-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ery9tLqxhLvKSG1vMnlLwO8FuQ+VQaOvZ1R2TXq3oiU6H+umZzXMltYlrIkzdGmo PZlbtcLEC3o3FPvyvX/wdQ== 0000354521-06-000031.txt : 20060406 0000354521-06-000031.hdr.sgml : 20060406 20060406113658 ACCESSION NUMBER: 0000354521-06-000031 CONFORMED SUBMISSION TYPE: PREM14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20060405 FILED AS OF DATE: 20060406 DATE AS OF CHANGE: 20060406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL REALTY INVESTORS LTD CENTRAL INDEX KEY: 0000354521 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 521219926 STATE OF INCORPORATION: DC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PREM14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11149 FILM NUMBER: 06744152 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE STREET 2: 5TH FLOOR CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 MAIL ADDRESS: STREET 1: 1200 ROCKVILLE PIKE STREET 2: 5TH FLOOR CITY: ROCKVILLE STATE: MD ZIP: 20852 PREM14A 1 prem14a_040506-cri1.txt PRELIMINARY PROXY STATEMENT SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------------------- Filed by the Registrant Filed by a party other than the Registrant --------------------------------- Check the appropriate box: Preliminary Proxy Statement Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) ------------------------------------------- CAPITAL REALTY INVESTORS, LTD. (Name of Registrant as Specified in Its Charter) ------------------------------------------- Payment of Filing Fee (Check the appropriate box): [ ] No fee required. [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: Limited Partnership Units (2) Aggregate number of securities to which transaction applies: [24,747] Units (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: $[570.00]. Pursuant to Rule 0-11(c)(2), the fee was calculated on the amount of cash that is estimated to be received from the Registrant from the sales proceeds from the sales of the Registrant's property, assuming that the Registrant receives distributions from its investments in local partnerships equal to the maximum amount of the estimated liquidation proceeds. (4) Proposed maximum aggregate value of transaction: $[14,097,000 ] (5) Total fee paid: $[1,508.38 ] [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-1l(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: CAPITAL REALTY INVESTORS, LTD. c/o C.R.I., Inc. 11200 Rockville Pike, Suite 500 Rockville, Maryland, 20852 (301) 468-9200 IMPORTANT PARTNERSHIP MATTER -- PLEASE REVIEW AND RESPOND IMMEDIATELY This Consent Solicitation Statement is dated April ___, 2006 and is first being mailed to Limited Partners on or about that date Dear Investor: On behalf of Capital Realty Investors, Ltd. ("CRI-I" or the "Partnership"), we are writing to recommend that you authorize C.R.I., Inc., as the Managing General Partner of CRI-I, to liquidate the assets of CRI-I and wind up its affairs. We have developed a strategy for potential sales of the Partnership's investments in certain partnerships ("Local Partnerships") that own multifamily apartment complexes (an "Apartment Complex" or "Apartment Complexes") or the Apartment Complexes themselves. In connection with the proposed liquidation, enclosed are the following: 1. Consent Solicitation Statement - This document describes the terms of the proposed liquidation, including two proposed amendments to the Partnership's Limited Partnership Agreement to (i) allow the Managing General Partner to be eligible to be paid certain increased disposition fees by the Partnership as compensation for its efforts in marketing and selling an Apartment Complex on the same basis as third parties, and (ii) in recognition that one or more of the Apartment Complexes might not be saleable to parties not affiliated with the respective Local Partnership due to the amount and/or terms of their current indebtedness, allow the Managing General Partner to be paid a partnership liquidation fee in the amount of Five Hundred Thousand Dollars ($500,000) payable only if the Managing General Partner is successful in liquidating all of the Partnership's investments within 48 months from the date the liquidation is approved. Our internal analysis (based on capitalization of net operating income for 2005 at rates from 7.5% to 8% for market rate properties and certain stated assumptions about the sales of affordable housing properties to Low Income Housing Tax Credit buyers) estimates a pre-tax liquidation valuation range of between $352 and $570 per unit of Limited Partner ownership interest. Please see pages 28-34 for a full description of the valuation methods and assumptions we relied upon in our analysis. 2. Consent of Limited Partner and Return Envelope - Please mark your votes and sign this form and return it in the enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308 by 5:00 p.m., Eastern Time, on June ___, 2006, or such later date and time as we may set. Because you are an investor in CRI-I, we are required to ask for your consent to complete the liquidation and vote on other related proposals. Please carefully review the information in the enclosed Consent Solicitation Statement before voting. If you have any questions or require assistance completing the enclosed consent card, please call CRI-I's consent solicitation agent, MacKenzie Partners, Inc., at (800) 322-2885. You may also receive offers from parties unrelated to CRI to purchase your units of partnership interest in CRI-I. Although there can be no assurance that liquidation of CRI-I's assets will produce the values discussed in the attached Consent Solicitation Statement, the low end of the range of values estimated by CRI is more than three times greater than the most recent per unit unregistered tender offer prices. If the proposed liquidation is approved by a majority in interest of the Limited Partners, Limited Partners who hold their investment units for an estimated four years until the Partnership's liquidation may receive an amount substantially in excess of the amount of the most recent unregistered tender offer prices. Sincerely, Sincerely, William B. Dockser H. William Willoughby Your response to this solicitation is very important to ensure that your interests will be represented. Failure to return the enclosed consent card will have the same effect as a vote against the liquidation and other related proposals. We recommend that all Limited Partners vote "FOR" the liquidation of the Partnership and each of the other related proposals. TABLE OF CONTENTS CONSENT SOLICITATION STATEMENT................................................1 QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION STATEMENT AND THE PROPOSED LIQUIDATION................................................5 WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION........................12 BACKGROUND AND REASONS FOR THE LIQUIDATION................................12 RISKS OF THE LIQUIDATION..................................................15 PLAN OF LIQUIDATION AND DISSOLUTION.......................................18 AMENDMENT TO THE PARTNERSHIP AGREEMENT....................................19 INTERESTS OF CERTAIN PERSONS IN THE LIQUIDATION...........................22 SUMMARY HISTORICAL FINANCIAL DATA.........................................27 LIQUIDATION EXPENSES......................................................27 OTHER CONDITIONS TO THE LIQUIDATION.......................................34 ACCOUNTING TREATMENT......................................................37 EFFECTIVE TIME............................................................37 AMENDMENT OF THE PLAN OF LIQUIDATION AND DISSOLUTION......................37 NO APPRAISAL RIGHTS.......................................................37 REGULATORY APPROVALS......................................................38 THE PARTNERSHIP AND THE GENERAL PARTNERS.....................................39 SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS...............40 THE GENERAL PARTNERS......................................................41 THE INITIAL LIMITED PARTNER...............................................42 FEES OF THE GENERAL PARTNERS..............................................42 MARKET FOR THE LIMITED PARTNER UNITS......................................44 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............45 GENERAL...................................................................45 OWNERSHIP INTEREST OF THE GENERAL PARTNERS IN THE PARTNERSHIP.............45 CONSENT PROCEDURES...........................................................46 TIMING OF THE CONSENT SOLICITATION........................................46 RECORD DATE AND OUTSTANDING LIMITED PARTNER UNITS.........................46 APPROVAL DATE; EXTENSIONS; AMENDMENT......................................46 CONSENT CARD AND VOTE REQUIRED............................................46 REVOCABILITY OF CONSENT...................................................48 SOLICITATION OF CONSENTS; SOLICITATION EXPENSES...........................48 EFFECT OF A FAILURE TO APPROVE THE LIQUIDATION............................48 INCORPORATION BY REFERENCE...................................................48 APPENDICES...................................................................50 APPENDIX A-- FORM OF PLAN OF LIQUIDATION AND DISSOLUTION.....................52 APPENDIX B - FORM OF LEGAL OPINION OF NIXON PEABODY LLP......................55 CAPITAL REALTY INVESTORS, LTD. c/o C.R.I., Inc. 11200 Rockville Pike, Suite 500 Rockville, Maryland, 20852 (301) 468-9200 ------------------------------ CONSENT SOLICITATION STATEMENT ------------------------------ This Consent Solicitation Statement and the enclosed consent card are being first mailed to the holders of units of limited partner interests of Capital Realty Investors, Ltd. ("CRI-I" or the "Partnership"), a District of Columbia limited partnership, on or about April ___, 2006 by the Managing General Partner, as hereinafter defined, on behalf of the Partnership to solicit consents for approval of the following: (1) The sale of all of the Partnership's assets and the dissolution of the Partnership pursuant to a Plan of Liquidation and Dissolution and the amendment of the Partnership's Limited Partnership Agreement to permit C.R.I., Inc. ("CRI") to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees may currently be paid to Local General Partners, real estate brokers or other third party intermediaries employed to sell properties in which the Partnership holds interests, to the extent that CRI markets and sells the Partnership's assets (the "Disposition Fee"); and (2) The amendment of the Partnership's Limited Partnership Agreement to permit CRI to be eligible to receive a partnership liquidation fee in the amount of Five Hundred Thousand Dollars ($500,000), payable only if the Managing General Partner is successful in liquidating all of the Partnership's investments within 48 months from the date the liquidation is approved, in recognition that one or more of the properties in which the Partnership holds an interest might not be saleable to parties not affiliated with the respective Local Partnership due to the amount and/or terms of their current indebtedness (the "Partnership Liquidation Fee"). In this Consent Solicitation Statement, the owners of units of Additional Limited Partner interest are referred to as "Limited Partners." The matters for which the Limited Partners' consent is being solicited are collectively referred to in this document as the "Liquidation." The Liquidation consists of two independent proposals, each of which will be effective only upon the approval of the holders of a majority of the outstanding Limited Partner units in the Partnership entitled to vote as of April 1, 2006. The first proposal both authorizes the liquidation of the Partnership and the Disposition Fee. The Disposition Fee of up to 5% of the sales price of a property would only 1 be payable in those circumstances where CRI actually performs some or all of the marketing and disposition services that would otherwise have been performed by, and paid to, a broker or other third party. CRI is of the view that it is permissible to bundle these two items in one proposal because payment of the Disposition Fee would not adversely affect the amounts to be received by Limited Partners from the sales of the Partnership's assets. The second proposal consists of the authorization of the Partnership Liquidation Fee. The second proposal recognizes that, in one or more instances, a reasonable seller would not engage a broker to sell a particular Apartment Complex or the Partnership's interest in the local partnership because the amount or terms of its indebtedness would virtually preclude a sale to anyone other than a Local General Partner or one of its affiliates. Under such circumstances, if CRI successfully negotiates a disposition of such an Apartment Complex or the Partnership's interest in the local partnership, CRI would not receive a Disposition Fee, but it would be eligible to receive the Partnership Liquidation Fee provided that it liquidates all of the Partnership's investments within 48 months from the date the liquidation is approved by the Limited Partners. CRI is the Managing General Partner of CRI-I. William B. Dockser ("Dockser") and H. William Willoughby ("Willoughby"), the two current shareholders of CRI, are General Partners of the Partnership, and Martin C. Schwartzberg, a former shareholder of CRI who retired in 1990, is also a General Partner of CRI-I. The Managing General Partner is referred to in this document as "CRI," "we" or "our." If the Disposition Fee is approved by the Limited Partners, Dockser and Willoughby will waive their respective portions of the currently authorized 1% deferred fee for their services to the Partnership payable upon a sale of a property and Mr. Schwartzberg would also be eligible to receive a portion of the Disposition Fee. As described in this Consent Solicitation Statement, we are proposing to liquidate CRI-I, subject to approval by the affirmative vote of holders of a majority of the outstanding Limited Partner units in the Partnership entitled to vote as of April 1, 2006. We have described in this Consent Solicitation Statement what we believe to be a reasonable approach to estimating the values of the properties and how, assuming the properties are sold within such estimated value ranges, the proceeds would be distributed to Limited Partners and the estimated Federal income tax consequences of such distributions. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Estimated Ranges of Value of Partnership Properties." If the holders of a majority of the outstanding Limited Partner units in the Partnership approve the Liquidation by marking the box entitled "FOR" on Proposal 1 of the enclosed consent card and the other conditions described herein are satisfied, then CRI will: (1) seek to sell the assets of the Partnership and use the sales proceeds and/or other Partnership funds to pay all expenses in connection with such sales, including the Disposition Fee where applicable, (2) pay or make provision for payment of all Partnership obligations and liabilities, including the Partnership Liquidation Fee if it is approved, and (3) distribute the remaining assets as set forth in the Partnership's Limited Partnership Agreement, as amended and as described in this Consent Solicitation Statement, including payment to itself of the Disposition Fee when earned. If Proposal 1 is approved by a majority in interest of the Limited Partners, but Proposal 2 concerning the Partnership Liquidation Fee is not approved, the Managing General Partner would not have an additional economic incentive to complete the liquidation of all of the Partnership's investments within the 48 month period. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION - Plan of Liquidation and Dissolution." 2 In addition to solicitation by use of the mails, directors, officers, employees and agents of CRI may solicit consents in person or by telephone, facsimile or other means of communication. We have also engaged MacKenzie Partners, Inc., to assist us in the solicitation and tabulation of consents. MacKenzie will receive a fee of $6,000, plus reimbursement of out-of-pocket expenses, in connection with its engagement. We request that each Limited Partner complete and sign the enclosed consent card and promptly return it in the enclosed postage-prepaid envelope or fax it to the Partnership's consent solicitation agent, MacKenzie Partners, at (212) 929-0308. To be counted, your properly completed consent card must be received at or before 5:00 p.m., Eastern Time, on June ___, 2006 (the "Expiration Date"). Your vote is very important. Failure to return the enclosed consent card will have the same effect as a vote against the Liquidation. We recommend that all Limited Partners consent to the Liquidation by marking the boxes entitled "FOR" with respect to each of the two proposals on the enclosed consent card. If you sign and send in the consent card but do not indicate how you want to vote as to the Liquidation, your consent card will be treated as voting "FOR" each of the proposals. This Consent Solicitation Statement contains forward-looking statements. Discussions containing such forward-looking statements may be found in the material set forth under "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION" as well as within this Consent Solicitation Statement generally. In addition, when used in this Consent Solicitation Statement, the words "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements; however, not all forward-looking statements will contain such expressions. Such statements are subject to a number of risks and uncertainties. Actual results or events in the future could differ materially from those described in the forward-looking statements as a result of CRI's inability to find suitable purchasers for the Partnership's interests in Local Partnerships or the Apartment Complexes they own, the inability to agree on an acceptable purchase price or contract terms, fluctuations in the market value of the Apartment Complexes, general economic conditions and other factors set forth in this Consent Solicitation Statement. We further caution Limited Partners that the discussion of these factors may not be exhaustive. We undertake no obligation to update any forward-looking statements that may be made to reflect any future events or circumstances. Limited Partners who vote against the liquidation and the related proposals will not have any rights of appraisal or similar rights. 3 THE LIQUIDATION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR THE MERITS OF THE PROPOSED TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. 4 -------------------------------- QUESTIONS AND ANSWERS ABOUT THIS CONSENT SOLICITATION STATEMENT AND THE PROPOSED LIQUIDATION -------------------------------- BACKGROUND Q: WHY HAVE I RECEIVED THIS CONSENT SOLICITATION STATEMENT? A: You have received this Consent Solicitation Statement because CRI-I's Limited Partnership Agreement requires that the holders of a majority of the outstanding Limited Partner units in the Partnership approve the Liquidation. You are entitled to vote because, according to the records of the Partnership, you owned Limited Partner units in the Partnership on April 1, 2006. Even if you have sold some or all of your units since that date, if you owned units on April 1, 2006, you are entitled to vote. THE LIQUIDATION Q: WHAT DOES THE LIQUIDATION INVOLVE? A: We are proposing to sell all of CRI-I's interests in limited partnerships ("Local Partnerships") or Apartment Complexes owned by the Local Partnerships in which CRI-I is invested, pay or make provision for all Partnership obligations and liabilities, distribute the available cash to the Partners and terminate the Partnership. Throughout this Consent Solicitation Statement, sale of the interests in the Local Partnerships or of an Apartment Complex itself is referred to as a "sale of an Apartment Complex" or a "sale of a property". We are also proposing that the Partnership's Limited Partnership Agreement be amended to permit CRI to be eligible to receive a Disposition Fee of up to 5% of the gross sale price on the same basis that property disposition fees or other commissions would be paid to brokers or others in connection with the sale of the Apartment Complexes and CRI markets and sells one or more of the properties in which the Partnership holds an interest or the interest itself, in connection with the Liquidation. The Partnership Agreement provides that all property disposition fees and any other commissions or fees payable upon the sale of the Apartment Complexes are subject to a fee cap equal to the lesser of the competitive rate for such services or 6% of the sales price of the Apartment Complexes. This limit on property disposition fees will not change. Therefore, in no event would the proposed amendment permitting CRI to be eligible to receive a Disposition Fee cause the existing fee cap to be exceeded or otherwise increase the fees payable by the Partnership in connection with the sales of the Partnership's properties. In other words, if CRI receives the proposed Disposition Fee, the Limited Partners would receive the same net distribution upon the sale of Apartment Complexes as if an unrelated third party had performed the same services and received a market rate fee for doing so. 5 Under the Partnership Agreement, the individual General Partners (but not CRI) were originally entitled to a deferred fee for their services to the Partnership payable upon the sale of a property equal to 1% of the sales price of the Apartment Complex. Such fee is not payable unless the Limited Partners have received distributions in an amount sufficient to return capital and a preferred return as described in the Partnership Agreement. In 1993, the Limited Partners approved an amendment to the Partnership Agreement that authorized the payment to CRI for substantial services in connection with sales efforts of up to 2% of the sales price of an Apartment Complex or interest therein (in addition to the 1% deferred fee to the individual General Partners), subject to certain conditions and limitations (a "Local Partnership Sales Fee"). The Local Partnership Sales Fee is not payable with respect to a Government-Assisted Apartment Complex unless the sales proceeds received by the Partnership (after repayment of any Purchase Money Note financing applicable to such Apartment Complex) exceed an amount equal to the capital contributions that the Partnership actually made to the applicable Local Partnership. The Local Partnership Sales Fee is not payable with respect to a non-government-assisted Apartment Complex unless the sales proceeds, together with any cash distributions which the Partnership may have received from the Local Partnership prior to such sale, exceed an amount equal to (i) the gross capital contributions attributable to the Partnership's investment in the applicable Local Partnership (without deduction for Partnership reserves, offering expenses, brokerage commissions and acquisition fees and expenses), plus (ii) a 6% cumulative return on such capital contributions applicable to the Local Partnership. The proposed amendment would leave the existing cap on aggregate sales fees to all parties at the lesser of the competitive rate or 6% of the sales price of an Apartment Complex, but it would permit CRI to receive a larger portion of such fees. The proposal would also eliminate the current restriction on payment of a fee on disposition of a non-government-assisted Apartment Complex if the 6% cumulative return on the Partnership's capital contribution with respect to the Apartment Complex were not achieved. The proposed Disposition Fee would replace and supersede the currently authorized Local Partnership Sales Fee. If the proposed Disposition Fee is approved, Willoughby and Dockser would waive their right to the deferred 1% fee and would be eligible to receive indirectly the Disposition Fee payable to CRI, of which they are the only shareholders, and Mr. Schwartzberg, a former shareholder of CRI who retired 1990, would also be eligible to receive a portion of the Disposition Fee. The Disposition Fee would be considered a debt of the Partnership, payable prior to any return of capital or any preferred return to the Limited Partners. As used in this Consent Solicitation Statement, net sales proceeds means all sale proceeds received by the Partnership from a Local Partnership (which would already reflect payment of any mortgage repayment and transaction costs) from the sale of an Apartment Complex, and after payment of the expenses related to the sale, including, where applicable, the Disposition Fee to CRI. In the case of a sale of the Partnership's interest in a Local Partnership, the net sales proceeds would be deemed to be grossed up to an imputed sale price equal to the price for which the property owned by the Local Partnership would have to sell to produce the same distribution as the Partnership would receive for the sale of its interest in the Local Partnership. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION - Risks of the Liquidation." As used in this Consent Solicitation Statement, sales price means the gross amount of consideration paid 6 by a purchaser for an Apartment Complex or the imputed sales price of the Partnership's interest in a Local Partnership, including any assumption of debt (for purposes of this Consent Solicitation Statement, "imputed sales price" means the amount for which an Apartment Complex would have to be sold to produce the same net proceeds to the Partnership as the offer price for the Partnership's interest in a Local Partnership). This Consent Solicitation Statement includes a separate proposal seeking authorization of the Partnership Liquidation Fee in the amount of Five Hundred Thousand Dollars ($500,000). This proposal recognizes that, in one or more instances, a reasonable seller would not engage a broker to sell a particular Apartment Complex because the amount or terms of its indebtedness would virtually preclude a sale to anyone other than a Local General Partner or one of its affiliates. Under such circumstances, if CRI successfully negotiates a disposition of such an Apartment Complex, CRI would not receive a Disposition Fee in connection with such sale, but it would be eligible to receive the Partnership Liquidation Fee when the last asset of the Partnership is disposed of, provided that CRI liquidates all of the Partnership's assets within 48 months after the Liquidation is approved. The Partnership Agreement provides that all property disposition fees and any other commissions or fees payable upon the sale of the Apartment Complexes are subject to a fee cap equal to the lesser of the competitive rate for such services or 6% of the sales price of the Apartment Complexes. This limit would not apply to the Partnership Liquidation Fee. The Managing General Partner believes that the Partnership Liquidation Fee should not be subject to the fee cap because, although the amount of expected proceeds from the sale of property to a Local General Partner or its affiliate is likely to be adversely impacted by the amount or terms of indebtedness on the property, the amount of effort required from CRI to complete these transactions in a timely manner is likely to be significant, and the dissolution of the Partnership cannot be completed until these assets are liquidated. Since CRI would not be eligible to receive a Disposition Fee in connection with any of these transactions, the proposed Partnership Liquidation Fee will provide an additional economic incentive to complete the liquidation of all of the Partnership's investments within the 48 month period. The Partnership Liquidation Fee, if earned, would be considered a debt of the Partnership, payable prior to any return of capital or preferred return to the Limited Partners. Q: WHY IS THE MANAGING GENERAL PARTNER PROPOSING TO SELL THE PARTNERSHIP PROPERTIES AT THIS TIME? A: CRI is recommending the Liquidation because we believe the Partnership has maximized the principal benefits of owning the Apartment Complexes, in particular: (1) providing tax benefits in the form of tax losses which Limited Partners may use to offset income from other sources; (2) generating current income for Limited Partners through cash distributions; and (3) providing potential capital appreciation opportunities. Moreover, the Partnership has already held the Apartment Complexes longer than the originally contemplated holding period and many Limited Partners have inquired about possible exit strategies because they feel burdened by the Schedule K-1 tax reporting requirements of the Partnership and/or they have few opportunities to liquidate their investment due to the absence of a recognized market for the Partnership interests. In addition, CRI is of the view that current market conditions are favorable for the sale of the Partnership's assets. In particular, the current relatively low interest rate environment may make the acquisition of major investments, like multi-family rental properties, more attractive to purchasers. 7 Also, we believe that the increasing age of the properties in which the Partnership is invested and the increasing maintenance and administrative expenses for the Apartment Complexes will, within the next few years, lead to a reduction of cash distributions received by the Partnership from the Local Partnerships. Moreover, the Apartment Complexes may have limited prospects for appreciation unless significant additional investments are made to upgrade the properties. The need for upgrades and capital improvements also makes refinancing a less attractive option than sale, for those properties whose current mortgages permit prepayment, because a new lender would likely require that significant sums be set aside for immediate repairs and improvements, thereby diminishing any equity available for distribution. At its inception, the Partnership had investments in 18 Local Partnerships. Today the Partnership retains interests in only 13 of those Local Partnerships. At its current size, the Partnership realizes fewer benefits from the management efficiencies that occur when operating multiple properties. The Partnership's expenses have not decreased in proportion to the number of properties sold and the resulting decrease in net cash flows from operations. Certain expenses of the Partnership, such as audit fees, management fees, tax return preparation and K-1 preparation costs, are relatively fixed and do not vary significantly with the number of properties owned. Consequently, CRI is of the view that the proposed liquidation would provide the most profitable and efficient manner to distribute the Partnership's remaining value to the Limited Partners. Accordingly, the sale of the Partnership's assets appears to be in the best interests of the Partnership and its Limited Partners. Q: WHY SHOULD THE PARTNERSHIP AGREEMENT BE AMENDED TO PERMIT CRI TO BE ELIGIBLE TO RECEIVE THE DISPOSITION FEE? A: When the Partnership was initially formed, we viewed our role in the disposition of the Apartment Complexes as limited to analysis of sales proposals obtained and presented by others (such as the Local General Partners of Local Partnerships or third party brokers). In 1993, CRI sought and obtained the authorization of the Limited Partners to pay CRI a Local Partnership Sales Fee of up to 2% of the sales price of an Apartment Complex or interest therein (in addition to the 1% deferred fee to the individual General Partners) for substantial services rendered in connection with sales efforts, subject to certain conditions and limitations. Since that time, CRI has further developed its expertise in marketing properties, researching applicable government requirements, negotiating with prospective purchasers and unaffiliated Local General Partners and coordinating successful closings. We believe that CRI is now in a better position than the Local General Partners or unaffiliated real estate agents to maximize value in connection with the sale of the Apartment Complexes because of CRI's extensive experience over the past decade in locating and directly marketing similar properties to qualified buyers, negotiating sales contracts and shepherding sales transactions 8 to closing for dozens of such properties nationwide in CRI's affiliated portfolios. We believe that the Partnership should take advantage of this experience and that CRI should be compensated at a market rate (limited to up to 5% of the sales prices) for its efforts where CRI takes such an active role in disposing of the properties in the same way as Local General Partners or real estate agents would have been compensated for such services. The amendment would permit such compensation but would have no impact on the existing provisions in the Partnership Agreement limiting aggregate property disposition fees and commissions to the lesser of the competitive rate payable for similar services or 6% of the sales price of the Apartment Complex. In other words, if CRI receives the proposed Disposition Fee, the Limited Partners would receive the same net distribution upon the sale of Apartment Complexes as if an unrelated third party had performed the same job and received a market rate fee for its services. Q: WHY SHOULD THE PARTNERSHIP AGREEMENT BE AMENDED TO PERMIT CRI TO BE ELIGIBLE TO RECEIVE A PARTNERSHIP LIQUIDATION FEE? A: CRI is of the view that, with respect to one or more of the Apartment Complexes, a reasonable seller would not engage a broker to sell the property because the amount or terms of its indebtedness would virtually preclude a sale to anyone other than a Local General Partner or one of its affiliates. Nevertheless, in order to complete the Liquidation, the Partnership must dispose of all its assets. Under such circumstances, if CRI successfully negotiates a disposition of such an Apartment Complex, CRI would not receive a Disposition Fee in connection with such sale, but it would be eligible to receive the Partnership Liquidation Fee of $500,000, provided that it liquidates all of the Partnership's assets within 48 months from the date of approval of the Liquidation. The existing fee cap equal to 6% of the sales price of the Apartment Complexes would not apply to the Partnership Liquidation Fee. The Managing General Partner believes that the Partnership Liquidation Fee is justified because, although the amount of expected proceeds from the sale of property to a Local General Partner or its affiliate is likely to be adversely impacted by the amount or terms of indebtedness on the property, the amount of effort required from CRI to complete these transactions in a timely manner is likely to be significant and the dissolution of the Partnership cannot be completed until these assets are sold. Since CRI would not be eligible to receive a Disposition Fee in connection with any of these transactions, the proposed Partnership Liquidation Fee will provide an additional economic incentive to complete the liquidation of all of the Partnership's investments within the 48 month period. Q: DOES THE MANAGING GENERAL PARTNER RECOMMEND THAT I CONSENT TO THE LIQUIDATION? A: Yes. CRI recommends that Limited Partners consent to the Liquidation by marking the boxes entitled "FOR" with respect to each proposal on the enclosed consent card and returning it promptly in the enclosed postage-prepaid envelope or faxing it to the Partnership's consent solicitation agent, MacKenzie Partners, Inc., at (212) 929-0308. CRI, Dockser and Willoughby, however, have conflicts of interest in recommending the Liquidation, in part due to the Disposition Fee and the Partnership Liquidation Fee that CRI will be eligible to receive if the Limited Partners approve the Liquidation. For additional information regarding our conflicts of interest, see "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION-- Interests of Certain Persons in the Liquidation." 9 Q: WHAT WILL HAPPEN IF THE LIQUIDATION IS APPROVED? A: We will seek to market and sell the Partnership's interests in Apartment Complexes or the Apartment Complexes themselves to independent entities and distribute the net proceeds to the Partners in accordance with the terms of the Partnership Agreement, as amended. Following these steps, we will take all necessary steps to terminate the Partnership. We expect that it will take approximately 48 months from the date of the Limited Partners' approval of the Liquidation to sell the Partnership's interests in the Apartment Complexes. Dissolution can be a complex process that may depend on a number of factors, some of which are beyond our control. Accordingly, there can be no assurance that the Liquidation will be completed within the specified time frame. If it is not, however, CRI would not be eligible to receive the Partnership Liquidation Fee. Completion of the Liquidation may also be subject to certain risks, see "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Risks of the Liquidation." Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE LIQUIDATION? A: The sale of the Apartment Complexes may generate both ordinary income and capital gain or loss to the Limited Partners for United States federal income tax purposes. Distribution of the Liquidation proceeds may result in additional capital gain or loss to the Limited Partners for United States federal income tax purposes. Tax matters are very complicated and your tax consequences may depend on your financial situation and whether you purchased your Limited Partner units in the original offering or the secondary market. Please consult your tax advisor to determine the tax consequences of the Liquidation. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Material Federal Income Tax Considerations." Q: WHAT IF THE LIQUIDATION IS NOT APPROVED? A: If the Liquidation is not approved by the requisite number of Limited Partners, then the Partnership will continue to operate as a legal entity with its assets and liabilities. Q: WHAT IF THE LIQUIDATION IS APPROVED BUT THE PARTNERSHIP LIQUIDATION FEE IS NOT APPROVED? A: If Proposal 1 is approved by a majority in interest of the Limited Partners, but Proposal 2 concerning the Partnership Liquidation Fee is not approved, the Managing General Partner would not have an additional economic incentive to complete the liquidation of all of the Partnership's investments within the 48 month period. Note: The Managing General Partner assumes that it will take four years to liquidate the Apartment Complexes because sales of affordable housing properties to Low Income Housing Tax Credit Buyers are subject to allocations of credits by states or other issuers that may occur only once or twice per year. Moreover, it has been CRI's experience that it is extremely difficult to obtain consent to transfer properties or prepay mortgage loans from one Federal agency, Rural Economic Community Development (RECD) and three state housing finance agencies (California, Connecticut and Pennsylvania) that hold the mortgages on four of the properties. 10 CONSENT SOLICITATION PROCESS Q: AM I REQUIRED TO VOTE ON THE LIQUIDATION? A: No. You are not required to vote. However, we cannot complete the Liquidation without the approval of Limited Partners holding at least a majority of the outstanding Limited Partner units entitled to vote. If you fail to send in your consent card, it will have the same effect as a vote "AGAINST" the Liquidation. Q: HOW LONG DO I HAVE TO CONSENT? A: You may submit your signed consent card now. Please mark your vote, sign and return the consent card using the enclosed postage pre-paid envelope provided or fax it to the Partnership's consent solicitation agent, MacKenzie Partners, Inc, at (212) 929-0308. In order for your consent card to be accepted, it must be received by 5:00 p.m., Eastern Time, on the Expiration Date, June ___, 2006. See "CONSENT PROCEDURES - Approval Date; Amendment." Q: CAN I REVOKE MY CONSENT? A: Yes. Limited Partners may withdraw or revoke their consent at any time prior 5:00 p.m., Eastern Time, on the Expiration Date. To be effective, a written or facsimile revocation or withdrawal of the consent card must be received by the consent solicitation agent prior to such time and addressed as follows: CRI-I Revocation, c/o MacKenzie Partners, Inc. 105 Madison Avenue, New York, NY 10016; or by facsimile to MacKenzie Partners, Inc. at (212) 929-0308. A notice of revocation or withdrawal must specify the Limited Partner's name and the number of units being withdrawn. After the Expiration Date, all consents previously executed and delivered and not revoked will become irrevocable. Q: DO LIMITED PARTNERS HAVE APPRAISAL RIGHTS? A: Under applicable state law, Limited Partners are not entitled to appraisal rights with respect to the value of their interests. There will not be any procedure by which a Limited Partner can seek an alternative valuation of his or her units, regardless of whether the Limited Partner does or does not consent to the Liquidation. 11 ---------------------------------------------------- WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION ----------------------------------------------------- ------------------------------------------------------------- The information contained in this Consent Solicitation Statement with respect to the Liquidation is qualified in its entirety by reference to the Plan of Liquidation and Dissolution and the Partnership Amendments. A copy of the Plan of Liquidation and Dissolution is attached to this Consent Solicitation Statement as Appendix A and is incorporated herein by reference. The text of the Partnership Amendments is set forth in "Amendments to the Partnership Agreement." --------------------------------------------------------------- BACKGROUND AND REASONS FOR THE LIQUIDATION The Partnership was formed in 1981 to invest in real estate by acquiring and holding limited partner interests in limited partnerships ("Local Partnerships"), which in turn own Apartment Complexes. We believe the Partnership has maximized the principal benefits of owning Apartment Complexes, in particular: (1) producing tax benefits in the form of tax losses which Limited Partners may use to offset income from other sources; (2) generating current income for Limited Partners through cash distributions; and (3) providing potential capital appreciation opportunities. Consequently, we are recommending that the Limited Partners approve the Liquidation. Before recommending the Liquidation, we considered the benefits and risks associated with continuing the business of the Partnership. After weighing the benefits and risks of continuation, we believe that the Liquidation will have the greater likelihood of providing optimal economic benefits for the Limited Partners. We believe that the Liquidation provides the best alternative for the Limited Partners for the following reasons: (1) The Liquidation will provide Limited Partners with a return of capital, giving Limited Partners the opportunity to redeploy such funds to seek a higher rate of return. The Managing General Partner's lowest estimate of the range of values for the Partnership properties (See - Estimated Ranges of Value of Partnership Properties) would result in distributions of cash to the Limited Partners of $8,703,000 ($352 per Limited Partner unit). (2) Currently, there is no established market for the Limited Partner units and Limited Partners are only able to sell their Limited Partner units in an informal and sparse secondary market, which contains a small number of participants with infrequent transactions. The most recent offers to Limited Partners for their interests in the Partnership were for a price of $100 per unit. That price was far less than the lower end of the range of the estimated per unit liquidation proceeds (before taxes) of approximately $352. See "Estimated Ranges of Value of Partnership Properties." CRI would advise investors to reject any tender offers they may receive prior to the Consent Solicitation Expiration Date of June ___, 2006 if the tender offer price is considerably less than the lower end of the range of the estimated per unit liquidation proceeds set forth in this Consent Solicitation Statement. We believe that there may be a desire on behalf of a significant number of Limited Partners to liquidate portions of or their entire investment in the Partnership. Liquidation of the Partnership will result in an accelerated return of capital to the Limited Partners and allow the conversion of their investment to cash. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- Market for the Limited Partner Units". 12 (3) Termination of the Partnership will eliminate the yearly expense and possible delay to individual Limited Partners' preparation of tax returns due to their investment in a limited partnership. Most investors find the required Form K-1 complicated to report on their tax returns, requiring individuals to incur tax return preparation costs they might not otherwise have. (4) The current interest rate environment provides purchasers the opportunity to leverage properties at relatively low carrying costs and, therefore, creates favorable market conditions to sell. (5) Maintenance and administrative expenses associated with aging Apartment Complexes in which the Partnership holds interests will continue to increase. (6) Due to prepayment restrictions on mortgages covering four of the Apartment Complexes, those mortgages may not be eligible for refinancing at this time absent a negotiated consent from the lenders. Even those Apartment Complexes that could be refinanced may not produce much equity for distribution, because new lenders would likely require significant amounts to be set aside for immediate repairs and capital improvements for the aging properties. Also, refinancing the other Apartment Complexes would likely generate less cash than a sale due to loan to value limits generally imposed by lenders of approximately 80%. Although refinancing would result in the distribution of cash without triggering a taxable gain, CRI believes that the greater proceeds that may be generated on a sale than on a refinancing make a sale a more attractive alternative. Finally, selling some properties while refinancing others would result in a smaller fund carrying continuing fixed expenses. (7) Substantially all of the depreciation deductions from all of the Apartment Complexes have been exhausted, so Limited Partners will have fewer deductions to offset any future income generated by the Properties. (8) To the extent the Apartment Complexes are not sold, they will continue to subject the Partnership to the risks inherent in the ownership of property, such as fluctuations in occupancy rates, operating expenses and rental rates, which in turn may be affected by general and local economic conditions and by the supply and demand for rental apartment properties owned by the Local Partnerships. 13 (9) The sales of Apartment Complexes have always been a specific business objective of the Partnership, and we believe that the Liquidation is consistent with this objective. If the Partnership were to continue under its current structure, Limited Partners would likely retain their investment without any significant increase in value or near term exit opportunities. However, possible improvements in economic and market conditions could produce increased cash flow and enhance the sales prices of the Apartment Complexes. Consequently, while we believe that the Liquidation will achieve more favorable economic results for Limited Partners, we cannot assure you that continuation of the Partnership's business would not produce better results than those obtained in the Liquidation. The alternative to Liquidation would be to continue the Partnership in accordance with its existing business plan. CRI considered retaining the Apartment Complexes for a longer period of time to realize greater capital appreciation. However, due to the fact that the properties are aging, the Local Partnerships may need to expend significant funds for capital improvements and maintenance costs in order for the Apartment Complexes to compete in their respective markets in the future. The improvements would involve ongoing replacement of carpeting and appliances, repainting of unit interiors and ongoing exterior maintenance, including painting, roof replacement, heating and air conditioning refurbishment, repaving of common areas and access roads, and ongoing repairs to plumbing, electrical systems and building exteriors. Property replacement reserves may be insufficient to provide the level of upgrades that may be necessary. While CRI is of the view that the Local Partnerships might be able to borrow additional funds in order to finance these improvements, CRI does not believe that increasing the level of debt of the Local Partnerships would be in the best interests of the Partnership, if another alternative such as a sale is feasible. Increasing indebtedness on the Apartment Complexes could increase the risk of loss and significantly decrease net cash flow, resulting in an indefinite suspension of cash distributions to the Limited Partners. Moreover, it appears likely that a new lender would require significant amounts to be set aside for immediate repairs and capital improvements, thereby diminishing any equity available for distribution to Limited Partners from a refinancing. Furthermore, the ability to recapitalize the Local Partnerships through refinancing of the existing mortgages is limited due to various restrictions on some of the current mortgages. Certain mortgages have prepayment prohibitions and/or prohibitive prepayment penalties. Such restrictions limit the opportunity for four of the thirteen Local Partnerships to refinance the Apartment Complexes they own at present. These four Local Partnerships, representing 311 apartment units, are prohibited from prepayment of their mortgages prior to their final maturities without the written consent of the relevant state housing finance agency or the Farmers' Home Administration. There can be no assurance that such consents would be obtained. 14 Accordingly, continuing the Partnership under its current business plan would subject the Limited Partners to the continued risks of ownership of real estate, which include changes in general or local economic conditions, changes in the supply of or demand for competing properties in the area of a property, changes in interest rates, and the need to maintain the Apartment Complexes and to provide for substantial costs of major repairs, replacements, improvements, and other capital expenditures. It would also prolong the fixed costs associated with maintaining a public limited partnership, including the administrative burden of annual filing of Schedule K-1 tax information. Most importantly, however, due to the depletion of depreciation deductions at the Local Partnership level and the increasing need for repairs and improvements, it is likely that the Local Partnerships may generate taxable income for the Partnership but not distribute sufficient cash for the Partnership to pass through to its Limited Partners to cover resulting tax liabilities. In view of the foregoing, CRI is of the view that liquidation would produce a better result for the Limited Partners than continuing to operate the Partnership in its current form indefinitely. We have conflicts of interest in recommending the Liquidation as a result of the proposed related partnership agreement amendments regarding the Disposition Fee and the Partnership Liquidation Fee (see "Interests of Certain Persons in the Liquidation"). No independent third party has reviewed or approved our recommendation. However, we believe that our recommendation is in the best interest of Limited Partners and, therefore, consistent with our fiduciary duties to the Limited Partners. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- The General Partners -- Fiduciary Duties of the General Partners." Consequently, we recommend that the Limited Partners of the Partnership (1) consent to the proposed Liquidation and proposed Disposition Fee by marking the box entitled "FOR" next to Proposal 1 on the enclosed consent card; and (2) consent to the proposed Partnership Liquidation Fee by marking the box entitled "FOR" next to Proposal 2 on the enclosed consent card. Limited Partners are urged to consult with their independent financial and tax advisors prior to consenting to the Liquidation. RISKS OF THE LIQUIDATION In addition to the other information included elsewhere in this Consent Solicitation Statement, the following factors should be considered carefully in determining whether to approve the proposed Liquidation. There can be no assurance that the sale of the Partnership's properties will be consummated or that any of the estimates set forth in this Consent Solicitation Statement will be realized. You are cautioned not to attribute undue certainty to any estimates, which are based on a variety of assumptions relating to the properties, general business and economic conditions and other matters. The information contained in this Consent Solicitation Statement, including the minimum amount of proceeds from the sales of the Partnership's properties and the date by which consummation of the sales is anticipated to occur, are based on the Partnership's current estimates and are subject to various and significant uncertainties, many of which are beyond the control of the Partnership. These uncertainties could cause the actual results to differ materially from the expectations of the Partnership and its Managing General Partner. 15 Uncertainty of Amount and Timing of Liquidating Distributions to Limited Partners. A number of factors will affect the amount and timing of liquidating distributions in the Liquidation, including the prices for which the Apartment Complexes are sold, the condition of the real estate market during the Liquidation, the costs of liquidation and other matters, which may be beyond the control of the Partnership. Due to numerous variables, the Partnership can only estimate the amount of cash that will actually be distributed to you. There is also no assurance that the Partnership's assets can be sold within a reasonable period of time. As a result, we cannot guarantee the amount or timing of liquidating distributions to Limited Partners. See "-- Plan of Liquidation and Dissolution." Sales of Assets Pursuant to the Plan of Liquidation and Dissolution Are Not Subject to Limited Partner Approval. If the Limited Partners approve the Liquidation, CRI will commence marketing of all of the properties in which the Partnership holds interests. Limited Partners will have no right or opportunity to vote on the sale of each Apartment Complex and will, therefore, have no right to approve or disapprove the terms of any individual sale. Therefore, by consenting to the Liquidation, Limited Partners are granting us authority to sell all of the Partnership's assets upon terms and conditions which we deem appropriate. See "-- Plan of Liquidation and Dissolution." (In the past, consistent with the terms of the Partnership Agreement, Limited Partner consent was not necessary to sell interests in a single Apartment Complex. The proposal to sell all of the Partnership's remaining assets in a series of fairly contemporaneous dispositions, and dissolve the Partnership, triggers the need for Limited Partner consent.) The Partnership will automatically (without requiring any additional approval of the Limited Partners) be terminated and dissolved following the sale of the final property in which the Partnership holds an interest. The General Partners have Conflicts of Interest. Consummation of the Liquidation will eliminate any potential liability of the General Partners for liabilities of the Partnership that could arise in the continued operation of the Partnership. In addition, adoption of the proposed amendments to the Partnership Agreement would result in CRI being eligible to receive two fees that are not currently authorized: a Disposition Fee that is greater than the currently authorized Local Partnership Sales Fee and a Partnership Liquidation Fee. However, the amendment authorizing the Disposition Fee would not change the overall limit on disposition fees and commissions payable to insiders and affiliated parties in the aggregate currently provided for in the Partnership Agreement. In addition, the Disposition Fee would be considered a debt of the Partnership, payable prior to any return of capital or preferred return to the Limited Partners. Based on CRI's estimated ranges of property values discussed elsewhere in this Consent Solicitation Statement, under the Partnership's current fee structure, the individual General Partners would not receive the 1% deferred disposition fee from the sale of Apartment Complexes as a result of the level of priority of payment of such fee. Willoughby and Dockser will waive their portion of this fee if the Liquidation is approved. The proposed Partnership Liquidation Fee would be payable only if CRI successfully disposes of all of the Partnership's assets within 48 months after the Liquidation is approved, and would not be subject to the fee cap currently provided for in the Partnership Agreement. For further discussion of the fiduciary duties of the General Partners, see "THE PARTNERSHIP AND THE GENERAL PARTNERS." Delay in Receiving Certain Benefits of Sale. The Partnership Agreement authorizes us to utilize proceeds from the sales of Apartment Complexes to establish reserves for authorized Partnership purposes. We may reserve some of the remaining undistributed proceeds from the sale of Apartment Complexes for such purposes, such as reserves for unknown liabilities, audit costs, fees (including the Partnership Liquidation Fee, if approved) and tax return preparation. 16 For presentation purposes, the analysis of estimated liquidation proceeds, both before and after taxes, appearing on pages 28-34, assumes that the sale of all properties occurs during one calendar year. In actuality, the cash and tax impact of the sale transactions will most likely occur over four tax years. The actual timing of events may have the effect of showing capital gain and/or cash proceeds that do not occur in the same tax year; i.e., a sale in late December would generate a taxable gain on the Schedule K-1 for one year, while the cash proceeds of the sale are distributed during the next tax year and that distribution would appear on the subsequent Schedule K-1. In total, the aggregate Schedule K-1 for the liquidation period should reflect the net amounts shown on the analysis on pages 28-34, however, it is probable that Limited Partners will actually receive a Schedule K-1 for years one, two, and three of the liquidation period, reflecting a higher allocation of capital gain, while the Schedule K-1 for the final year of the liquidation period will reflect a capital loss. Lack of Independent Representation. The Partnership has not retained an independent representative to act on behalf of the Limited Partners or the Partnership in designing the overall structure of the Liquidation, including the amendments to the Partnership Agreement. In addition, we do not intend to employ an independent agent to (i) structure and negotiate the terms and conditions (including the consideration to be received) upon which the Partnership's assets will be sold, (ii) determine what competitive commissions would be for the purpose of determining the amount of a Disposition Fee which the Managing General Partner may be eligible to receive for marketing and selling the properties, or (iii) determine the reasonableness of the proposed Partnership Liquidation Fee which the Managing General Partner may be eligible to receive for successfully liquidating all of the Partnership's assets within 48 months of the date of approval of the Liquidation. The Partnership did not seek to obtain an opinion relating to the fairness to the Limited Partners of the proposed Liquidation. There is no assurance that we can obtain better results for the Partnership in the sale of Apartment Complexes than would otherwise be obtained by the Local General Partners or a third party broker. No sales, however, will be made to affiliates of the General Partners. Indemnification Under the Partnership Agreement. The Partnership Agreement provides that no General Partner shall be liable to the Partnership or any of the Limited Partners for any act or omission performed or omitted by any General Partner in good faith and in a manner reasonably believed by it to be within the scope of authority granted to it by the Partnership Agreement and in the best interests of the Partnership, provided that the conduct did not constitute fraud, bad faith, negligence or misconduct. As a result of these provisions, Limited Partners may have more restricted rights of action than they would otherwise have if such restrictions had not been included in the Partnership Agreement. In general, the General Partners may not be indemnified under the Partnership Agreement with regard to liabilities arising under federal or state securities laws, rules or regulations, unless the General Partners are successful in defending such action and such indemnification is specifically approved by the court or by opinion of counsel that the matter has been settled by controlling precedent. 17 If a claim were made against the General Partners in connection with their actions on behalf of the Partnership with respect to the Liquidation, they would most likely seek to be indemnified by the Partnership with respect to such claim. Any expenses (including legal fees) incurred by the General Partners in defending such claim may be paid as they are incurred, which may be prior to the final disposition of such claim, only upon determination by independent legal counsel in a written opinion that indemnification of the General Partner is proper because he or it has met the applicable standard of conduct set forth above. As a result of these indemnification rights, a Limited Partner's remedy with respect to claims against the General Partners relating to their involvement in the Liquidation could be more limited than the remedies that would have been available absent the existence of these rights in the Partnership Agreement. A successful claim for indemnification, including the expenses of defending a claim made, would reduce the Partnership's assets by the amount paid. Loss of Opportunity to Benefit from Future Events. The primary disadvantage of disposing of the Apartment Complexes pursuant to the Liquidation is that there can be no assurance that the Liquidation will result in greater returns to Limited Partners than a continuation of the Partnership. After the Liquidation, the Partnership will not benefit from possible improvements in economic and market conditions that could produce increased cash flow and enhance the sales prices of the Apartment Complexes. In addition, there can be no assurance that the proposed Liquidation will result in greater returns to you than a merger of the Partnership with another entity, a refinancing of some or all of the Partnership's properties or any other strategic alternative, whether or not considered by the General Partners. Right of Unaffiliated Local General Partners to Consent to Proposed Sales. All except two of the Local Partnerships have Local General Partners unaffiliated with CRI who may have the rights under the Local Partnership Agreements to approve any proposed sale or other disposition of an Apartment Complex. CRI is of the view that the Local General Partners of most if not all of the Local Partnerships will not necessarily cooperate with any reasonable sale proposal concerning their affected Apartment Complexes. CRI will have to negotiate with the unrelated Local General Partners to obtain their consents to any sale of the Apartment Complexes or the Partnership's interest in the Local Partnership. There can be no assurances of its success in such negotiations. PLAN OF LIQUIDATION AND DISSOLUTION The Liquidation is to be effected in accordance with the terms and conditions set forth in the proposed Plan of Liquidation and Dissolution and the Partnership Agreement, as amended. Upon approval of the Liquidation, CRI will (1) seek to sell the assets of the Partnership to third parties unrelated to CRI and its principals and use the sales proceeds and/or other Partnership funds to pay all expenses in connection with such sales, including the Disposition Fee and/or Partnership Liquidation Fee if such fees are approved, (2) pay or make provision for payment of all Partnership obligations and liabilities, and (3) distribute the remaining assets as set forth in the Partnership Agreement, as amended and as described in this Consent Solicitation Statement. We will then file a Certificate of Cancellation with the District of Columbia Department of Consumer and Regulatory Affairs, whereupon, or at such later time as may be specified in the Certificate of Cancellation, the Partnership will be terminated and it will cease to exist. 18 Pursuant to the Plan of Liquidation and Dissolution, prior to completing the Liquidation, the Partnership must file all tax returns with federal, state and local tax authorities, and must file all reports with the Securities and Exchange Commission and provide or make available such reports to Limited Partners in accordance with the Partnership Agreement. Pending the sale of the Apartment Complexes, the Local Partnerships will continue to lease units in the Apartment Complexes and the Partnership will continue to operate. We expect to complete the sale of the Apartment Complexes in approximately 48 months from the date of the Limited Partners' approval of the Liquidation. Liquidation, however, can be a complex process which may depend on a number of factors, and some of these factors are beyond our control. For example, the Partnership may be pursuing claims against others or defending litigation or there may be other contingencies to which the Partnership may become subject during the Liquidation. Consequently, the final liquidating distribution may occur months after all of the Apartment Complexes have been sold. For a description of the proposed amendments to the Partnership Agreement relating to the Liquidation, see "-- Amendments to the Partnership Agreement" and "-- Interests of Certain Persons in the Liquidation." Consummation of the Liquidation is subject to the consent of Limited Partners and certain other conditions. See "CONSENT PROCEDURES" and "-- Other Conditions to the Liquidation." AMENDMENTS TO THE PARTNERSHIP AGREEMENT The Partnership Agreement currently provides that all fees and any other commissions payable to the individual General Partners (but not CRI) upon the sale of the Apartment Complexes, together with all other property disposition fees and commissions payable upon such sale, may not exceed the lesser of the competitive rate for such services or 6% of the sales price of the Apartment Complexes. Under this cap, CRI is currently entitled to receive a Local Partnership Sales Fee of up to 2% of the sales price of the Apartment Complexes and the individual General Partners are currently entitled to receive an aggregate fee of 1% of the gross sales proceeds of the Apartment Complexes, the latter payable after the Limited Partners have received a return of all their capital contributions (without deduction for prior cash distributions other than prior distributions of proceeds from any sale or refinancing) and a preferred return. The individual General Partners would also be entitled to obtain from the sales proceeds any such deferred fee with respect to prior sales from which the 1% fee was not paid. We believe that the original 1% fee represented compensation for addressing a general disposition strategy, reviewing sale proposals made by Local General Partners and analyzing the effect of such proposals on the Partnership and the Limited Partners. We did not originally contemplate further involvement in the sales process, because we anticipated that Local General Partners, brokers and real estate consultants would be responsible for finding buyers, performing due diligence on prospective purchasers, negotiating terms and conditions, and executing sales. We originally intended that the unaffiliated Local General Partners of the Local Partnerships and/or nonaffiliated real estate agents would perform these services. The Partnership Agreement was amended in 1993 to allow CRI to receive the Local Partnership Sales Fee of up to 2% of the sales price, 19 subject to certain limitations, in connection with the sale of Apartment Complexes. However, this rate is below the rate charged by unaffiliated brokers. Also, CRI has developed more expertise than many commercial brokers with respect to multifamily housing sales, particularly of government-assisted housing. Consequently, we are seeking your authorization to amend the Partnership Agreement to permit CRI to be eligible to receive a Disposition Fee of up to 5% of the sales price of Apartment Complexes for its efforts in marketing and selling the Apartment Complexes (which would be payable to CRI on the same basis as such a fee being paid to third parties). Such fee would be payable upon a sale of an Apartment Complex or the Partnership's interest therein and would replace and supersede the currently authorized Local Partnership Sales Fee. Dockser and Willoughby would waive their respective shares of the currently authorized deferred fee of 1% to individual General Partners. This Disposition Fee would be payable as a debt of the Partnership with respect to each property CRI markets and sells prior to any distributions to Limited Partners with respect to their capital contributions or preferred return in the same way as any commissions or fees that would be payable to Local General Partners or third parties for their services. The overall cap on the amount of commissions or property disposition fees equal to the lesser of the competitive rate for such services or 6% of the sales prices of the Apartment Complexes would still apply. In other words, if CRI receives the proposed Disposition Fee, the Limited Partners would receive the same net distribution upon the sale of Apartment Complexes as if an unrelated third party had performed the same services and received a market rate fee for doing so. In order to allow the payment of the Disposition Fee to CRI, Section 4.02 (a) of the Partnership Agreement would be amended by inserting the following provision at the end thereof: "Notwithstanding and in addition to the foregoing, the Managing General Partner may receive a fee (not to exceed 5% of the sales price of an Apartment Complex) from the Partnership or the Local Partnership for services provided by the Managing General Partner and/or its Affiliates in connection with the marketing and sale of an Apartment Complex. Such fee (a "Disposition Fee"), which shall be payable pursuant to Section 4.02(a)(i), shall only be payable upon the sale of an Apartment Complex or a sale of the Partnership's interest in the Local Partnership (a sale in either of such formats is referred to in this Section 4.02(a) as a "sale of an Apartment Complex"), and shall be subject to the following restrictions: (i) all property disposition fees and any other commissions payable upon the sale of any Apartment Complex, inclusive of any fees to the General Partners and/or their Affiliates, shall not exceed the lesser of the competitive rate paid to third parties for similar services or 6% of the sales price of the applicable Apartment Complex, (ii) the Managing General Partner and/or its Affiliates must provide substantial services in connection with the marketing and sales effort (as determined by the General Partners), and (iii) Dockser and Willoughby shall waive their respective shares of the 1% fee payable under Section 4.02(a)(vi) above." This amendment to the Partnership Agreement is part of the Liquidation and requires the approval of the holders of a majority of the outstanding Limited Partner units in the Partnership on April 1, 2006. 20 We are also seeking your authorization to amend the Partnership Agreement to permit CRI to be eligible to receive a Partnership Liquidation Fee in the amount of Five Hundred Thousand Dollars ($500,000), payable only if the Managing General Partner is successful in liquidating all of the Partnership's investments within 48 months from the date the Liquidation is approved. This fee is proposed in recognition of the circumstances that, in one or more instances, a reasonable seller would not engage a broker to sell a particular Apartment Complex because the amount or terms of its indebtedness would virtually preclude a sale to anyone other than a Local General Partner or one of its affiliates. Under such circumstances, if CRI successfully negotiates a disposition of such an Apartment Complex, CRI would not receive a Disposition Fee in connection with such sale, but it would be eligible to receive the Partnership Liquidation Fee when the last asset of the Partnership is disposed of, provided that CRI liquidates all of the Partnership's assets within 48 months after the Liquidation is approved. The Partnership Agreement provides that all property disposition fees and any other commissions or fees payable upon the sale of the Apartment Complexes are subject to a fee cap equal to the lesser of the competitive rate for such services or 6% of the sales price of the Apartment Complexes. This limit would not apply to the Partnership Liquidation Fee. The Managing General Partner believes that the Partnership Liquidation Fee should not be subject to the fee cap because, although the amount of expected proceeds from the sale of property to a Local General Partner or its affiliate is likely to be adversely impacted by the amount or terms of indebtedness on the property, the amount of effort required from CRI to complete these transactions in a timely manner is likely to be significant, and the dissolution of the Partnership cannot be completed until these assets are sold. Since CRI would not be eligible to receive a Disposition Fee in connection with any of these transactions, the proposed Partnership Liquidation Fee will provide an additional economic incentive to complete the liquidation of all of the Partnership's investments within the 48 month period. The Partnership Liquidation Fee, if earned, would be considered a debt of the Partnership, payable prior to any return of capital or preferred return to the Limited Partners. In order to allow the payment of the Partnership Liquidation Fee to CRI, Section 4.02(a) of the Partnership Agreement would be amended by inserting the following provision at the end thereof (and after the prior amendment, if approved, with respect to the proposed Disposition Fee): "Notwithstanding any other provision of this Agreement to the contrary and in addition to the foregoing, the Managing General Partner may receive a fee of $500,000 from the Partnership for services provided by the Managing General Partner and/or its Affiliates in connection with the sale of one or more of the Apartment Complexes or of the Partnership's interest in one or more of the Local Partnerships. Such fee (the "Partnership Liquidation Fee"), which shall be payable pursuant to Section 4.02(a)(i), shall only be payable if all of the Apartment Complexes (or, with respect to any Apartment Complex which has not been sold, the Partnership's interest in the applicable Local Partnership) have been sold or otherwise disposed of or the Partnership's interest therein has been terminated on or before _______, 2010 [insert date 48 months after approval of the Liquidation]." 21 This amendment to the Partnership Agreement is part of the Liquidation, but shall be voted on as a separate proposal requiring the approval of the holders of a majority of the outstanding Limited Partner units in the Partnership on April 1, 2006. INTERESTS OF CERTAIN PERSONS IN THE LIQUIDATION General. CRI and the other General Partners have an interest in the Liquidation. The General Partners, however, are required to perform their duties consistent with their fiduciary duties to the Limited Partners, in compliance with the terms of the Partnership Agreement, and without regard to whether their affiliates or they have an interest in a proposed transaction. See "THE PARTNERSHIP AND THE GENERAL PARTNERS -- The General Partners -- Fiduciary Duties of the General Partners" for a description of the General Partners' duties with respect to the Partnership. In addition, certain affiliates of the Managing General Partner are currently the sole General Partners of two of the thirteen Local Partnerships in which the Partnership holds a limited partner interest. See "-- Affiliates of the Managing General Partner" below. The following table sets forth a comparison of the current and proposed compensation arrangements as they relate to the distribution of proceeds from the sale of an Apartment Complex or the Partnership's interest therein. 22
Current Order of Distributions of Sale Amendment Proposal for Distribution of Sale Proceeds - -------------------------------------- ------------------------------------------------------ Proceeds Received by the Partnership Received by the Partnership (in Order of Distribution) - -------------------------------------- ------------------------------------------------------ 1) to the payment of debts and liabilities of the Same, except that the Local Partnership Sales Fee is Partnership (including all expenses of the Partnership deleted and a Disposition Fee may be paid to CRI if it incident to the Sale or Refinancing) other thatl oans or performs services otherwise provided by an unaffiliated other debts and liabilities of the Partnership to any broker of consultant, and a Partnership Liquidation Fee Partner or any Affiliate, such debts and liabilities, in may be paid to CRI if it disposes of all of the the case of a non-liquidating distribution, to be only Partnership's investments within 48 months after approval. those which are then required to be paid or, in the judgment of the Managing General Partner, required to be provided for; plus, subject to certain limitiations, payment of the Local Partnership Sales fee of up to 2% of the sales price of the Apartment Complexes; 2) to the establishment of any Reserves which the Managing Same, except the Partnership Liquidation Fee may be General Partner deems reasonably necessary for contingent, reserved if it is approved by the vote of the Partners. unmatured or unforeseen liabilities or obligations of the Partnership; 3) to the Limited Partners in the amount of their Capital Same. Contributions without deduction for prior cash distributions other than prior distributions of proceeds from any Sale or Refinancing; 4) to the repayment of any unrepaid loans theretofore made Same. by any Partner or any Affiliate to the Partnership for Partnership obligations and to the payment of any unpaid amounts owing to the General Partners under this Agreement; 5) to the General Partners in the amount of their Capital Same. Contributions; 6) thereafter, for their services to the Partnership, Dockser and Willoughby will not be entitled to in equal shares to Dockser, Schwartzberg and Willoughby their respective portions of this fee. (or their designees), whether or not any is then a General Partner, an aggregate fee of 1% of the gross proceeds resulting from (A) such Sale (if the Proceeds are from a Sale rather than a Refinancing) and (B) any prior Sales from which such 1 % fee was not paid to Dockser, Schwartzberg or Willoughby or their designees; and 7) the remainder, 15% to the General Partners (or their Same. assignees) and 85% in the aggregate to the Limited Partners or their assignees).
23 The Partnership has not retained an independent representative to act on behalf of the Limited Partners or the Partnership in designing the overall structure of the Liquidation, including the amendments to the Partnership Agreement. In addition, we do not intend to employ an independent agent to (i) structure and negotiate the terms and conditions (including the consideration to be received) upon which the Partnership's assets will be sold or (ii) determine what competitive commissions would be for the purpose of determining the amount of a disposition fee which the Managing General Partner may be eligible to receive for marketing and selling the properties. There is no assurance that we can obtain better results for the Partnership in the sale of Apartment Complexes than would otherwise be obtained by the Local General Partner or a third party broker. No sales, however, will be made to affiliates of the General Partners. Affiliates of the Managing General Partner. The Local Partnerships in which the Partnership is invested were organized by private developers, unaffiliated with CRI, who acquired the sites, or options thereon, applied for mortgage loans and applicable mortgage insurance and/or entered into construction contracts, and who often remain as the Local General Partners in the Local Partnerships. The general partners of the Local Partnerships retain responsibility for maintaining, operating and managing the properties. The Local General Partners may operate other apartment complexes that may be in competition for eligible tenants with the Local Partnerships' apartment complex. However, in the event of non-compliance with a Local Partnerships' Partnership Agreement, the Local General Partner may be removed and replaced with another Local General Partner or with an affiliate of the Partnership's Managing General Partner. In addition, to protect the Partnership's interest as a limited partner in each Local Partnership, an affiliate of CRI became a general partner ("Affiliated Local Partner") in each Local Partnership. An affiliate of CRI is now the only General Partner in two of the Local Partnerships. In addition to the distribution of sales proceeds received by the Partnership set forth above, the affiliates of the Managing General Partner, in their capacities as Affiliated General Partners of the Local Partnerships, are entitled to receive a certain share of distributions and sales proceeds pursuant to the Local Partnerships' Partnership Agreements. The table below sets forth the Affiliated Local Partner's percentage interest in each Local Partnership. Affiliated Local Partner's Name and Location Share of Profits, Losses Of Apartment Complex and Distributions -------------------- -------------------------- Capitol Commons 0.01% Lansing, MI Chestnut Associates 0.01% Fresno, CA Court Place 0.01% Pekin, IL Frederick Heights 2.00% Frederick, MD Hillview Terrace 0.06% Traverse City, MI Linden Place 0.01% Arlington Heights, IL New Sharon Woods Apts. 0.01% Deptford, NJ Park Glen 0.01% Taylorville, IL Shallowford Oaks 0.01% Chamblee, GA Sundance Apts. 1.00% Bakersfield, CA Tandem Townhouses 0.01% Fairview Borough, PA Warner House 0.01% Warren, OH Westwood Village 0.01% New Haven, CT 24 The Affiliated Local Partner will receive repayment of any loans it may have made to the Local Partnership prior to distributions to the Partnership. Thereafter, an Affiliated Local General Partner generally will be entitled to a return of its capital contributions and its share of the proceeds from the Sale or Refinancing of the Apartment Complex attributable to its interest in the Local Partnership, only after the Partnership as a limited partner has received a return of its capital contributions and often an additional sum as set forth in each Local Partnership Agreement. As of April 1, 2006, the Partnership is the sole limited partner in eleven of the thirteen remaining Local Partnerships. As a limited partner, the Partnership's legal liability for obligations of the Local Partnerships is limited to its investment. 25 SUMMARY HISTORICAL FINANCIAL DATA The following summary historical financial data, insofar as it relates to each of the years ended December 31, 2001 through 2005, has been derived from the annual financial statements of the Partnership, including the balance sheets at December 31, 2001, 2002, 2003, 2004 and 2005 and the related statements of income for the years ended December 31, 2001 through 2005, and the notes thereto as included in the Partnership's Annual Report on Form 10-K or Form 10-KSB for the year ended December 31, 2001 through 2005.
For the Year Ended December 31, -------------------- ------------------------------------------------------------------------ Statement of Operations 2005 2004 2003 2002 2001 -------------------- ---------- ---------- ---------- ---------- ----------- Revenues $1,157,268 $1,054,534 $1,034,899 $1,050,489 $ 915,666 -------------------- ---------- ---------- ---------- ---------- ----------- Net Income (Loss) $1,989,745 $659,128 $642,058 $1,058,872 $10,968,855 allocated to Limited Partner Units -------------------- ---------- ---------- ---------- ---------- ----------- Earnings (Loss) $80.40 $26.63 $25.94 $42.79 $443.06 per Unit -------------------- ---------- ---------- ---------- ---------- ----------- Balance Sheet Data: -------------------- Total Assets $8,422,432 $6,246,514 $6,197,690 $6,808,405 $ 7,936,849 -------------------- ---------- ---------- ---------- ---------- ----------- Distributions per $0 $25.00 $41.00 $30.00 $20.00 Unit -------------------- ---------- ---------- ---------- ---------- -----------
Income (Loss) for each of the years indicated above. During 2001, Frenchman's Wharf transferred its property to an assignee of the mortgage holder in lieu of foreclosure on the property. During 2002, the Baltic Plaza property was sold. During 2005, the Lihue property was sold. LIQUIDATION EXPENSES General. The Partnership will pay for the expenses of the solicitation and, if approved by Limited Partners, the Liquidation. Expenses are estimated to be as follows: 26
Solicitation/Communication Expenses Nixon Peabody LLP Legal Fees $ 20,000 MacKenzie Partners, Inc. Fee $ 6,000 MacKenzie Partners, Inc. estimated out-of-pocket expenses $ 9,000 Printers (including postage) $ 5,000 -------- Sub Total $ 40,000 Liquidation Costs Estimated Disposition Fee (at maximum 5%) $[2,525,000] to $[2,933,000] (if properties are sold at amounts estimated herein) Final audit and tax return preparation fees $[96,000] Dissolution filing fees $ 1,000 Partnership Liquidation Fee, if approved and timely earned $500,000 -------- Sub Total $[3,122,000] to $[3,530,000] Total Costs $[3,162,000] to $[3,570,000] ========
Solicitation/Communication Expenses. For purposes of the Liquidation, the term "Solicitation/Communication Expenses" includes expenses such as the costs of mailing and printing this Consent Solicitation Statement, any supplements thereto or other documents related to the Liquidation, telephone calls, legal fees, appraisal fees, accounting fees, consent solicitation agent fees and other fees related to the solicitation of consents, as well as reimbursement of expenses incurred by brokers and banks, if any, in forwarding the Consent Solicitation Statement to Limited Partners. The Partnership will pay these expenses whether or not the Liquidation is consummated. Liquidation Costs. For purposes of the Liquidation, the term "Liquidation Costs" means the Disposition Fees paid pursuant to the amended Partnership Agreement, legal and accounting fees not included under Solicitation/Communication Expenses, travel expenses and all other fees related to the Liquidation, but not including Solicitation/Communication Expenses or costs that would have otherwise been incurred by the Partnership in the ordinary course of business. "Liquidation Costs" will also include the Partnership Liquidation Fee if (i) it is approved by a majority in interest of the Limited Partners, and (ii) CRI successfully disposes of all of the Partnership's assets within 48 months from the date the Liquidation is approved. ESTIMATED RANGES OF VALUE OF PARTNERSHIP PROPERTIES To help decide whether to pursue the liquidation plan, CRI estimated the potential sales values of the Apartment Complexes and the expected net sales proceeds to the Partnership. We reviewed the income generating capabilities of the Apartment Complexes and then valued them on the bases of their projected incomes, taking into account appropriate disposition methodologies based upon the various regulatory restrictions associated with each Apartment Complex. CRI has not consulted any real estate brokers or other real estate professionals concerning potential purchasers for the Apartment Complexes or interests in the Local Partnerships. However, based upon CRI's experience and familiarity with the markets for conventional multifamily housing and government assisted low income housing, CRI is of the view that its estimates of values for the properties reflect a reasonable range of expected sale prices should the Apartment Complexes or interests therein be marketed. 27 The Partnership currently holds interests in thirteen Local Partnerships, which own thirteen Apartment Complexes. The Apartment Complexes consist of 1,516 rental units, of which 1,020 units receive rent subsidies. CRI has estimated the values of the Apartment Complexes owned by Local Partnerships in which the Partnership owns an interest using either the direct capitalization method or an assumed sale in a Low Income Housing Tax Credit ("LIHTC") transaction, depending upon whether certain federal and/or state restrictions associated with the particular property. Two of the thirteen Apartment Complexes have been conventionally financed and are not subject to federal and/or state restrictions that would have a material impact on their values. It is the opinion of CRI that this Apartment Complexes would be considered market rate and would be valued by a potential investor by use of the direct capitalization method. This method involves applying a capitalization rate to the net operating income (NOI) generated by the property being valued. A capitalization rate is a percentage (rate of return) commonly applied by purchasers of commercial real estate to property NOI to determine the present value of income producing property. A lower capitalization rate will result in a higher property value; conversely, a higher capitalization rate will result in a lower property value. The first step in this valuation process is to determine the appropriate NOI. The NOI is defined as the actual or anticipated net income that remains after all operating expenses are deducted from effective gross income, but before mortgage debt service, book depreciation and capital expenditures are deducted. We analyzed the historical and current operations of the subject properties and projected the anticipated stabilized NOIs at the time of sale. We then selected capitalization ("cap") rates based on: (i) CRI's experience in valuing and marketing similar properties; and (ii) information obtained from Real Capital Analytics, Inc. ("RCA"). RCA is a national research and consulting firm. Its proprietary research focuses exclusively on the investment market for commercial real estate. RCA tracks volume, pricing and cap rates for property offerings and sales nationwide. RCA surveys report that average capitalization rates for the National Apartment Market ranged from 6.04% to 6.23% for the twelve months ending December 2005. It is important to note that the RCA surveys track sales of $5,000,000 or greater and include sales of investment grade properties. Investment grade generally applies to real property sought by institutional buyers that meets certain institutional investment criteria. The Apartment Complexes owned by the Local Partnerships are not considered to be investment grade due to their age, physical condition and levels of amenities. Because CRI was of the view that the two properties in question are probably not comparable to the investment grade properties in the surveys, we applied capitalization rates of between of 7.5% to 8% to the properties' projected stabilized NOI to determine their upper end values. CRI then adjusted the resultant valuations by a factor of .85 to provide estimated low end values. Arm's-length purchasers could base purchase offers on capitalization rates higher or lower than those used in this analysis, resulting in property values for such property that could be lower or higher, respectively, than those set forth herein. 28 The remaining eleven Apartment Complexes are affordable housing properties which receive rent subsidies from HUD and/or state housing agencies. HUD subsidies are provided principally under Sections 8 and 236 of the National Housing Act. Under Section 8, the government pays to the applicable Local Partnership the difference between market rental rates (determined in accordance with government procedures) and the rate the government deems residents can afford. Under Section 236, the government provides interest subsidies directly to the applicable Local Partnership through a reduction in the property's mortgage interest rate. In turn, the Local Partnership provides a corresponding reduction in rental rates to its residents. The Local Partnerships are subject to various federal and/or state agreements that restrict the use of the Apartment Complexes, regulate their operations, and in certain cases limit dividends payable to the Local Partnerships. In order to stimulate private investment in low income housing, the federal government and certain state and local agencies have provided ownership incentives, including among others, interest subsidies, rent supplements and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. The regulatory complexities associated with the agreements governing the operations vary by property. Due to the terms of the federal and/or state agreements governing the operations of these Apartment Complexes, it is CRI's opinion that a potential purchaser would be required to preserve the affordable nature of these properties. CRI has extensive experience in the marketing and sale of similar affordable properties. Based upon this experience, CRI has valued these Apartment Complexes assuming a sale in a Low Income Housing Tax Credit ("LIHTC") transaction. Under this scenario, a tax credit developer/purchaser would continue the affordability restrictions of the Apartment Complex, renovate the Apartment Complex (to generate basis additions to maximize tax credits) and withdraw a developer's fee from the acquisition's capitalized funding. Either conventional financing with 9% tax credits or tax-exempt bond financing with 4% tax credits could be used. However, the prospective purchaser would be required to compete with other tax credit developments for the limited pool of 9% tax credits with no assurance that the purchaser would win the allocation. Therefore, we have assumed that less competitive 4% tax credits, used in conjunction with tax-exempt bond financing, would be generally available to purchasers to finance their acquisitions. The tax credit developer/purchaser would admit an investor partner to the acquiring entity who would contribute equity priced on the basis of the tax credits. For purposes of this valuation, tax-exempt bond financing at 6.75% interest rate, 30-year amortization term and a minimum average debt coverage ratio of 1.15 has been assumed. Renovation expenses and soft costs have been estimated for each Apartment Complex based upon its physical condition and various state agency threshold requirements for bond and tax credit transactions. Investor equity was calculated by estimating the amount of tax credits that would be available (4% of the non-land acquisition price, plus renovation costs and developer fee) and multiplying the tax credits by $.85 (the amount of equity likely to be paid per tax credit dollar). There are numerous variables in this method of valuation that could impact the ultimate value of an Apartment Complex. CRI has applied its best 29 judgment based upon its experience in the marketing and sale of similar properties to account for these variables and to provide what CRI believes to be a reasonable range of valuations for these properties. In evaluating the affordable properties under this methodology, CRI anticipates that certain of the properties, if sold, would not generate sufficient sale proceeds to retire their respective outstanding Local Partnership indebtedness. In these situations, CRI has assumed the estimated value of these properties to be the equal to the outstanding Local Partnership indebtedness and, therefore, assumed for purposes of estimating liquidation proceeds that the Partnership's interests in those Local Partnerships have no material value. CRI is of the opinion that this assumption is conservative. In most instances, CRI believes that the Partnership's interest could be sold for some value, as the Partnership, in some instances, receives annual cash distributions that could be valued at a multiple of their present value. The likely disposition associated with these properties is a sale of the Partnership's interest in the Local Partnership (most likely to an affiliate of a Local General Partner), as this would appear to be more advantageous than a sale of the property. Using the above-described valuation methodologies, CRI estimates that the likely value of the Apartment Complexes would fall within the estimated range of values identified in the following table: Low End Upper End Property Valuation Valuation - -------- ---------- ---------- Capital Commons (1) $7,395,000 $8,700,000 Chestnut (2) 1,955,000 2,300,000 Court Place (3) 5,270,000 6,200,000 Frederick Heights (4) 6,375,000 7,500,000 Hillview Terrace (5) 2,047,000 2,047,000 Linden Place (6) 11,900,000 14,000,000 New Sharon (7) 2,285,000 2,285,000 Park Glen (8) 4,845,000 5,700,000 Shallowford Oaks (9) 8,500,000 10,000,000 Sundance (10) 2,108,000 2,108,000 Tandem Townhouses (11) 947,000 947,000 Warner House (12) 2,266,000 2,266,000 Westwood Village (13) 1,004,000 1,004,000 1. Receives subsidies under the National Housing Act. Upper end valuation is based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits. 2. Receives subsidies under the National Housing Act. Upper end valuation is based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits. 3. Receives subsidies under the National Housing Act. Upper end valuation is based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits. 4. Property is considered market rate. Upper end valuation is based upon a 7.5% capitalization rate applied to a stabilized NOI of approximately $563,000. 5. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. 6. Receives subsidies under the National Housing Act. Upper end valuation is based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits. 7. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. 30 8. Receives subsidies under the National Housing Act. Upper end valuation is based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits. 9. Property is considered market rate. Upper end valuation is based upon an 8.0% capitalization rate applied to a stabilized NOI of approximately $806,000. 10. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. 11. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. 12. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. 13. Receives subsidies under the National Housing Act. Valuation based upon an assumed LIHTC sale transaction using tax-exempt bond financing and 4% tax credits does not generate sufficient proceeds to retire Local Partnership indebtedness. The above valuation shown above is equal to the Local Partnership indebtedness. Assuming sales of the Apartment Complexes or the Partnership's interest in the Local Partnerships, as the case may be, at the estimated valuations described above, and after adjustments for the repayment of mortgages and other liabilities, transaction costs and the priority of distributions as required under the terms of the Local Partnership agreements, it is the opinion of CRI that the aggregate gross distribution of proceeds to the Partnership is estimated to range between $10,645,000 and $16,177,000. In addition to the investments in the thirteen partnerships discussed above, the Partnership holds a 98% interest in a Promissory Note resulting from the sale of Baltic Plaza in 2002. The Promissory Note is made by SP Baltic Plaza, LP. The note has a principal balance of $2,300,000 and bears interest at the compounding rate of 4.6% per annum. The note is due and payable upon the earlier of the sale or refinance of the property or December 1, 2032. The note is collateralized by the partnership interests of the general partner of SP Baltic Plaza, LP. CRI believes that a potential purchaser would require a significant discount to provide for an effective interest rate commensurate with the investment risk and the uncertainty of collection of the Promissory Note and related interest. CRI has therefore estimated the fair market value of the Partnership's interest in the Baltic Promissory Note to be within the range of $225,000 and $550,000. A liquidation of the Partnership would also allow for operating reserves to be released. CRI has estimated the balance of such reserves to be disbursed would be $1,000,000. This amount could be overstated or understated depending upon events between now and the liquidation of the Partnership. The actual proceeds obtained from liquidation are highly uncertain and could be more or less than CRI's estimate. Other persons could derive different estimates of the liquidation value. If the Partnership were to sell its assets and liquidate, the value of the assets would be determined through negotiations with third parties, who may use different valuation methods to determine the price they wish to offer for the Partnership's assets. Accordingly, our estimated liquidation proceeds could be higher or lower than the net proceeds that you would realize upon an actual liquidation of the Partnership. 31 Based upon the foregoing, the distribution of estimated liquidation proceeds pursuant to the Partnership Agreement is depicted below:
SOURCES OF FUNDS (1) LOW HIGH Distributions from Local Partnerships $10,645,000 $16,117,000 -------------- ------------ Proceeds from Sale of Baltic Promissory Note $225,000 $550,000 -------------- ------------ Cash and Cash Equivalents (2) $1,000,000 $1,000,000 -------------- ------------ TOTAL SOURCE OF FUNDS $11,870,000 $17,667,000 USES OF FUNDS Solicitation/Communication Expenses $40,000 $40,000 Final Audit and Tax Return Preparation Fees $96,000 $96,000 Dissolution Filing Fees $1,000 $1,000 Estimated Disposition Fees $2,525,000 $2,933,000 Partnership Liquidation Fee (3) $500,000 $500,000 -------------- ------------ TOTAL USE OF FUNDS $3,162,000 $3,570,000 LIQUIDATION PROCEEDS BEFORE TAXES $8,708,000 $14,097,000 - ------------------------------------------------------------ ------------- ------------ PER INVESTMENT UNIT (4) $352 $570 Capital Account - December 31, 2005 ($584) ($584) Less: Cash from Sale ($352) ($570) -------------- ------------ Adjusted Capital Account after Liquidation ($936) ($1,154) 25% Tax Rate (5) x 25% X 25% ----- ----- Estimated Federal Tax Liability ($234) ($288) Plus Cash from Liquidation $352 $570 LIQUIDATION PROCEEDS AFTER TAXES $118 $282
1. For presentation purposes, we have assumed that all sales will occur within the same calendar year, although we expect the liquidation to occur over a 48 month period. 2. Reflects estimated cash balance estimated as of the time of liquidation. 3. This analysis assumes that the liquidation fee would be earned. 4. Based on 24,747 outstanding Additional Limited Partner units. 5. Assumes estimated capital account after liquidation is 100% depreciation recapture and is taxed at the federal maximum tax rate of 25%. 32 The Managing General Partner is providing this valuation analysis to assist Limited Partners in their decision whether or not to approve the Liquidation. While the Managing General Partner believes the assumptions upon which it has relied are reasonable based on its experience, its knowledge of Apartment Complexes and their markets, and the cited RCA survey, the Managing General Partner cannot and is not providing any assurance that the actual proceeds received for the Partnership properties will be within estimated ranges. Actual sale prices may be lower than estimated by a significant amount. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Risks of the Liquidation." OTHER CONDITIONS TO THE LIQUIDATION Legal Opinion. The Partnership Agreement provides that the voting rights to be exercised by the Limited Partners pursuant to this Consent Solicitation Statement (which would be undertaken pursuant to a vote in lieu of a meeting, as provided for in the Partnership Agreement) will not be so exercised unless and until the Limited Partners receive the opinion of counsel satisfactory to a majority in interest of the Limited Partners as to (i) the legality of the vote, (ii) the absence of personal liability of the Limited Partners as a result of voting, and (iii) the lack of effect of such vote on the Partnership's status for tax purposes. Under the current terms of the Partnership Agreement, the Partnership would be unable to effectuate the Liquidation without obtaining this opinion of counsel. The Managing General Partner has proposed that Nixon Peabody LLP, which has served as special counsel to the Partnership, render the opinion, which will be delivered prior to the effectiveness of the solicitation substantially in the form attached hereto. Under the Partnership Agreement, such counsel will be deemed approved if written disapprovals are not received from a majority in interest of the Limited Partners within 45 days of the date hereof. The Partnership Agreement also provides that if Limited Partners holding more than 10% in interest propose alternate counsel, such alternate counsel shall render the required opinion. If the Liquidation is approved, but the retention of Nixon Peabody LLP is disapproved, we will propose alternate counsel to the Limited Partners for the rendering of the required legal opinion. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS The federal income tax discussion set forth below addresses the material federal income tax consequences of the Liquidation of a partnership, but does not purport to deal with all aspects of federal income taxation that may be relevant to a particular Limited Partner in the light of such a Limited Partner's personal circumstances. The discussion is directed solely to those who hold the Limited Partner units as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and have acquired such Limited Partner units for investment and not as a dealer or for resale. Further, this discussion may not be applicable to certain classes of taxpayers, including insurance companies, securities dealers, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries thereof, financial institutions, real estate investment trusts, regulated investment companies, tax exempt organizations, trusts or persons who acquired Partnership interests as compensation. This discussion is based upon the Code, Department of Treasury regulations, court decisions, published rulings of the Internal Revenue Service (the "IRS") and other applicable authorities, all as in effect on the date hereof and all of which are subject to change or differing interpretation (possibly on a retroactive basis). 33 Limited Partners are urged to consult their own tax advisors as to the specific tax consequences to them of the Liquidation of the Partnership, including the applicability and effect of federal, state, local and other tax laws. In General. The Partnership, as a partnership for federal income tax purposes, is not subject to federal income tax; rather, each Limited Partner is required to take into account its distributive share of the Partnership's income, gains, losses, deductions, credits and tax preference items in computing such Limited Partner's federal income tax liability for any taxable year of the Partnership ending within or with the taxable year of such Limited Partner, without regard to whether the Limited Partner has received or will receive any distribution from the Partnership. Such distributive share is required to be reported by the Partnership to each Limited Partner on a Schedule K-1. Each Limited Partner is required to report consistently with such Schedule K-1 unless it discloses any inconsistent position to the IRS when it files its federal income tax return. A Limited Partner's distributive share of the Partnership's income or loss is determined in accordance with the allocations set forth in the Partnership Agreement. For federal income tax purposes, the Liquidation consists of two separate components: (1) the sale by the Partnership of its assets; and (2) the distribution of cash to each Limited Partner in liquidation (a "liquidating distribution") of such Limited Partner's interest in the Partnership. Each of these is separately discussed below. Sale of the Partnership's Assets. For federal income tax purposes, each Limited Partner will be required to include in its income its allocable share of the gain or loss realized by the Partnership upon the sale of the Partnership's assets pursuant to the Liquidation. Gain will result primarily from the sale of an Apartment Complex and Apartment Complex related assets ("Apartment Complex Gain"). Apartment Complex Gain which falls within the definition of "depreciation recapture" will be treated as ordinary income for tax purposes. Other Apartment Complex Gain, as well as other items of Partnership gain or loss, will be capital or ordinary gain or loss, depending upon the nature of the asset in the hands of the Partnership. To the extent Apartment Complex Gain qualifies as capital gain, the gain will be taxed at a maximum rate of 25% (or 15% in certain circumstances). To the extent Apartment Complex Gain qualifies as ordinary income, the gain will be taxed at a maximum rate of 35%. Distribution to the Limited Partners. A Limited Partner will recognize gain to the extent the amount of the liquidating distribution received by the Limited Partner exceeds the Limited Partner's tax basis for its Limited Partner units. Any such gain will be capital gain. In general, any such capital gain recognized by an individual, estate or trust will qualify for the 15% maximum tax (5% in the case of a taxpayer in the 15% ordinary income bracket) on capital gains if the Limited Partner units were held by such Limited Partner for more than one year. A Limited Partner's tax basis for its Limited Partner units will be increased by both the Limited Partner's allocable share of any gain realized on the sale of the Partnership's assets (see "-- Sale of the Partnership's Assets") and by the amount of the Limited Partner's allocable share of income from normal Partnership operations for the year of the Liquidation. Nevertheless, a Limited Partner's allocable share of the Partnership cash may exceed its basis for its Limited Partner units, and thereby cause the Limited Partner to recognize gain. 34 For purposes of determining a Limited Partner's adjusted tax basis in its units, an increase in a Limited Partner's share of partnership liabilities is treated as a contribution of cash by that Limited Partner to the Partnership, and thereby results in an increase in the Limited Partner's adjusted tax basis in its Limited Partner units. Conversely, a decrease in a Limited Partner's share of partnership liabilities is treated as a distribution of cash from the Partnership, and thereby results in a decrease in the Limited Partner's adjusted tax basis in its Limited Partner units. To the extent that a decrease in a Limited Partner's share of partnership liabilities results in a deemed cash distribution to the Limited Partner which exceeds the Limited Partner's adjusted tax basis in its Limited Partner units, the Limited Partner will recognize gain to the extent of the excess of the deemed cash contribution over its adjusted tax basis in its Limited Partner units. Accordingly, the possibility of deemed cash distributions should be taken into account in the above paragraph in the same manner as actual cash distributions. A Limited Partner will recognize a capital loss to the extent the amount of the liquidating distribution received by the Limited Partner (including any deemed cash distributions to the Limited Partner attributable to a reduction in the Limited Partner's share of partnership liabilities) is less than the Limited Partner's tax basis for its Limited Partner units, as such basis is adjusted to reflect any gain or loss realized by the Partnership on the sale of its assets and to reflect the Partnership's income or loss from operations for the year of the Liquidation. Capital losses can be deducted, in any year, only to the extent of a Limited Partner's capital gains plus, in the case of certain non-corporate taxpayers, ordinary income up to $3,000. Passive Activity Rules. Limited Partners that are individuals, trusts, estates, closely held corporations or personal service corporations are subject to the passive activity loss limitations rules of Section 469 of the Code. A Limited Partner's allocable share of Partnership income or loss from the sale of the Partnership's assets is generally treated as derived from a passive activity. As a result, a Limited Partner's allocable share of such losses may be used by the Limited Partner in the current taxable year only to offset passive activity income from a Limited Partner's other passive activity investments, with the excess suspended indefinitely. Similarly, a Limited Partner's allocable share of any Partnership gain realized on the sale of its assets is generally characterized as passive activity income that may be offset by passive activity losses from a Limited Partner's other passive activity investments. However, because the liquidating distribution is a fully taxable transaction, Section 469 of the Code generally allows any suspended passive activity losses of the Limited Partner with respect to its investment in the Partnership to be used to reduce other income of the Limited Partner. Tax Treatment of Partnership; Final Partnership Year. The Partnership will recognize no gain or loss by reason of the liquidating distribution. The Partnership's final tax year (the "termination year") will close on the date on which the Certificate of Cancellation is filed with the District of Columbia Department of Consumer and Regulatory Affairs or such later time as specified in the Certificate of Cancellation see "-- Effective Time," and each Limited Partner's distributive share of the Partnership's items of income, gain, loss, deduction and credit for the termination year will be taken into account by the Limited Partner on the Limited Partner's federal income tax return for the Limited Partner's tax year in which the termination year occurs, in accordance with the procedures that applied to previous tax years. Because the Partnership has a calendar tax year, a Limited Partner with a tax year that is other than a calendar year may be required to include such Limited Partner's distributive share of Partnership income for two partnership years in the Limited Partner's tax year in which the termination year occurs. 35 ACCOUNTING TREATMENT The Partnership will prepare financial statements in accordance with generally accepted accounting principles as of and through the date the Certificate of Cancellation is filed by the Partnership and will engage its independent auditors to audit the financial statements. EFFECTIVE TIME The effective time of the Liquidation will occur upon the filing of the Certificate of Cancellation for the Partnership with the District of Columbia Department of Consumer and Regulatory Affairs, or at such later time as may be specified in the Certificate of Cancellation. It is anticipated that such filing will be made as promptly as practicable after the requisite approval of the Limited Partners has been obtained, the assets of the Partnership are sold and the other conditions to the Liquidation have been satisfied or waived, if permitted under the Plan of Liquidation and Dissolution. See, however "-- Risks of the Liquidation -- The Continued Existence of the Partnership due to Litigation or Unresolved Claims." AMENDMENT OF THE PLAN OF LIQUIDATION AND DISSOLUTION Subject to applicable law, the Plan of Liquidation and Dissolution may be amended by the Partnership at any time prior to the filing of the Certificate of Cancellation with the District of Columbia Department of Consumer and Regulatory Affairs, provided that, after approval of the Liquidation by the affirmative vote of holders of a majority of the outstanding Limited Partner units of the Partnership, no amendment may be made which alters or changes the terms and conditions of the Plan of Liquidation and Dissolution if such alteration or change would materially and adversely affect the Limited Partners. NO APPRAISAL RIGHTS Pursuant to the law of the District of Columbia, a partnership agreement may provide for contractual appraisal rights in connection with the sale of all or substantially all of the limited partnership's assets. No such appraisal rights, however, are available for Limited Partners of CRI-I because neither the Partnership Agreement nor the Plan of Liquidation and Dissolution provide for appraisal rights. Accordingly, the approval of the Liquidation by the affirmative vote of the requisite number of Limited Partners will be binding on all of the Partnership's Limited Partners. 36 REGULATORY APPROVALS No United States federal or state regulatory requirements must be complied with or approvals obtained in connection with CRI-I's liquidation and dissolution. 37 ------------------------------- THE PARTNERSHIP AND THE GENERAL PARTNERS ------------------------------- CRI-I is a limited partnership which was formed under the District of Columbia Limited Partnership Act as of June 1, 1981. On December 31, 1981, the Partnership commenced a public offering for 30,000 units of limited partnership interests. The Partnership sold a total of 24,837 Limited Partner units. As of December 31, 2005, a total of 90 Limited Partner units have been abandoned. The Partnership was formed to invest in real estate by acquiring, holding, selling, disposing of and otherwise dealing with limited partner interest in Local Partnerships, which in turn develop, own and operate multi-family apartment complexes (the "Apartment Complexes"). The original objectives of these investments, not necessarily in order of importance, were to: (i) preserve and protect the Partnership's capital; (ii) provide current tax benefits to the Partners in the form of tax losses during the early years of the Partnership's operations and equity buildup through periodic payments on the indebtedness secured by the Apartment Complexes; (iii) provide capital appreciation through increases in the value of the Partnership's investments; and (iv) provide cash distributions from the sale or refinancing of the Partnership's investments and, on a limited basis, from rental operations. The Partnership originally made investments in 18 Local Partnerships. As of April 1, 2006, the Partnership retained investments in 13 Local Partnerships. CRI-I's principal place of business is 11200 Rockville Pike, Suite 500, Rockville, Maryland, 20852, and its telephone number at such address is (301) 468-9200. 38 The following table describes the Apartment Complexes as of April 1, 2006. The table does not reflect Apartment Complexes that had been sold. SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS IN WHICH CRI-I HAS AN INVESTMENT AT APRIL 1, 2005 (1) Name and Location Number of Of Apartment Complex Rental Units ---------------------- ------------ Capitol Commons 200 Lansing, MI Chestnut 90 Fresno, CA Court Place 160 Pekin, IL Frederick Heights 156 Frederick, MD Hillview Terrace 125 Traverse City, MI Linden Place 190 Arlington Heights, IL New Sharon Woods Apts. 50 Deptford, NJ Park Glen 125 Taylorville, IL Shallowford Oaks 204 Chamblee, GA Sundance Apts. 60 Bakersfield, CA Tandem Townhouses 48 Fairview Borough, PA Warner House 60 Warren, OH Westwood Village 48 New Haven, CT TOTAL 1,516 ===== (1) All properties are multifamily housing complexes. No single tenant rents 10% or more of the rentable square footage. Residential leases are typically one year or less in length, with varying expiration dates, and substantially all rentable space is for residential purposes. 39 THE GENERAL PARTNERS Managing General Partner. C.R.I., Inc., the Managing General Partner, is a Delaware corporation which was organized in 1974 and has its principal place of business in Rockville, Maryland. C.R.I., Inc. serves or served as a general partner in over 200 partnerships which have offered and sold limited partnership interests totaling over $1 billion. General Partners. The remaining General Partners are current or former directors, executive officers or shareholders of the Managing General Partner (Martin C. Schwartzberg retired in 1990 and does not participate in management). Listed below is the biographical information of the individuals currently involved in CRI-I's management and Mr. Schwartzberg. William B. Dockser, 69, has been the Chairman of the Board and a Director of CRI since 1974. Prior to forming CRI, he served as President of Kaufman and Broad Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed publicly held limited partnerships created to invest in low and moderate income multifamily apartment properties. Prior to joining Kaufman and Broad, he served in various positions at HUD, culminating in the post of Deputy FHA Commissioner and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where he was responsible for all federally insured housing production programs. Before coming to the Washington, D.C. area, Mr. Dockser was a practicing attorney in Boston and served as a special Assistant Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of Laws degree from Yale University Law School and a Bachelor of Arts degree, cum laude, from Harvard University. H. William Willoughby, 59, has been President, Secretary and a Director of CRI since January 1990 and was Senior Executive Vice President, Secretary and a Director of CRI from 1974 to 1989. He is principally responsible for the financial management of CRI and its associated partnerships. Prior to joining CRI in 1974, he was Vice President of Shelter Corporation of America and a number of its subsidiaries dealing principally with real estate development and equity financing. Before joining Shelter Corporation, he was a senior tax accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master of Business Administration degree and a Bachelor of Science degree in Business Administration from the University of South Dakota. Martin C. Schwartzberg, 64, served as President and Director of CRI before his retirement in 1990. Prior to founding CRI in 1974, he served as Executive Vice President of Kaufman and Broad Asset Management, Inc. He previously served at the United States Department of Housing and Urban Development in various senior advisory positions. Since leaving CRI in 1990, he has worked as President of National Foundation for Affordable Housing Solutions. He holds an LLB degree from George Washington University and a Bachelor of Arts from the College of Emporia. Fiduciary Duties of the General Partners. The General Partners of the Partnership have fiduciary duties to the Partnership under District of Columbia law in addition to the specific duties and obligations imposed upon them under the Partnership Agreement. Subject to the terms of the Partnership Agreement, the General Partners, in managing the affairs of the Partnership, are expected to exercise good faith and integrity with respect to the affairs of the Partnership, must make full disclosure in their dealings with the Partnership and must disclose to the Partnership any benefit or profit derived by them from any transaction connected with the Partnership. Under these fiduciary duties, the General Partners are obligated to act in the best interests of the Partnership, especially where consummation of such transactions may result in their interests being opposed to, or not aligned with, the interests of the Limited Partners. 40 Role of the General Partners. The Managing General Partner generally manages and controls the day to day operations of the Partnership, and has general responsibility and overall authority over matters affecting the interests of the Partnership. The Managing General Partner is responsible for cash management, filing of tax returns, all accounting and recordkeeping, and all communications between the Partnership and the Limited Partners. The General Partners have joint and several liability for the Partnership's obligations. However, by contract among the General Partners, Martin C. Schwartzberg has not played an active role in the Partnership's management since he retired from CRI in 1990. Role of the Limited Partners. Limited Partners of the Partnership may not participate in management of the Partnership without subjecting themselves to potential liability as a general partner. THE INITIAL LIMITED PARTNERS The initial limited partners were Dean A. Jacobsen, a former employee of CRI (who subsequently transferred his interest to Susan Jacobsen in 2003), and Rockville Pike Associates Limited Partnership (f/k/a Rockville Pike Associates Ltd.), a limited partnership formed under the Uniform Limited Partnership Act of the State of Maryland in 1981, as said limited partnership is constituted from time to time. Its general partners are Dockser, Schwartzberg and Willoughby, and its limited partners consist of former CRI employees. FEES OF THE GENERAL PARTNERS In accordance with the Partnership Agreement, the one or more of the General Partners or their affiliates receive or received the following fees: Acquisition Fee and Initial Management Fee. In accordance with the Partnership Agreement, the Partnership paid CRI a fee for services in with the review, selection, evaluation, negotiation and acquisition of the interests in Local Partnerships. This fee amounted to $993,480, which was capitalized and is being amortized over a 40-year period using the straight-line method. 41 Expense Reimbursement and Additional Management Fee payable to the Managing General Partner or Affiliate for Managing the Business of the Partnership. The Managing General Partner or its affiliates are reimbursed for direct travel and telephone expenses on Partnership business and direct out-of-pocket expenses incurred in rendering legal, accounting, bookkeeping, computer, printing and public relations services, which services could be performed by independent parties. The Partnership paid the Managing General Partner $190,152 in 2005 as direct reimbursement of expenses incurred on behalf of the Partnership and $136,701 in 2004. In addition, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee after the payment of all other Partnership expenses. For each of the years ended December 31, 2005 and 2004, the Partnership paid the Managing General Partner a Management Fee of $95,208. Apartment Complex Management Fees Payable to an Affiliate of the Managing General Partner Partners by the Local Partnerships. Affiliates of the Managing General Partner may provide on-site property management services with respect to the Apartment Complexes. Such property management fees, together with any amounts reimbursed to any affiliates for property management which are allocable to the Apartment Complex, shall not exceed 5% of the Apartment Complex's gross rental income, unless a higher amount has been approved by HUD, the state agency or the mortgage lender for the Apartment Complex. An affiliate of the Managing General Partner is a joint venture member of the entity that is the property management agent for the Frederick Heights Apartment Complex. From July 2005 when the contract commenced, through January 1, 2006, the affiliate has received $16,022 from the joint venture for its share of the property management services at Frederick Heights. Fees Payable to the Individual General Partners upon Sales of Local Partnership Interests or Apartment Complexes. The individual General Partners only (not CRI) are currently entitled to an aggregate fee for their services to the Partnership equal to 1% of the gross proceeds resulting from the sale of an Apartment Complex, which selling price includes: (i) any cash down payments received by the Local Partnerships; (ii) the amounts of any assumed mortgage indebtedness on the Apartment Complexes Such fee is payable to the individual General Partners only after: (1) the Limited Partners have received a return of their Capital Contributions to the Partnership ("Capital Contributions"), without deduction for prior cash distributions other than prior distributions of Sale and Refinancing Proceeds ["Limited Partners" includes the Initial Limited Partners]; (2) the repayment of any unrepaid loans made by any Partner or any Affiliate to the Partnership or other amounts owing to the General Partners under the Agreement; and (3) the return of Capital Contributions to the General Partners. 42 CRI believes that the original 1% fee represented compensation for addressing a general disposition strategy, reviewing sale proposals made by Local General Partners and analyzing the effect of such proposals on the Partnership and the Limited Partners. It did not originally contemplate further involvement in the sales process, because it anticipated that Local General Partners, brokers and real estate consultants would be responsible for finding buyers, performing due diligence on prospective purchasers, negotiating terms, and executing sales. CRI originally intended that the unaffiliated Local General Partners of the Local Partnerships and/or nonaffiliated real estate agents would perform these services. The Partnership Agreement was amended in 1993 to allow CRI to receive the Local Partnership Sales Fee of up to 2% of the sales price, subject to certain limitations, in connection with the sale of Apartment Complexes. However, this rate is below the rate charged by unaffiliated brokers. Also, CRI has developed more expertise than many commercial brokers with respect to multifamily housing sales, particularly of government-assisted housing. Consequently, we are seeking your authorization to amend the Partnership Agreement to permit CRI to be eligible to receive a Disposition Fee of up to 5% of the sales price of Apartment Complexes for its efforts in marketing and selling the Apartment Complexes (which would be payable to CRI on the same basis as such a fee being paid to third parties). The overall cap on the amount of commissions or property disposition fees equal to the lesser of the competitive rate for such services or 6% of the sales prices of the Apartment Complexes would still apply. In other words, if CRI receives the proposed Disposition Fee, the Limited Partners would receive the same net distribution upon the sale of Apartment Complexes as if an unrelated third party had performed the same services and received a market rate fee for doing so. As with the payment of a sales commission to a third party real estate broker, this incentive fee is payable upon the sale of a Partnership property and would not be deferred. Consequently, the fee would be considered a debt of the Partnership, payable prior to any return of capital or preferred return to the Limited Partners. In addition, Dockser and Willoughby will waive their respective portions of the currently authorized property disposition fee of 1%. We are also seeking your authorization to amend the Partnership Agreement to permit CRI to be eligible to receive a $500,000 Partnership Liquidation Fee if it completes the sale of all of the Partnership's investments within 48 months from the date that the Liquidation is approved. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Amendments to the Partnership Agreement -- Interests of Certain Persons in the Liquidation." MARKET FOR THE LIMITED PARTNER UNITS The Limited Partner units are not listed on any national or regional securities exchange or quoted on the Nasdaq Stock Market, and there is no established public trading market for the Limited Partner units. Secondary sales activity for the Limited Partner units has been limited and sporadic. 43 ---------------------------------- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ---------------------------------- GENERAL As of the record date, the Equity Resource Investments LLC and its affiliates owned 5029.25 Limited Partner units, or approximately 20.32% of the outstanding Limited Partner units. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION - Background and Reasons for the Liquidation." OWNERSHIP INTERESTS OF THE GENERAL PARTNERS IN THE PARTNERSHIP - ------------------ The following table sets forth certain information concerning all Limited Partner units of the Partnership directly or beneficially owned as of April 1, 2006 by each General Partner, each director of the Managing General Partner, and by all directors and officers of the Managing General Partner as a group. % of total Name of Amount and Nature Limited Partner Beneficial Owner of Beneficial Ownership units issued ---------------- ----------------------- ---------------- C.R.I., Inc. None 0.00% William B. Dockser None 0.00% H. William Willoughby None 0.00% Martin C. Schwartzberg None 0.00% All General Partners, Directors and Officers as a Group (3 persons) None 0.00% 44 CONSENT PROCEDURES ------------------ The consent of each Limited Partner is important. Each Limited Partner is urged to mark, date and sign the enclosed consent card and return it in the enclosed postage prepaid envelope or fax it to MacKenzie Partners at (212) 929-0308. If you require assistance completing the consent card, please call Susan T. Backman, Vice President of Investor Communications of CRI, toll free at 1 (800) 678-1116. TIMING AND VOTE TABULATION OF THE CONSENT SOLICITATION The vote of the Limited Partners with respect to the Liquidation will be tabulated on an ongoing basis until 5:00 p.m., Eastern Time, on the Expiration Date, June __, 2006. The votes will be tabulated by MacKenzie Partners, which is not affiliated with the Partnership or the General Partners. RECORD DATE AND OUTSTANDING LIMITED PARTNER UNITS The Liquidation is being submitted for approval to Limited Partners as of the record date. The record date is April 1, 2006 for the Partnership for determining the Limited Partners entitled to consent to the Liquidation. Accordingly, only record date Limited Partners will be entitled to consent to the Liquidation. At the record date, 24,747 CRI-I Limited Partner units were held of record by approximately 1,355 Limited Partners. Each Limited Partner is entitled to one vote for each unit of Limited Partner interest held. Accordingly, the number of Limited Partner units entitled to vote with respect to the Liquidation is equivalent to the number of Limited Partner units held of record at the record date. APPROVAL DATE; AMENDMENT This Consent Solicitation Statement and enclosed consent card constitute the General Partners' notice to Limited Partners of the Liquidation. Each Limited Partner has until 5:00 p.m., Eastern Time on the Expiration Date to inform the vote tabulator whether such Limited Partner wishes to vote for, against or abstain from voting on the Liquidation. We ask that each Limited Partner vote by completing and returning the enclosed consent card accompanying this Consent Solicitation Statement in the manner described below. Notwithstanding anything to the contrary set forth in this Consent Solicitation Statement, CRI reserves the right, at any time prior to effectiveness of the Liquidation, to amend or terminate the solicitation, or to delay accepting consent cards. 45 CONSENT CARD AND VOTE REQUIRED Approval of the Liquidation by the Partnership requires the affirmative vote of a majority of the 24,747 outstanding Limited Partner units of the Partnership as of the record date. Accordingly, 12,374 Limited Partner units must be voted in favor of the Liquidation for it to be approved by the Partnership. Limited Partners who wish to vote "FOR" the Liquidation should complete, sign and return the consent card. A consent card has been prepared for each Limited Partner and is enclosed with this Consent Solicitation Statement. Consent cards must be delivered in person, by mail, by facsimile or other delivery service to the consent solicitation agent at the following address on, or prior to, 5:00 p.m., Eastern Time, on the Expiration Date, June ___, 2006: If in person, or by mail: If by facsimile: MacKenzie Partners, Inc. (212) 929-0308 105 Madison Avenue New York, NY 10016 -------------------------------------------------------- If you require assistance completing the consent card, please call Susan T. Backman, Vice President of Investor Communications of CRI, toll free at (800) 678-1116. A consent card shall be deemed to have been "returned" to the Partnership on the date that it is delivered in person, by facsimile or received by MacKenzie Partners via mail or other delivery service. Limited Partners who sign and return the consent card without indicating any vote will be deemed to have voted "FOR" both of the proposals listed thereon. The failure to return a consent card or abstaining from voting with respect to any of the proposals involved in the Liquidation will have the same effect as a vote "AGAINST" the Liquidation. Limited Partners who wish to vote "AGAINST" any or all of the proposals should also complete and return the consent card in the manner described above. A Limited Partner who abstains from voting, fails to return the consent card, or votes "AGAINST" will receive such Limited Partner's share of the distribution of the Partnership's Liquidation if: (1) the holders of a majority of the outstanding Limited Partner units in the Partnership approve the Liquidation; and (2) all other conditions for the consummation of the Liquidation are satisfied. Limited Partners will not be entitled to appraisal rights. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- No Appraisal Rights." The delivery of a consent card will not affect a Limited Partner's right to sell or transfer such person's Limited Partner units in the Partnership. 46 All questions as to the form of all documents and the validity (including time of receipt) of all approvals will be determined by the Managing General Partner. Such determinations shall be final and binding. The Managing General Partner reserves the absolute right to waive any of the conditions of the Liquidation or any defects or irregularities in any approval of the Liquidation or preparation of the form of consent card. The Managing General Partner's interpretation of the terms and conditions of the proposed Plan of Liquidation and Dissolution and the Partnership Amendments will be final and binding. The Managing General Partner shall be under no duty to give notification of any defects or irregularities in any approval of the Liquidation or preparation of the form of consent card and shall not incur any liability for failure to give such notification. REVOCABILITY OF CONSENT Limited Partners may withdraw or revoke their consent as to any or all of the proposals listed on the consent card at any time prior to 5:00 p.m., Eastern Time on the Expiration Date. To be effective, a written or facsimile revocation or withdrawal of the consent card must be received by the consent solicitation agent prior to such time and addressed as follows: MacKenzie Partners, Inc., 105 Madison Avenue, New York, NY 10016, or by facsimile to (212) 929-0308. A notice of revocation or withdrawal must specify the Limited Partner's name, the number of Limited Partner units being withdrawn and to which proposal or proposals the revocation applies. SOLICITATION OF CONSENTS; SOLICITATION EXPENSES Votes of Limited Partners may be solicited by the Managing General Partner. Costs of solicitation will be paid by the Partnership. See "WHAT YOU SHOULD KNOW BEFORE VOTING ON THE LIQUIDATION -- Liquidation Expenses." The Partnership has retained MacKenzie Partners, Inc., as the consent solicitation agent. The Managing General Partner or MacKenzie Partners, Inc. will administer the delivery of information to Limited Partners. MacKenzie Partners, Inc. will be paid regardless of the outcome of the vote. EFFECT OF A FAILURE TO APPROVE THE LIQUIDATION If the requisite number of Limited Partner units does not approve the Liquidation, then the Partnership will continue to operate as a legal entity with its assets and liabilities. CRI does not anticipate taking any steps to increase liquidity to the Partnership in the near term, and, consistent with its fiduciary duties, will re-evaluate the market conditions periodically to examine other opportunities available to the Partnership's Limited Partners prior to the termination date of the Partnership set forth in the Partnership Agreement. There will be no change in its investment objectives, policies and restrictions, and the Partnership will continue to be operated in accordance with the terms of the Partnership Agreement. 47 INCORPORATION BY REFERENCE The Partnership is subject to the informational requirements of Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, statements and other information can be inspected and copied at prescribed rates from the public reference facilities maintained by the Commission at 100 F Street, NE, Washington, D.C., 20549 Such material may also be accessed on the World Wide Web through the Commission's Internet addresses at http://www.sec.gov. The following documents filed with the Commission by the Partnership (File No. 000-11149) pursuant to the Securities Exchange Act of 1934, as amended, are incorporated by reference in this Consent Solicitation Statement and are delivered herewith: 1. CRI-I's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005; and 2. CRI-I's Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2005, June 30, 2005, and September 30, 2005. A copy of the Partnership's Annual Report on Form 10-KSB and Quarterly Report on Form 10-QSB are available without charge upon written request to CRI's Investment Communications Group at 11200 Rockville Pike, Suite 500, Rockville, MD 20852. No persons have been authorized to give any information or to make any representations other than as contained in this Consent Solicitation Statement in connection with the solicitations of consents for the Liquidation and, if given or made, such information or representations must not be relied upon as having been authorized by the Partnership. This Consent Solicitation Statement does not constitute the solicitation of consent by anyone in any jurisdiction in which such solicitation is not authorized or in which the person making such solicitation is not qualified to do so or to any person to whom it is unlawful to make such solicitation. The delivery of this Consent Solicitation Statement shall not under any circumstances create an implication that there has been any change in the affairs of the Partnership since the date hereof or that the information herein is correct as of any time subsequent to its date. 48 ---------- APPENDICES ---------- Appendix A -- Form of Plan of Liquidation and Dissolution Appendix B -- Form of Legal Opinion of Nixon Peabody LLP 49 Appendix A PLAN OF LIQUIDATION AND DISSOLUTION OF CAPITAL REALTY INVESTORS, LTD. This Plan of Liquidation and Dissolution (the "Plan") dated as of April ___, 2006 of Capital Realty Investors, Ltd. (the "Partnership"), a limited partnership organized and existing under the laws of the District of Columbia, is for the purpose of effecting the complete liquidation and dissolution of the Partnership in accordance with the laws of the District of Columbia. 1. Intention of the General Partners. C.R.I, Inc., as the Managing General Partner, and its shareholders, William B. Dockser and H. William Willoughby, who are also individual General Partners, believe that the liquidation and dissolution (the "Liquidation") of the Partnership at this time is in the best interest of the Partnership and its Limited Partners. Therefore, three of the four General Partners have submitted this Plan to the Limited Partners for their consent to liquidate and dissolve the Partnership in accordance with Section 8.02 of the Limited Partnership Agreement of the Partnership dated as of March 23, 1982 (the "Partnership Agreement"). (Martin C. Schwartzberg is also a General Partner but has not played an active role in the management of the Partnership since he retired from CRI in 1990, so his recommendation was not sought by the other General Partners.) 2. Effectiveness. The Plan shall be effective upon the approval hereof by the affirmative vote of more than 50% of the outstanding Limited Partner units of the Partnership as required by the Partnership Agreement. Until such time as the Limited Partners approve this Plan, the Managing General Partner shall not take and shall not cause the Partnership to take any of the actions, and shall not do or cause the Partnership to do, any of the things provided herein, provided that the foregoing shall in no event limit the right of the Managing General Partner to sell, on behalf of the Partnership, single Apartment Complexes (or the Partnership's interest therein) in one or more unrelated transactions. 3. Dissolution. In accordance with the Partnership Agreement, one hundred eighty days after the sale or other disposition of all Local Partnership interests and substantially all other tangible assets of the Partnership, the Partnership shall be dissolved without any further action by or on behalf of the Partnership, the Limited Partners or the Managing General Partner. 4. Winding Up. The Managing General Partner, as liquidator for the Partnership, shall sell or cause to be sold all of the assets of the Partnership and shall apply the funds of the Partnership (including the proceeds of the sale of any other assets of the Partnership) to (i) the payment of the liabilities of the Partnership, including the expenses of the sale of the assets of the Partnership, and the winding up, liquidation and termination of the Partnership, including any Disposition Fee and Partnership Liquidation Fee (if the latter is approved) to the Managing General Partner, upon the terms and conditions set forth in Section 4.02 of the Partnership's Limited Partnership Agreement, as amended; (ii) the expenses of preparation, filing and distribution of financial statements, tax returns, reports required under the Securities Exchange Act of 1934 (the "Exchange Act") and reports to Limited Partners, including fees and expenses of accountants and lawyers; (iii) the payment of all income, sales, use, franchise, gross receipts, ad valorem, personal property and other taxes, imports, duties and governmental charges payable by the Partnership with respect to its income or operations through the time of its termination ("Taxes"), including Taxes with respect to the sale of the Partnership's assets; and (iv) the creation of reserves for any of the foregoing. 50 5. Liquidation. All assets and funds of the Partnership remaining after the payments provided for by paragraph 4, and any amounts reserved by the Managing General Partner pursuant to clause (iv) of paragraph 4 and determined by the Managing General Partner to be in excess of the amounts required therefor, shall be distributed by the Managing General Partner as set forth in Section 4.02 of the Partnership Agreement, as amended. 6. Cancellation of Interests in the Partnership. Liquidating distributions shall be made in complete cancellation of all of the Limited Partners' interests in the Partnership. 7. Reports and Filings. In connection with the Liquidation and winding up of the Partnership, the Managing General Partner shall cause to be executed and timely filed (i) with the office of the District of Columbia Department of Consumer and Regulatory Affairs, a Certificate of Cancellation canceling the Partnership's Certificate of Limited Partnership; (ii) with the Internal Revenue Service, all returns, reports, documents, certificates and other information required under the Internal Revenue Code of 1986, as amended, or applicable Treasury Department rules or regulations; (iii) with the appropriate authorities in any other tax jurisdiction, all returns, reports, documents, certificates and other information required under the laws of such jurisdictions; (iv) with the Securities and Exchange Commission, any reports required under the Exchange Act, including a Form 15 terminating the registration of the Partnership under the Exchange Act; and (v) all reports required to be delivered to the Limited Partners in accordance with Article 9.04 of the Partnership Agreement. 8. Other Acts. The Managing General Partner shall take, or cause the Partnership to take, such other acts and deeds and shall do, or cause the Partnership to do, such other things, as are necessary or appropriate in connection with the dissolution, winding up and Liquidation of the Partnership, the termination of the responsibilities and liabilities of the Partnership under applicable law, and the termination of the existence of the Partnership. 51 IN WITNESS WHEREOF, the parties hereto have made and executed this Plan as of the date first written above. C.R.I., INC. AS MANAGING GENERAL PARTNER OF CAPITAL REALTY INVESTORS, LTD. By: ---------------------------------------------- Name: William B. Dockser Title: Chairman and By: ---------------------------------------------- Name: H. William Willoughby Title: President 52 Appendix B Form of Opinion ______________________, 2006 Limited Partners of Capital Realty Investors, Ltd. Re: Exercise of Voting Rights in connection with Consent Solicitation ----------------------------------------------------------------- Statement --------- We represent Capital Realty Investors, Ltd. (the "Limited Partnership") in connection with the proposed solicitation of consents on the proposals outlined in the Consent Solicitation Statement dated April ___, 2006 (the "Consent Solicitation Statement"). We have been asked to render the opinion required pursuant to Section 10.03 of the Limited Partnership Agreement of the Limited Partnership dated as of March 23, 1982 (the "Limited Partnership Agreement"). Although we have acted as special counsel to the Limited Partnership with respect to the Consent Solicitation Statement, we do not act as counsel to the Limited Partnership as to all matters and, therefore, may be unaware of certain of its business dealings. We have reviewed the following documents in connection with the opinions rendered below: 1. The Consent Solicitation Statement; and 2. The Limited Partnership Agreement. In addition, we have reviewed the following statutes and regulations and relevant judicial and administrative interpretations thereof: 1. The District of Columbia Revised Uniform Limited Partnership Act ("DCRULPA"), as currently in effect, and related District of Columbia case law; and 2. The United States Internal Revenue Code, as currently in effect, and related regulations, rulings and case law. In such examinations, we have assumed the genuineness of signatures on documents and instruments, the authenticity of documents submitted to us as originals, the conformity to originals of documents submitted to us as copies and the truthfulness of all statements of fact contained therein. As to certain factual matters involved in rendering the opinions set forth herein, we have relied upon certificates of certain governmental authorities setting forth such matters, signed by an official or authorized representative of the particular government or authority, and certificates and representations of officers of the Managing General Partner of the Limited Partnership. 53 Based solely upon the above review, it is our opinion that: 1. The exercise of the voting rights pursuant to Sections 5.04(c) and (e) and 10.02(a) of the Limited Partnership Agreement by the Limited Partners contemplated by the Consent Solicitation Statement is authorized under the provisions of the Limited Partnership Agreement and the DCRULPA. 2. The exercise of such voting rights by Limited Partners will not subject the Limited Partners to liability as general partners under the DCRULPA. 3. The exercise of such voting rights may be effected without changing the status of the Limited Partnership as a partnership for tax purposes. Members of our firm are members of the Bar of the District of Columbia, and the opinions expressed herein are limited to the laws of the District of Columbia (not including the state securities or blue sky laws of the District of Columbia) and the federal laws of the United States of America. We assume no obligations to supplement this opinion if any applicable laws change after the date hereof or if we become aware of any facts that might change the opinions expressed herein after the date hereof. The addressees may rely on this opinion in connection with the exercise of their voting rights as herein described. No other person may rely on this opinion without our prior written consent. Yours truly, Nixon Peabody LLP 54 -----END PRIVACY-ENHANCED MESSAGE-----