-----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, RmMF3W7wtyTKkf6GHkgcYW3g9I1+/NxZ3q7LBVKEDFGqUQsg+taz9nF6javy3ekk EmVlJMlcgerjRaGsxL5MAw== 0000354521-07-000063.txt : 20070926 0000354521-07-000063.hdr.sgml : 20070926 20070926155138 ACCESSION NUMBER: 0000354521-07-000063 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070926 DATE AS OF CHANGE: 20070926 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11149 FILM NUMBER: 071136615 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 10KSB/A 1 f10ksba_123106-cri1.txt AMENDED ANNUAL REPORT - -------------------------------------------------------------------------------- U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-KSB/A ------------------ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 ------------------ Commission file number 0-11149 CAPITAL REALTY INVESTORS, LTD. Organized pursuant to the Laws of the District of Columbia ------------------ Internal Revenue Service - Employer Identification No. 52-1219926 11200 Rockville Pike, Rockville, Maryland 20852 (301) 468-9200 ------------------ Securities registered under Section 12(g) of the Exchange Act: UNITS OF LIMITED PARTNER INTEREST ------------------ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB/A or any amendment to this Form 10-KSB/A [X] State issuer's revenues for its most recent fiscal year $1,261,773. The units of limited partner interest of the registrant are not traded in any market. Therefore, the units of limited partner interest had neither a market selling price nor an average bid or asked price within the 60 days prior to the date of this filing. - -------------------------------------------------------------------------------- Explanatory Note This Amendment to the Partnership's Annual Report of Form 10-KSB for the fiscal year ended December 31, 2006 (the "Form 10-KSB/A) is being filed to include 2005 reports of other auditors that were referenced in the principal auditors' report, which were inadvertently omitted from the Partnership's Annual Report of Form 10-KSB for the fiscal year ended December 31, 2006 filed on April 17, 2007. All of the financial statements included herein are unchanged from those included in the Partnership's Form 10-KSB. - -------------------------------------------------------------------------------- CAPITAL REALTY INVESTORS, LTD. 2006 ANNUAL REPORT ON FORM 10-KSB/A TABLE OF CONTENTS Page PART I Item 1. Business........................................................ I-1 Item 2. Properties...................................................... I-5 Item 3. Legal Proceedings............................................... I-5 Item 4. Submission of Matters to a Vote of Security Holders............. I-5 PART II Item 5. Market for the Registrant's Partnership Interests and Related Partnership Matters .............................. II-1 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... II-2 Item 7. Financial Statements............................................ II-5 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure........................ II-6 Item 8A. Controls and Procedures......................................... II-6 Item 8B. Other Information............................................... II-6 PART III Item 9. Directors and Executive Officers of the Registrant.............. III-1 Item 10. Executive Compensation.......................................... III-1 Item 11. Security Ownership of Certain Beneficial Owners and Management................................................ III-2 Item 12. Certain Relationships and Related Transactions.................. III-3 Item 13. Exhibits........................................................ III-3 Item 14. Principal Accountant Fees and Services.......................... III-4 Signatures................................................................ III-5 Report of Independent Registered Public Accounting Firm................... III-6 Financial Statements...................................................... III-7 PART I ------ ITEM 1. BUSINESS -------- Capital Realty Investors, Ltd. (the Partnership) is a limited partnership which was formed under the District of Columbia Limited Partnership Act on June 1, 1981. On December 31, 1981, the Partnership commenced offering 30,000 units of limited partner interest through a public offering which was managed by Merrill Lynch, Pierce, Fenner & Smith, Incorporated. The Partnership closed the offering on December 31, 1982, at which time 24,837 units of limited partner interest had become subscribed. As of December 31, 2006, 90 units of limited partner interest had been abandoned. The General Partners of the Partnership are C.R.I., Inc. (CRI), which is the Managing General Partner, current and former shareholders of CRI and Rockville Pike Associates, Ltd., a Maryland limited partnership which includes the shareholders of CRI and certain former officers and employees of CRI. Services for the Partnership are performed by CRI, as the Partnership has no employees of its own. The Partnership was formed to invest in real estate, which is the Partnership's principal business activity, by acquiring and holding limited partner interests in limited partnerships (Local Partnerships). The Partnership originally made investments in eighteen Local Partnerships. As of December 31, 2006, the Partnership retained investments in twelve Local Partnerships. Each of these Local Partnerships owns a federal or state government-assisted apartment complex, which provides housing principally to the elderly and/or to individuals and families of low or moderate income. The original objectives of these investments, not necessarily in order of importance, were to: (i) preserve and protect the Partnership's capital; (ii) provide, during the early years of the Partnership's operations, current tax benefits to the partners in the form of tax losses which the partners could use to offset income from other sources; (iii) provide capital appreciation through increases in the value of the Partnership's investments and increased equity through periodic payments on the indebtedness of the apartment complexes; and (iv) provide cash distributions from sale or refinancing of the Partnership's investments and, on a limited basis, from rental operations. See Part II, Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of factors affecting the original investment objectives. The Local Partnerships in which the Partnership invested were organized by private developers who acquired the sites, or options thereon, applied for mortgage financing and applicable mortgage insurance and/or subsidies, and who generally remain as the local general partners in the Local Partnerships. In most cases, the local general partners of the Local Partnerships retain responsibility for maintaining, operating and managing the projects. However, under certain circumstances, the Local Partnerships' partnership agreements permit removal of the local general partner and replacement with another local general partner or with an affiliate of the Partnership's Managing General Partner. On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could 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 instead of such persons (a "Disposition Fee"). I-1 PART I ------ ITEM 1. BUSINESS - Continued -------- The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner has received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.

As a result of its investment in the Local Partnerships, the Partnership became the principal limited partner in eighteen (twelve remaining as of December 31, 2006) Local Partnerships. As a limited partner, the Partnership's legal liability for obligations of the Local Partnerships is limited to its investment. In most cases, an affiliate of the Managing General Partner of the Partnership is also a general partner of the Local Partnerships. The local general partners and affiliates of the Managing General Partner may operate other apartment complexes which may be in competition for eligible tenants with the Local Partnerships' apartment complexes. Although each of the Local Partnerships in which the Partnership invested owns an apartment complex that must compete in the market place for tenants, interest subsidies and/or rent supplements from governmental agencies generally make it possible to offer certain of the dwelling units to eligible tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units. Based on available data, the Managing General Partner believes there to be no material risk of market competition in the operations of the apartment complexes described below which would adversely impact the Partnership. I-2 PART I ------ ITEM 1. BUSINESS - Continued -------- A schedule of the apartment complexes owned by Local Partnerships in which the Partnership has an investment as of December 31, 2006, follows.

(continued) I-3 PART I ------ ITEM 1. BUSINESS - Continued --------

(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. (2) The amounts provided are the balances of first mortgage loans payable by the Local Partnerships as of December 31, 2006. (3) The mortgage note was restructured in accordance with HUD's Mark-to-Market Program in September 2006. The Section 8 HAP contract was extended through September 1, 2026, subject to annual availability of funding by Congress. (4) The mortgage note was restructured in accordance with HUD's Mark-to-Market Program in February 2003. The Section 8 HAP contract was extended through December 31, 2022, subject to the annual availability of funding by Congress. (5) The totals for the percentage of units occupied and the average effective annual rental per unit are based on a simple average. On December 30, 2005, the property owned by Lihue Gardens was sold. See the notes to financial statements for additional information concerning the sale. On December 20, 2006, the Partnership's interest in Sundance Apartments was sold. See the notes to financial statements for additional information concerning the sale. On March 30, 2007, Frederick Heights was sold. See the notes to financial statements for additional information concerning the sale. I-4 PART I ------ ITEM 2. PROPERTIES ---------- Through its ownership of limited partner interests in Local Partnerships, Capital Realty Investors, Ltd., indirectly holds an interest in the real estate owned by the Local Partnerships. See Part I, Item 1, for information concerning these properties. ITEM 3. LEGAL PROCEEDINGS ----------------- There are no material pending legal proceedings to which the Partnership is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of 2006. On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could 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 instead of such persons (a "Disposition Fee"). The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner has received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.

I-5 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS ------------------------------------------------- AND RELATED PARTNERSHIP MATTERS ------------------------------- (a) There is no established market for the purchase and sale of units of limited partner interest (Units) in the Partnership, although various informal secondary market services exist. Due to the limited markets, however, investors may be unable to sell or otherwise dispose of their Units. (b) As of April 17, 2007, there were approximately 1,312 registered holders of Units in the Partnership. (c) On March 20, 2006, the Partnership made a cash distribution of $1,435,326 ($58 per Unit) to the Limited Partners who are holders of record as of March 1, 2006. The distribution consisted of proceeds received from the sale of the property owned by Lihue Gardens. II-1 PART II ------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Capital Realty Investors, Ltd.'s (the Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations section is based on the financial statements, and contains information that may be considered forward looking, including statements regarding the effect of governmental regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including national and local economic conditions, the general level of interest rates, governmental regulations affecting the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, and the availability of working capital. Critical Accounting Policies ---------------------------- The Partnership has disclosed its selection and application of significant accounting policies in Note 1 of the notes to financial statements included in this annual report on Form 10-KSB/A at December 31, 2006. The Partnership accounts for its investments in partnerships (Local Partnerships) by the equity method because the Partnership is a limited partner in the Local Partnerships. As such the Partnership has no control over the selection and application of accounting policies, or the use of estimates, by the Local Partnerships. Environmental and operational trends, events and uncertainties that might affect the properties owned by the Local Partnerships would not necessarily have a significant impact on the Partnership's application of the equity method of accounting, since the equity method has been suspended for six Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those Local Partnerships. New Accounting Pronouncements ----------------------------- In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 requires quantification of errors using both a balance sheet approach and an income statement approach in the determination of materiality in relation to a misstatement. SAB No. 108 is effective the first fiscal year ending after November 15, 2006. Management believes SAB No. 108 will not have any impact on the Partnership. In September 2006, the Financial Accounts Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes a formal framework for measuring fair value under generally accepted accounting principles. Although SFAS No. 157 applies (amends) the provisions of existing FASB and AICPA pronouncements, it does not require any new fair value measurements, nor does it establish valuation standards. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management has determined that SFAS No. 157 will have no material impact to the Partnership. General ------- The Partnership has invested, through Local Partnerships, primarily in federal or state government-assisted apartment complexes intended to provide housing to the elderly and/or to low and moderate income tenants. In conjunction with such governmental assistance, which includes federal and/or state financing at below-market interest rates and rental subsidies, the Local Partnerships agreed to regulatory limitations on (i) cash distributions, (ii) use of the properties, and (iii) sale or refinancing. These limitations typically were designed to remain in place for the life of the mortgage. II-2 PART II ------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- The original investment objectives of the Partnership primarily were to deliver tax benefits, as well as cash proceeds upon disposition of the properties, through the Partnership's investment in Local Partnerships. Regulatory restrictions on cash distributions from the properties limited the original projections of annual cash distributions from property operations. The original investment objectives of the Partnership have been affected by the Tax Reform Act of 1986, which virtually eliminated many of the incentives for the new construction or the sale of existing low income housing properties by limiting the use of passive loss deductions. Therefore, C.R.I., Inc. (the Managing General Partner) continues to concentrate on transferring the source of investment yield from tax benefits to cash flow wherever possible, thereby potentially enhancing the ability of the Partnership to share in the appreciated value of the properties. C.R.I., Inc. (the Managing General Partner) continues to evaluate the Partnership's underlying apartment complexes to develop strategies that maximize the benefits to investors. Issues that are at the forefront of the Managing General Partner's strategic planning include: the expiration of Section 8 Housing Assistance Payment (HAP) contracts, the restrictions on properties with state housing agency financing or the U. S. Department of Agriculture's Rural Development agency (RD) financing, the cessation of losses to the Partnership due to the complete depletion of low-income housing accelerated depreciation deductions on the Local Partnerships' properties, and the reduction of mortgage interest deductions as the mortgage loans move closer to maturity. New Sharon Woods Associates (New Sharon Woods) entered into a mortgage restructuring with the U.S. Department of Housing and Urban Development (HUD) and renewed the Section 8 HAP contract effective September 1, 2006 for twenty years, subject to annual appropriations. The Section 8 HAP contract covers all of the apartment units in New Sharon Woods. Most of the Local Partnerships in which the Partnership is invested have mortgage loans financed by various state housing agencies, and one Local Partnership has a mortgage loan financed by the RD agency. Nine of the Local Partnerships have Section 8 HAP contracts in place for all or substantially all of their apartment units, which Section 8 HAP contracts are generally regulated by HUD (the state housing agencies, RD and HUD, collectively, the "Agencies"). Currently, these Section 8 HAP contracts expire from 2012 through 2026, and the Managing General Partner believes that, at expiration, the Agencies will strive to preserve the units as low income, or affordable, housing by exercising their rights under the mortgage and/or regulatory agreement to disallow prepayment of the mortgage or conversion of the units to market rate housing. The Managing General Partner continues to monitor the actions of the Agencies to assess how the Agencies will deal with expiring Section 8 HAP contracts and what impact the Agencies' strategies will have on the operations of the Local Partnerships and, consequently, the impact on the Partnership's investments in the Local Partnerships. In connection with renewals of the HAP Contracts under current law and policy, HUD has determined that the amount of rental assistance payments will be based on market rental instead of above market rentals (as may be the case under existing HAP Contracts). The payments under the renewed HAP Contracts may provide sufficient cash flow to permit owners of these properties to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA"). To address the reduction in payments under HAP Contracts as a result of this new policy, HUD provides for the restructuring of mortgage loans insured by the FHA. An FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the borrower of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. II-3 PART II ------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- Sales of properties with state agency or RD financing will be extremely difficult. Since the Agencies are unlikely to allow mortgage prepayment and/or sale for a conversion to market rate housing, prospective buyers are generally limited to tax credit buyers or not-for-profit organizations. As of December 31, 2006, the carrying amount of the Partnership's investments in Local Partnerships with Section 8 HAP contracts expiring in 2007 was $0. The Managing General Partner is working diligently on behalf of the Partnership to produce the best results possible under these difficult circumstances. While the Managing General Partner cannot predict the outcome for any particular property at this time, the Managing General Partner will continue to work with the Local Partnerships to develop strategies that maximize the benefits to investors. Financial Condition/Liquidity ----------------------------- As of December 31, 2006, the Partnership had approximately 1,330 investors who held a total of 24,747 units of limited partner interest which were originally sold for the aggregate amount of $24,747,000. The Partnership originally made investments in eighteen Local Partnerships, of which twelve remain at December 31, 2006. The Partnership's liquidity, with unrestricted cash resources of $1,441,126 as of December 31, 2006, along with anticipated future cash distributions from the Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of April 17, 2007, there were no material commitments for capital expenditures. During 2006 and 2005, the Partnership received cash distributions of $181,590 and $438,505, respectively, from the Local Partnerships. The Partnership closely monitors its cash flow and liquidity position in an effort to ensure that sufficient cash is available for operating requirements. For the year ended December 31, 2006, existing cash resources and the receipt of distributions from Local Partnerships were adequate to support net cash used in operating activities. Cash and cash equivalents increased $28,436 during 2006, primarily due to sale proceeds received from the sale of the Partnership's interest in Sundance Apartments Associates (Sundance Apartment) and the receipt of distributions from partnerships, partially offset by operating expenses paid in cash. For the years ended December 31, 2006 and December 31, 2005, distributions of $181,590 and $438,505, respectively, were received from Local Partnerships. The Partnership expects to receive a similar amount of distributions from these Local Partnerships in future years. On March 20, 2006, the Partnership made a cash distribution of $1,435,326 ($58 per Unit) to the Limited Partners who are holders of record as of March 1, 2006. The distribution consisted of proceeds received from the sale of the property owned by Lihue Gardens. Results of Operations --------------------- 2006 versus 2005 - ---------------- The Partnership's net income for the year ended December 31, 2006, decreased compared to 2005, primarily due to a decrease in gain on disposition of investment in partnerships and increased general and administrative expenses, partially offset by increases in share of income from partnerships and interest and other revenue. General and administrative expenses increased in 2006 primarily due to higher reimbursed payroll costs and printing cost related to the proxy. Share of income from partnerships increased primarily due to increases in other income at two properties, partially offset by higher operating expenses at one property. Interest revenue increased due to higher rates in 2006. II-4 PART II ------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- For financial reporting purposes, the Partnership, as a limited partner in the Local Partnerships, does not record losses from the Local Partnerships in excess of its investment to the extent that the Partnership has no further obligation to advance funds or provide financing to the Local Partnerships. As a result, the Partnership's share of income from partnerships for the years ended December 31, 2006 and 2005, did not include losses of $189,185 and $166,989, respectively. Distributions of $70,984 and $59,701 received from three Local Partnerships during 2006 and 2005, for which the Partnership's carrying value is zero (equity method suspended), were recorded as increases in the Partnership's share of income from partnerships in the year received. Inflation --------- Inflation allows for increases in rental rates, usually offsetting any higher operating and replacement costs. Furthermore, inflation generally does not impact the fixed rate long-term financing under which the Partnership's real property investments were purchased. Future inflation could allow for appreciated values of the Local Partnerships' properties over an extended period of time as rental revenues and replacement values gradually increase. The combined rental revenues of the Partnership's remaining twelve properties for the five years ended December 31, 2006, follow. Combined rental revenue amounts have been adjusted to reflect property sales and interests transferred during 2006 and prior years.

As a subsequent event, on March 30, 2007, Frederick Heights was sold. See Note 2.c. Property Matters in Part III for further information regarding the sale. ITEM 7. FINANCIAL STATEMENTS -------------------- The information required by this item is contained in Part III. II-5 PART II ------- ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS --------------------------------------------- ON ACCOUNTING AND FINANCIAL DISCLOSURE -------------------------------------- None. ITEM 8A. CONTROLS AND PROCEDURES ----------------------- In February 2007, representatives of the Managing General Partner of the Partnership carried out an evaluation of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not expect that the Partnership's disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Based on the February 2007 evaluation, and subject to the foregoing, the Principal Executive Officer and Principal Financial Officer concluded that the Partnership's disclosure controls and procedures are effective as of the end of the period covered by this report to alert them in a timely manner to any material information relating to the Partnership that must be included in the Partnership's periodic SEC filings, and particularly during the period in which this report is being prepared. In addition, there have been no significant changes in the Partnership's internal control over financial reporting that occurred during the Partnership's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting. ITEM 8B. OTHER INFORMATION ----------------- On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could 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 instead of such persons (a "Disposition Fee"). The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner has received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows. II-6 PART II ------- ITEM 8B. OTHER INFORMATION - Continued -----------------

There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended December 31, 2006, but not reported, whether or not otherwise required by this Form 10-KSB/A at December 31, 2006. II-7 PART III -------- ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- (a) and (b) The Partnership has no directors, executive officers or employees of its own. (a) and (b) The names, ages and business experience of the directors and executive officers of C.R.I., Inc. (CRI), the Managing General Partner of the Partnership, follow. William B. Dockser, 70, 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, 60, 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. Effective May 7, 2005, he assumed the duties of Principal Financial Officer and Principal Accounting Officer of CRI. 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. (c) There is no family relationship between any of the foregoing directors and executive officers. (d) Involvement in certain legal proceedings. None. ITEM 10. EXECUTIVE COMPENSATION ---------------------- (a), (b), (c), (d), (e), (f), (g), and (h) The Partnership has no officers or directors. However, in accordance with the Partnership Agreement, and as disclosed in the public offering, various kinds of compensation and fees were paid or are payable to the General Partners and their affiliates. Additional information required by this Item 10 is incorporated herein by reference to Notes 3 and 4 of the notes to financial statements contained in Part III. III-1 PART III -------- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ----------------------------------------------- AND MANAGEMENT -------------- (a) Security ownership of certain beneficial owners. The following table sets forth certain information concerning any person (including any "group") who is known by the Partnership to be the beneficial owner of more than five percent of the issued and outstanding units of additional limited partner interest (Units) at April 17, 2007. % of Total Name and Address Amount and Nature Units Issued of Beneficial Owner of Beneficial Ownership and Outstanding ------------------- ----------------------- --------------- Equity Resource 5,434 Units 22.0% Investment, LLC 44 Brattle Street Cambridge, MA 02138 (b) Security ownership of management. The following table sets forth certain information concerning all Units beneficially owned, as of April 17, 2007, by each director and by all directors and officers as a group of the Managing General Partner of the Partnership. % of Total Name of Amount and Nature Units Issued Beneficial Owner of Beneficial Ownership and Outstanding ----------------- ----------------------- --------------- William B. Dockser None 0.0% H. William Willoughby None 0.0% All Directors and Officers as a Group (2 persons) None 0.0% (c) Changes in control. There exists no arrangement known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership. There is a provision in the Limited Partnership Agreement which allows, under certain circumstances, the ability to change control. III-2 PART III -------- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- (a) and (b) Transactions with management and others. The Partnership has no directors or officers. In addition, the Partnership has had no transactions with individual officers or directors of the Managing General Partner of the Partnership other than any indirect interest such officers and directors may have in the amounts paid to the Managing General Partner or its affiliates by virtue of their stock ownership in CRI. Item 10 of this report, which contains a discussion of the fees and other compensation paid or accrued by the Partnership to the General Partners or their affiliates, is incorporated herein by reference. Note 3 of the notes to financial statements contained in Part III, which contains disclosure of related party transactions, is also incorporated herein by reference. (c) Certain business relationships. The Partnership's response to Item 12(a) is incorporated herein by reference. In addition, the Partnership has no business relationship with entities of which the officers and directors of the Managing General Partner of the Partnership are officers, directors or equity owners other than as set forth in the Partnership's response to Item 12(a). (d) Transactions with promoters. Not applicable. ITEM 13. EXHIBITS -------- Index of Exhibits (Listed according to the number assigned in the table in Item 601 of Regulation S-B.) Exhibit No. 4 - Instruments defining the rights of security holders, including indentures. a. Amended Certificate and Limited Partnership Agreement of Capital Realty Investors, Ltd. (Incorporated by reference to Exhibit No. 4 to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.) Exhibit No. 10 - Material Contracts. a. Management Services Agreement between CRI and Capital Realty Investors, Ltd. (Incorporated by reference to Exhibit No. 10(b) to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.) Exhibit No. 31.1 - Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit No. 31.2 - Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. III-3 PART III -------- ITEM 13. EXHIBITS - Continued -------- Exhibit No. 32 - Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit No. 99 - Additional Exhibits. a. Prospectus of the Partnership, dated December 31, 1981. (Incorporated by reference to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.) b. Reports of other auditors relating to the audits of the financial statements of Local Partnerships in which Capital Realty Investors, Ltd. has invested. c. Definitive Proxy Statement. (Incorporated by reference to Registrant's Definitive Proxy Statement dated August 18, 2006.) ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES -------------------------------------- During the years ended December 31, 2006 and 2005, the Partnership retained Grant Thornton LLP to provide services as follows. Year Ended December 31, -------------------------- 2006 2005 -------- -------- Audit fees $ 95,744 $ 86,276 Audit-related fees -- -- Tax fees (1) 18,375 15,950 All other fees -- -- -------- -------- Total billed $114,119 $102,226 ======== ======== (1) Preparation of Partnership federal and state tax returns. The Partnership has no directors or officers. The Board of Directors of the Managing General Partner of the Partnership, serving as the audit committee, has approved in advance 100% of the fees paid to, and services provided by, Grant Thornton LLP. Prior to approving Grant Thornton LLP's providing any non-audit services, the Board of Directors of the Managing General Partner of the Partnership would assess whether the provision of those services would compromise Grant Thornton LLP's independence. Grant Thornton LLP provided partnership tax return preparation services during the years ended December 31, 2006 and 2005, which services it was determined did not compromise Grant Thornton LLP's independence. III-4 SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL REALTY INVESTORS, LTD. ---------------------------------------------- (Registrant) by: C.R.I., Inc. ----------------------------------------- Managing General Partner April 17, 2007 by: /s/ William B. Dockser - -------------- ------------------------------------ DATE William B. Dockser, Director, Chairman of the Board, and Treasurer (Principal Executive Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. April 17, 2007 by: /s/ H. William Willoughby - -------------- ------------------------------------ DATE H. William Willoughby, Director, President, Secretary, Principal Financial Officer and Principal Account Officer III-5 Report of Independent Registered Public Accounting Firm The Partners Capital Realty Investors, Ltd. We have audited the accompanying balance sheets of Capital Realty Investors, Ltd (a District of Columbia limited partnership) (the Partnership) as of December 31, 2006 and 2005, and the related statements of operations, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Local Partnerships. The Partnership's share of income from these Local Partnerships constitutes $781,341 and $1,034,682 of income in 2006 and 2005, respectively, included in the Partnership's 2006 and 2005 net income. The financial statements of these Local Partnerships were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amount included for these Local Partnerships, is based solely upon the reports of the other auditors. We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Partnership is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based upon our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Realty Investors, Ltd, as of December 31, 2006 and 2005, and the results of its operations, changes in partners' deficit and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Grant Thornton LLP McLean, Virginia April 17, 2007 III-6 CAPITAL REALTY INVESTORS, LTD. BALANCE SHEETS ASSETS

The accompanying notes are an integral part of these financial statements. III-7 CAPITAL REALTY INVESTORS, LTD. STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements. III-8 CAPITAL REALTY INVESTORS, LTD. STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL

The accompanying notes are an integral part of these financial statements. III-9 CAPITAL REALTY INVESTORS, LTD. STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements. III-10 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Organization ------------ Capital Realty Investors, Ltd. (the Partnership) was formed under the District of Columbia Limited Partnership Act on June 1, 1981, and shall continue until December 31, 2030, unless sooner dissolved in accordance with the terms of the Partnership Agreement. The Partnership was formed to invest in real estate by acquiring and holding limited partner interests in limited partnerships (Local Partnerships) which own and operate federal or state government-assisted properties or properties which provide housing principally to the elderly or to individuals and families of low or moderate income, or conventionally financed apartment properties, located throughout the United States. The General Partners of the Partnership are C.R.I., Inc. (CRI), which is the Managing General Partner, current and former shareholders of CRI, and Rockville Pike Associates, Ltd., a Maryland limited partnership which includes the shareholders of CRI and certain former officers and employees of CRI. The Partnership sold 24,837 units at $1,000 per unit of limited partner interest through a public offering. The offering period was terminated on December 31, 1982. As of December 31, 2006, 90 units of limited partner interest had been abandoned. b. Method of accounting -------------------- The financial statements of the Partnership are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. c. Investments in and advances to partnerships ------------------------------------------- The investments in and advances to Local Partnerships (see Note 2) are accounted for by the equity method because the Partnership is a limited partner in the Local Partnerships. Under this method, the carrying amount of the investments in and advances to Local Partnerships is (i) reduced by distributions received and (ii) increased or reduced by the Partnership's share of earnings or losses, respectively, of the Local Partnerships. As of December 31, 2006 and 2005, the Partnership's share of cumulative losses of six and seven of the Local Partnerships exceeded the amount of the Partnership's investments in and advances to those Local Partnerships by $6,083,444 and $6,405,792, respectively. Since the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements. Distributions of $70,984 and $59,701 received from three Local Partnerships during 2006 and 2005, for which the Partnership's carrying value is zero (equity method suspended) were recorded as increases in the Partnership's share of income from partnerships in the year received. Costs incurred in connection with acquiring these investments have been capitalized and are being amortized using the straight-line method over the estimated useful lives of the properties owned by the Local Partnerships. III-11 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued d. Investment in partnerships held for sale ---------------------------------------- Due to the possible sale of the Partnership's interest in New Sharon Woods Associates (New Sharon Woods), as further discussed in Note 2.c., the Partnership's investment in New Sharon Woods was reclassified to investment in partnerships held for sale in the accompanying balance sheet at December 31, 2006. Due to the possible sale of the property related to Frederick Heights Limited Partnership (Frederick Heights), as further discussed in Note 2.c., the Partnership's investment in Frederick Heights was reclassified to investment in partnerships held for sale in the accompanying balance sheets at December 31, 2006 and December 31, 2005. When investments are reclassified to investment in partnerships held for sale, amortization of acquisition fees and property purchase costs are discontinued. Assets held for sale are not recorded in excess of their estimated net realized value. e. Cash and cash equivalents ------------------------- Cash and cash equivalents consist of all money market funds, time and demand deposits, and repurchase agreements with original maturities of three months or less. Interest income is recognized as earned. f. Offering costs -------------- The Partnership incurred certain costs in connection with the offering and selling of units of limited partnership interest. Such costs were recorded as a reduction of partners' capital when incurred. g. Income taxes ------------ For federal and state income tax purposes, each partner reports on his or her personal income tax return his or her share of the Partnership's income or loss as determined for tax purposes. Accordingly, no provision has been made for income taxes in these financial statements. h. Use of estimates ---------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, the Partnership is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and of revenues and expenses during the reporting periods. Actual results could differ from those estimates. i. Fair Value of Financial Instruments ----------------------------------- The financial statements include estimated fair value information as of December 31, 2006, as required by Statement of Financial Accounting Standards No. 107 (SFAS No. 107), Disclosure About Fair Value of Financial Instruments. Such information, which pertains to the Partnership's financial instruments (primarily cash and cash equivalents), is based on the requirements set forth in SFAS No. 107 and does not purport to represent the aggregate net fair value of the Partnership. III-12 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued The balance sheet carrying amounts for cash and cash equivalents approximate estimated fair values of such assets. j. New accounting pronouncements ----------------------------- In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 requires quantification of errors using both a balance sheet approach and an income statement approach in the determination of materiality in relation to a misstatement. SAB No. 108 is effective the first fiscal year ending after November 15, 2006. Management believes SAB No. 108 will not have any impact on the Partnership. In September 2006, the Financial Accounts Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes a formal framework for measuring fair value under generally accepted accounting principles. Although SFAS No. 157 applies (amends) the provisions of existing FASB and AICPA pronouncements, it does not require any new fair value measurements, nor does it establish valuation standards. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management has determined that SFAS No. 157 will have no material impact to the Partnership. k. Proxy Statement --------------- On August 18, 2006, the Partnership filed a Definitive Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it to Limited Partners to solicit consents for approval of an amendment of the Partnership's Limited Partnership Agreement to permit the Managing General Partner, CRI, to be eligible to receive an increased property disposition fee from the Partnership on the same basis as such fees could 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 instead of such persons (a "Disposition Fee"). The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner has received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.

l. Allocation of net income (loss) ------------------------------- Net income (loss) is allocated based on respective partnership interest or units outstanding. The Partnership has no dilutive interests. III-13 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS a. Interests in profits, losses and cash distributions made by Local ---------------------------------------------------------------------- Partnerships ------------ The Partnership has a 74.99% to 98.98% interest in profits, losses and cash distributions (as restricted by various federal and state housing agencies) (collectively, the Agencies) of each Local Partnership. An affiliate of the Managing General Partner of the Partnership is also a general partner of each Local Partnership. As stipulated by the Local Partnerships' partnership agreements, the Local Partnerships are required to make annual cash distributions from surplus cash flow, if any. During 2006 and 2005, the Partnership received cash distributions from rental operations of the Local Partnerships of $181,590 and $438,505, respectively. As of December 31, 2006 and 2005, nine of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $1,581,299 and $510,032, respectively, which may be available for distribution in accordance with their respective regulatory Agencies' regulations. The cash distributions to the Partnership from the operations of the Local Partnerships may be limited by the Agencies' regulations. Such regulations limit annual cash distributions to a percentage of the owner's equity investment in a rental property. Funds in excess of those which may be distributed to owners are generally required to be placed in a residual receipts account held by the governing state or federal agency for the benefit of the property. In addition, local general partners have the authority to withhold funds if needed for property repairs, improvements, or other property needs. Upon sale or refinancing of a property owned by a Local Partnership, or upon the liquidation of a Local Partnership, the proceeds from such sale, refinancing or liquidation shall be distributed in accordance with the respective provisions of each Local Partnership's partnership agreement. In accordance with such provisions, the Partnership would receive from such proceeds its respective percentage interest of any remaining proceeds, after payment of (i) all debts and liabilities of the Local Partnership and certain other items, (ii) the Partnership's capital contributions plus certain specified amounts as outlined in each partnership agreement, and (iii) certain special distributions to general partners and related entities of the Local Partnership. b. Advance to Local Partnership ---------------------------- As of both December 31, 2006 and 2005, the Partnership had advanced funds, including accrued interest, totaling $290,896 to Shallowford Oaks. For financial reporting purposes, this loan has been reduced to zero by the Partnership as a result of losses at the Local Partnership level during prior years. c. Property matters ---------------- Baltic Plaza ------------- On June 24, 2001, the local managing general partner entered into a contract to sell the property owned by Sencit Baltic Associates (Baltic Plaza). On December 19, 2002, Baltic Plaza was sold. Cash proceeds received by the Partnership totaled $2,053,358. As part of the consideration, the Local Partnership took back a 30-year purchase money note in the principal amount of $2,300,000, collateralized by the partnership interests of the general partner of the maker/purchaser. The Local Partnership assigned the purchase money note to an escrow for the benefit of its partners (with CRI serving as escrow agent), so that the Local Partnership entity could be III-14 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued dissolved. The purchase money note bears interest at 4.6% compounded annually, and requires a minimum annual payment equal to 50% of the maker/purchaser's annual audited cash flow, as defined, with the balance of unpaid principal, if any, plus accrued interest, due and payable on December 31, 2032. As of April 17, 2007, no payments of principal or interest have been received on this purchase money note. The Partnership's 98% beneficial interest in this purchase money note is reflected in the accompanying balance sheets at December 31, 2006 and 2005, at its original principal balance of $2,300,000 plus estimated accrued but unpaid interest, all discounted to $619,000 to provide for an effective interest rate commensurate with the investment risk. The resulting discounted amount has been fully reserved due to uncertainty of collection of the purchase money note and related interest. Frederick Heights ----------------- On March 30, 2007, Frederick Heights was sold. The sale will result in net gain on disposition of investment in partnerships of $6,617,971 for financial statement purposes in 2007 and in total gain of approximately $9.1 million for federal tax purposes. The Partnership's basis in Frederick Heights, along with the net unamortized amount of acquisition fees and property purchase costs, which totaled $548,495 at December 31, 2005, was reflected as investment in partnerships held for sale at that date. Effective June 30, 2006, the Partnership's basis in Frederick Heights, along with associated acquisition fees and property purchase costs was reclassified to their operating accounts status. Due to the sale of Frederick Heights in March 2007, the Partnership's basis, along with the net unamortized amount of acquisition fees and property purchase costs, which totaled $557,915 at December 31, 2006, was reclassified to investment in partnerships held for sale at that date. New Sharon Woods ---------------- On December 31, 2006, a contract for the sale of the Partnership's interest in New Sharon Woods was signed. Due to the possible sale of the Partnership's interest in New Sharon Woods, the Partnership's basis in the Local Partnership, along with net unamortized acquisition fees, which totaled $9,192 as of December 31, 2006, has been reclassified to investment in partnerships held for sale in the accompanying balance sheet at that date. The sale is scheduled to close during the fourth quarter of 2007. There is no assurance that a sale of the Partnership's interest will occur. d. Completed sales --------------- Lihue Gardens ------------- On December 30, 2005, the property owned by Lihue Associates (Lihue Gardens) was sold. Gross cash sale proceeds received March 1, 2006 by the Partnership totaled $1,524,292. The sale resulted in net gain on disposition of investment in partnership of $1,356,733 for financial statement purposes and in total gain of $2,030,688 for federal tax purposes in 2005. In accordance with the terms of the Partnership Agreement, in March 2006, the Managing General Partner was paid a disposition fee of $86,000 related to the sale. The fee was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2005. The Local Partnership is withholding reserves for contingent liabilities. The Partnership may receive additional proceeds related to the reserves. There is no assurance that additional proceeds will be received. III-15 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Sundance Apartments ------------------- On December 20, 2006, the Partnership's interest in Sundance Apartments was sold. Gross cash sale proceeds received by the Partnership totaled $338,298. The sale resulted in net gain on disposition of investment in partnerships of $205,537 for financial statement purposes and in total gain of $1,701,792 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in January 2007, the Managing General Partner was paid a disposition fee of $120,000 related to the sale. The fee was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2006. The Partnership may receive a cash distribution in 2007. There is no assurance that the cash distribution will be received. e. Summarized financial information -------------------------------- Combined balance sheets and combined statements of operations for the twelve Local Partnerships in which the Partnership is invested as of December 31, 2006, follow. The information is presented separately for six Local Partnerships which have investment basis (equity method), and for six Local Partnerships for which the Partnership's carrying value is zero (equity method suspended).

III-16 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

(1) Includes Sundance Apartments sold in December 2006. III-17 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Combined balance sheets and combined statements of operations for the thirteen Local Partnerships in which the Partnership was invested as of December 31, 2005, follow. The information is presented separately for six Local Partnerships which have investment basis (equity method), and for seven Local Partnerships for which the Partnership's carrying value is zero (equity method suspended).

III-18 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued

(1) Includes Lihue Gardens sold in December 2005. All of the cash distributions recorded as income are included in share of income from partnerships on the statements of operations for the respective years, and are recorded as cash receipts on the respective balance sheets. Cash distributions recorded as a reduction of the related investment are recorded as cash receipts on the respective balance sheets, and are recorded as a reduction of investments in and advances to partnerships, also on the respective balance sheets. e. Reconciliation of the Local Partnerships' financial --------------------------------------------------- statement net income to taxable income -------------------------------------- For federal income tax purposes, the Local Partnerships report on a basis whereby: (i) certain revenue and the related assets are recorded when received rather than when earned; (ii) certain costs are expensed when paid or incurred rather than capitalized and amortized over the period of benefit; and (iii) a shorter life is used to compute depreciation on the property as permitted by Internal Revenue Code and the underlying regulations. These returns are subject to examination and, therefore, possible adjustment by the IRS. III-19 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued A reconciliation of the Local Partnerships' financial statement net income reflected above to taxable income follows. For the years ended December 31, --------------------------- 2006 2005 ---------- ---------- Financial statement net income $1,459,574 $1,198,242 Differences between financial statement and tax depreciation, amortization, and miscellaneous differences 1,308,319 1,678,069 ---------- ---------- Taxable income $2,767,893 $2,876,311 ========== ========== 3. RELATED PARTY TRANSACTIONS In accordance with the terms of the Partnership Agreement, the Partnership paid the Managing General Partner a fee for services in connection with the review, selection, evaluation, negotiation and initial acquisition of the interests in the Local Partnerships. The fee amounted to $993,480, which is equal to four percent of the Limited Partners' capital contributions to the Partnership. The acquisition fee was capitalized and is being amortized over a 40-year period using the straight-line method. In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner for its direct expenses in connection with managing the Partnership. For the years ended December 31, 2006 and 2005, the Partnership paid $255,873 and $190,152, respectively, to the Managing General Partner as direct reimbursement of expenses incurred on behalf of the Partnership. Such expenses are included in general and administrative expenses in the accompanying statements of operations. In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee (Management Fee) after all other expenses of the Partnership are paid. The amount of the Management Fee shall be equal to 0.25% of invested assets, as defined in the Partnership Agreement, and shall be payable from the Partnership's cash available for distribution, as defined in the Partnership Agreement, as of the end of each calendar year, as follows: (i) First, on a monthly basis as an operating expense before any distributions to limited partners in an annual amount equal to $95,208; and (ii) Second, after distributions to the limited partners in the amount of one percent of the gross proceeds of the offering, the balance of such 0.25% of invested assets. For each of the years ended December 31, 2006 and 2005, the Partnership paid the Managing General Partner a Management Fee of $95,208. III-20 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 3. RELATED PARTY TRANSACTIONS - Continued Pursuant to approval of the Partnership's Consent Solicitation Statement on October 17, 2006, the Managing General Partner may receive an increased property disposition fee from the Partnership on the same basis as such fees could 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 instead of such persons. In accordance with the terms of the Partnership Agreement, in March 2006 the Managing General Partner was paid a disposition fee of $86,000 related to the sale of Lihue Gardens in December 2005, which was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2005. In accordance with the terms of the Partnership Agreement, in January 2007 the Managing General Partner was paid a disposition fee of $120,000 related to the sale of Sundance Apartments in December 2006, which was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2006. 4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS All profits and losses are allocated 97% to the limited partners and 3% to the General Partners. The net proceeds resulting from the liquidation of the Partnership or the Partnership's share of the net proceeds from any sale or refinancing of the Local Partnerships or their rental properties which are not reinvested shall be distributed and applied as follows: (i) to the payment of debts and liabilities of the Partnership (including all expenses of the Partnership incident to the sale or refinancing) other than loans or other debts and liabilities of the Partnership to any partner or any affiliate; such debts and liabilities, in the case of a non-liquidating distribution, to be only those which are then required to be paid or, in the judgment of the Managing General Partner, required to be provided for; (ii) to the establishment of any reserves which the Managing General Partner deems reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Partnership; (iii) to the limited partners in the amount of their capital contributions without deduction for prior cash distributions other than prior distributions of proceeds from any sale or refinancing; (iv) to the repayment of any unrepaid loans theretofore made 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 pursuant to the Partnership Agreement; (v) to the General Partners in the amount of their capital contributions; (vi) thereafter, for their services to the Partnership, in equal shares to certain general partners (or their designees), whether or not any is then a general partner, an aggregate fee of one percent 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 one percent fee was not paid to the General Partners or their designees; and, (vii) the remainder, 15% to the General Partner (or their assignees) and 85% to the limited partners (or their assignees). Fees payable to certain general partners (or their designees) under (vi) above, together with all other property disposition fees and any other commissions or fees payable upon the sale of apartment properties, shall not in the aggregate exceed the lesser of the competitive rate or six percent of the sales price of the apartment properties. III-21 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued In accordance with the terms of the Partnership Agreement, in March 2006 the Managing General Partner was paid a disposition fee of $86,000 related to the sale of Lihue Gardens in December 2005, which was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2005. In accordance with the terms of the Partnership Agreement, in January 2007 the Managing General Partner was paid a disposition fee of $120,000 related to the sale of Sundance Apartments in December 2006, which was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2006. Pursuant to the Partnership Agreement, all cash available for distribution, as defined, shall be distributed, not less frequently than annually, 97% to the limited partners and three percent to the General Partners, after payment of the Management Fee (see Note 3), as specified in the Partnership Agreement. On March 20, 2006, the Partnership made a cash distribution of $1,435,326 ($58 per Unit) to the Limited Partners who are holders of record as of March 1, 2006. The distribution consisted of proceeds received from the sale of the property owned by Lihue Gardens. As defined in the Partnership Agreement, after the payment of the distributions described in the previous paragraph, after the establishment of any reserves deemed necessary by the Managing General Partner and after payment of the Management Fee, the Partnership had no remaining cash available for distribution for the years ended December 31, 2006 and 2005. The Managing General Partner currently intends to retain all of the Partnership's remaining undistributed cash for operating cash reserves. 5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET INCOME TO TAXABLE INCOME For federal income tax purposes, the Partnership reports on a basis whereby: (i) certain expenses are amortized rather than expensed when incurred; (ii) certain costs are amortized over a shorter period for tax purposes, as permitted by the Internal Revenue Code and underlying regulations, and (iii) certain costs are amortized over a longer period for tax purposes. The Partnership records its share of income or losses from its investments in limited partnerships for federal income tax purposes as reported on the Local Partnerships' federal income tax returns (see Note 2.e.), including losses in excess of related investment amounts. These returns are subject to examination and, therefore, possible adjustment by the IRS. A reconciliation of the Partnership's financial statement net income to taxable income follows.

III-22 CAPITAL REALTY INVESTORS, LTD. NOTES TO FINANCIAL STATEMENTS 5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET INCOME TO TAXABLE INCOME - Continued Cash concentration risk - ----------------------- Financial instruments that potentially subject the Fund to concentrations of credit risk consist primarily of cash. The corporation maintains two cash accounts with the same bank. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000. As of December 31, 2006, the uninsured portion of the cash balances was $1,419,366. 6. SUBSEQUENT EVENT ---------------- On March 30, 2007, Frederick Heights was sold. See Note 2.c. Property Matters in Part III for further information regarding the sale. # # # III-23 EXHIBIT No. 99 b. Reports of other auditors relating to the audits of the financial statements of Local Partnerships in which Capital Realty Investors, Ltd. has invested. 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EX-31 4 exhibit31_123106-cri1.htm CERTIFICATION REQUIRED UNDER SECTION 302 EXHIBIT 31

EXHIBIT 31.1

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William B. Dockser, certify that:

I have reviewed this annual report on Form 10-KSB for the year ended December 31, 2006, of CAPITAL REALTY INVESTORS, LTD.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)

		by: C.R.I., Inc.
		Managing General Partner

April 17, 2007		by: /s/ William B. Dockser
DATE		William B. Dockser, Director, Chairman of the Board, and Treasurer (Principal Executive Officer)

This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EXHIBIT 31.2

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, H. William Willoughby, certify that:

I have reviewed this annual report on Form 10-KSB for the year ended December 31, 2006, of CAPITAL REALTY INVESTORS, LTD.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)

		by: C.R.I., Inc.
		Managing General Partner

April 17, 2007		by: /s/ H. William Willoughby
DATE		H. William Willoughby, Director, President, Secretary, Principal Financial Officer and Principal Accounting Officer

This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

EX-32 5 exhibit32_123106-cri1.htm CERTIFICATION REQUIRED UNDER SECTION 906 Exhibit 32

EXHIBIT 32

CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

We, the undersigned, certify that, to the best of our knowledge, this annual report on Form 10-KSB for the year ended December 31, 2006, of CAPITAL REALTY INVESTORS, LTD., and containing the financial statements, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and that the information contained in this annual report fairly presents, in all material respects, the financial condition and results of operations of the small business issuer.

		CAPITAL REALTY INVESTORS, LTD.
		(Small Business Issuer)
		by: C.R.I., Inc.
		Managing General Partner
April 17, 2007		by: /s/ William B. Dockser
DATE		William B. Dockser, Director, Chairman of the Board, and Treasurer (Principal Executive Officer)
April 17, 2007		by: /s/ H. William Willoughby
DATE		H. William Willoughby, Director, President, Secretary, Principal Financial Officer and Principal Accounting Officer

This certification accompanies this annual report and is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose, and shall not be deemed filed by the small business issuer for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-99 6 exhibit99a_123106-cri1.htm REPORTS OF OTHER AUDITORS

The Kaplan Partners LLP
Certified Public Accountants
180 North LaSalle Street 25
Chicago, IL 60601

INDEPENDENT AUDITOR'S REPORT

TO THE PARTNERS OF

COURT PLACE ASSOCIATES

PEKIN, ILLINOIS

We have audited the accompanying Balance Sheets of COURT PLACE ASSOCIATES (An Illinois Limited Partnership) (IHDA Project No. ML-158) as of December 31, 2006 and 2005, and the related Statements of Operations, Partners' Capital and Cash Flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States), the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, and the Illinois Housing Development Authority's "Financial Reporting and Audit Guidelines for Mortgagors of Multifamily Housing Developments." Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis of designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of COURT PLACE ASSOCIATES as of December 31, 2006 and 2005, and the results of its operations, the changes in partners' capital, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with standards of the Public Company Accounting Oversight Board (United States), Government Auditing Standards, and Illinois Housing Development Authority's "Financial Reporting and Audit Guidelines for Mortgagors of Multifamily Housing Developments," we have also issued reports dated February 12, 2007, on our consideration of COURT PLACE ASSOCIATES' internal control over financial reporting and on our tests of compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of those reports are to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with standards of the Public Company Accounting Oversight Board (United States) and should be read in conjunction with this report in considering the results of our audit.

THE KAPLAN PARTNERS LLP

Chicago, IL

February 12, 2007

The Kaplan Partners LLP
Certified Public Accountants
180 North LaSalle Street 25
Chicago, IL 60601

INDEPENDENT AUDITOR'S REPORT

TO THE PARTNERS OF

LINDEN PLACE ASSOCIATES

ARLINGTON HEIGHTS, ILLINOIS

We have audited the accompanying Balance Sheets of LINDEN PLACE ASSOCIATES (An Illinois Limited Partnership) (IHDA Project No. ML-158) as of December 31, 2006 and 2005, and the related Statements of Operations, Partners' Capital and Cash Flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LINDEN PLACE ASSOCIATES as of December 31, 2006 and 2005, and the results of its operations, the changes in partners' capital, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In accordance with standards of the Public Company Accounting Oversight Board (United States), Government Auditing Standards, and Illinois Housing Development Authority's "Financial Reporting and Audit Guidelines for Mortgagors of Multifamily Housing Developments," we have also issued reports dated February 12, 2007, on our consideration of LINDEN PLACE ASSOCIATES' internal control over financial reporting and on our tests of compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of those reports are to describe the scope of our testing of internal control over financial reporting and compliance, and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with standards of the Public Company Accounting Oversight Board (United States) and should be read in conjunction with this report in considering the results of our audit.

THE KAPLAN PARTNERS LLP

Chicago, IL

February 12, 2007

INDEPENDENT AUDITORS' REPORT

February 8, 2006

To the Partners

Capitol Senior Limited Dividend Housing Association

Lansing, Michigan

We have audited the accompanying balance sheets of Capitol Senior Limited Dividend Housing Association, MSHDA Development No. 630 as of December 31, 2005 and 2004 and the related statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States of America) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Capitol Senior Limited Dividend Housing Association as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on pages 15 to 24 is presented for purposes of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the Partnership's management- Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

544 Cherbourg Drive • Suite 200 - Lansing, Michigan 4891~-50l0 • (517) 323-7500 • Fax (517) 323-6346 • www.mcecpa.com

February 8, 2006

To the Partners

Capitol Senior Limited Dividend Housing Association

Lansing, Michigan

In accordance with Government Auditing Standards, we have also issued our report dated February 8, 2006 on our consideration of Capitol Senior Limited Dividend Housing Association's internal control over financial reporting and on our tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

/s/ Maner, Costersan and Ellis, P.C.

Certified Public Accountants

Dauby O'Connor & Zaieski

A Limited Liability Company
Certified Public Accountants

INDEPENDENT AUDITOR'S REPORT

To the Partners of

Frederick Heights Limited Partnership

(A Maryland Limited Partnership)

We have audited the accompanying balance sheet of Frederick Heights Limited Partnership as of December 31, 2005, and the related statements of profit and (loss), changes in partners* deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Frederick Heights Limited Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frederick Heights Limited Partnership as of December 31, 2005, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued reports dated January 13, 2006, on our consideration of Frederick Heights Limited Partnership’s internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

703 Pro Med Lane, Suite 300 Carmel, Indiana 46032 317-848-5700 Fax:317-815-6140

Frederick Heights Limited Partnership
Page Two

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.

Dauby O'Connor and Zaieski, LLC
Certified Public Accounants

January 13, 2006
Carmel, Indiana

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