowell
Investments, L.P. MGM Holdings, LLC, Bond Purchase, L.L.C., Anise L.L.C., Paco
Development, L.L.C., Maxus Realty Trust, Inc., David L. Johnson, Monte G.
McDowell, and Kevan D. Acord filed an answer to the complaint. On June 20, 2008,
Everest Housing Investors 2, L.P., Everest Management LLC, Everest Properties,
Inc., Everest Properties, LLC, W. Robert Kohorst, and Danford M. Baker filed
motions to dismiss the complaint on various grounds. The parties have agreed
that the Partnership and its General Partners shall have until July 31, 2008 to
respond to the Motions to Dismiss.
Except as noted above, the Partnership is not a party to any other pending legal
or administrative proceeding, and to the best of its knowledge, no legal or
administrative proceeding is threatened or contemplated against it.
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
A majority of the Properties in which the Partnership has an interest had
stabilized operations and operated above breakeven as of March 31, 2008. 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, 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. The Managing General Partner's pursuit of an exit strategy culminated
in the transfer of the Partnership's interest in the Local Limited Partnership
for $20,000, or $0.29 per Unit, on December 2, 2007. The Managing General
Partner, in accordance with and as permitted by the Partnership Agreement, will
retain the sales proceeds in Reserves for the time being until it deems a
subsequent distribution to be prudent. This transaction resulted in 2007 taxable
income of $519,798, or $7.64 per Unit. The Partnership no longer has an interest
in this Local Limited Partnership.
In accordance with the terms of their respective Local Limited Partnership
Agreements, the Managing General Partner, effective November 28, 2007,
transferred the Partnership's interest in the following Local Limited
Partnerships: Prince Street Towers, L.P., located in Lancaster, Pennsylvania;
Sencit Towne House L.P., located in Shillington, Pennsylvania; and Allentown
Towne House, L.P., located in Allentown, Pennsylvania. The interests in the
aforementioned Local Limited Partnerships were transferred to MMA Lancaster
North, L.P., MMA Sencit Townhouse, L.P. and MMA Allentown Towne House, L.P.,
respectively (together, the "Transferee Partnerships"). The Partnership is the
sole limited partner of each of the Transferee Partnerships. An affiliate of the
Partnership is the general partner of each of the Transferee Partnerships and
has obtained a 1% interest in each of the Transferee Partnerships in exchange
for a promissory note in favor of the Partnership.
In processing these transactions, the Managing General Partner acted out of
necessity, due to the impending expiration of the Partnership's ability to
transfer its interest in the above-mentioned Local Limited Partnerships without
the Local General Partner's consent. As previously disclosed, these Local
Limited Partnership interests were originally expected to be sold as part of a
settlement agreement between the Partnership, Boston Financial Qualified Housing
Tax Credits L.P. III, , Boston Financial Qualified Housing Tax Credits L.P. V,
Boston Financial Tax Credit Fund VII, A Limited Partnership, and certain of
their affiliates on the one hand, and on the other hand, Everest Housing
Investors 2, LP, certain of its affiliates, Park GP, Inc., Bond Purchase, L.L.C,
Anise, L.L.C., and Paco Development, L.L.C. (together, the "Everest and Park
Parties"). When the Everest and Park Parties failed to exercise their option to
purchase these Local Limited Partnership interests, the above-described
transfers were carried out. The Managing General Partner may now have
flexibility in being able to dispose of the Partnership's interest in the Local
Limited Partnerships without the Local General Partners' consent, expediting the
Managing General Partner's ability to liquidate the assets of, and dissolve, the
Partnership. It is possible that such Local General Partner may contest this
right to free transferability.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, the 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 in 2006 of $12,794,835, or $188.04
per Unit, resulting in taxable income of $17,236,598, or $253.32 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 was 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. All pending legal matters were
subsequently dismissed with prejudice. The settlement required an additional
distribution in the amount of $1,096,441, or $16.11 per Unit, that was received
by the Partnership in October 2007. As previously reported, the Managing General
Partner estimated the additional distribution would result in 2007 taxable
income equal to the settlement distribution. Actual 2007 taxable income of
$46,441, or $0.68 per Unit, was incurred by the Partnership. This amount was
significantly lower than estimated because the Partnership included, as part of
the total 2006 gain of $17,236,598, or $253.32 per Unit, an estimated amount of
$1,050,000, or $15.43 per Unit, from the settlement proceeds. The Partnership
distributed a majority of the initial net sales proceeds in October 2007. The
Managing General Partner, in accordance with and as permitted by the Partnership
Agreement, will retain the remaining sales proceeds in Reserves for the time
being until it deems a subsequent distribution to be prudent. In March 2008, the
Partnership received an additional distribution of approximately $14,000, or
$0.21 per Unit. In accordance with the terms of the Partnership agreement, the
Managing General Partner retained these funds in Reserves. This distribution
will result in 2008 taxable income of approximately $14,000, or $0.21 per Unit.
The Partnership no longer has an interest in this Local Limited Partnership.
As previously reported, the Managing General Partner anticipated the termination
of the Partnership's interest in the Local Limited Partnership that owned
Oakview Square, located in Chesterfield, Michigan, upon the sale of the
Property. The sale of this Property, which resulted in net proceeds during the
year ended March 31, 2007 to the Partnership of $100,000, or $1.47 per Unit,
occurred on February 28, 2007, effectively terminating the Partnership's
interest in this Local Limited Partnership. In October 2007, the Partnership
received additional proceeds of $74,426, or $1.09 per Unit, upon a
reconciliation of tax and utility payments. This sale resulted in a 2007 taxable
loss of $59,158, or $0.87 per Unit. In April 2008, the Partnership received
final sale proceeds of $7,146, or $0.11 per Unit. The Partnership no longer has
an interest in this Local Limited Partnership.
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 (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 $3,900,000, or approximately $95 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 of 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. In May 2006, 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. At
this point, there appears to be no possibility of a settlement with the IRS, and
the Managing General Partner anticipates that the IRS will forward the
assessments for disallowance and recapture directly to the affected Limited
Partners. The accrued interest calculations above respecting the disallowance
and recapture of Tax Credits are estimates only, based upon a rate of 8% simple
interest from the dates that the taxes were deemed to be owed. The Managing
General Partner has not included estimates for penalties because it is not
expecting them. However, it is possible that the IRS will attempt to claim
penalties. 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.
The Managing General Partner began marketing Bentley Court II in May 2008, and
has received several bids that could result in a range of net sales proceeds to
the Partnership of approximately $3,500,000 to $4,200,000, or $49 to $62 per
Unit, respectively. The Managing General Partner currently anticipates an
October 2008 sale. This transaction, based on the range of net sales proceeds
above, is expected to result in taxable income of approximately $6,850,000 to
$7,450,000, or $101 to $109 per Unit, respectively.
As previously reported, for the three month period ending December 31, 2007,
occupancy at 46th and Vincennes, located in Chicago, Illinois, improved to 87%,
and working capital levels improved due to advances from the Local General
Partner but still remained far below the Managing General Partner's benchmark.
Debt service coverage also remained well below appropriate levels throughout the
same time period, primarily due to an increase in maintenance expenses incurred
to prepare vacant units for occupancy. An increase in real estate taxes also
contributed to the poor debt service coverage. There have been no material
changes to these categories for the three month period ending March 31, 2008. A
representative of the Managing General Partner visited the Property in December
2007 to reassess the management agent and physical condition and noted slight
improvement in overall appearance of the Property but not enough to earn an
acceptable rating. Although advances from the Local General 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 their concerns to the Local
General Partner and will continue to closely monitor the Property's operations.
Based on the results of a market valuation, which confirmed that the Property's
value is less than its outstanding debt, the Managing General Partner will
assign the Partnership's interest to the Local General Partner upon receipt of
official documentation from HUD approving the Transfer of Physical Assets
application. The Managing General Partner currently believes a mid to late 2008
disposition is likely. The Managing General Partner does not expect this
disposition to result in any proceeds to the Partnership and currently projects
taxable income of approximately $900,000, or $13.23 per Unit. The Property's
Compliance Period ended on December 31, 2005.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Non Applicable
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act, to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
Exchange Commission's rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, management
has concluded that as of June 30, 2008, our disclosure controls and procedures
were effective.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment
was based upon the criteria for effective internal control over financial
reporting established in Internal Control - Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
The Partnership's internal control over financial reporting involves a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over
financial reporting includes the controls themselves, as well as monitoring of
the controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.
Management assessed the effectiveness of the Partnership's internal control over
financial reporting as of June 30, 2008. Based on this assessment, management
concluded that, as of June 30, 2008, the Partnership's internal control over
financial reporting was effective.
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
31.2 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.
32.2 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended June 30, 2008.
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.
Date: August 14, 2008 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Greg Judge
______________
Greg Judge
President
Arch Street VIII, Inc.