Item 1. Business
Paine Webber/CMJ Properties, LP (the "Partnership") is a limited partnership formed in December 1982 under the Uniform Limited Partnership Act of the State of Delaware for the purpose of investing in a portfolio of local limited partnerships owning apartment projects which receive governmental assistance in the form of low interest rate mortgages and rent subsidies. The Partnership sold $8,745,000 in Limited Partnership units (8,745 units at $1,000 per unit) from May 1983 to April 1984, pursuant to a Registration Statement filed on Form S-11 under the Securities Act of 1933 (Registration No. 2-81003). In addition, the Initial Limited Partner contributed $1,000 for one unit (a "Unit") of Limited Partnership Interest. Limited Partners will not be required to make any additional capital contributions.
As of December 31, 1995, the Partnership owned, through local limited partnerships, interests in six apartment properties as set forth in the following table:
Percent Name of Local Interest in Limited Partnership Date of Local Limited Name of Property Acquisition Partnership Location Size of Interest (1) (2) - ------------------------- ---- ----------- ------------
Fawcett's Pond Apartments Company Village at Fawcett's Pond 100 6/30/83 95% Hyannis, Massachusetts units
Quaker Meadows Apartments Company Quaker Court and The Meadows 104 6/30/83 95% Lynn, Massachusetts units
South Laurel Apartments Limited Partnership Villages at Montpelier 520 6/30/83 85% Laurel, Maryland units
Marvin Gardens Associates Marvin Gardens 37 7/29/83 95% Cotati, California units
Colonial Farms Ltd. Colonial Farms 100 7/29/83 95% Modesto, California units
Holbrook Apartments Company Ramblewood Apartments 170 8/30/83 85% Holbrook, Massachusetts units
(1) The Partnership owns limited partnership interests in the local limited partnerships owning the apartment properties and improvements.
(2) See Notes to the Financial Statements filed with this Annual Report for current outstanding mortgage balances and a description of the long-term mortgage indebtedness collateralized by the operating property investments of the local limited partnerships and for a description of the local limited partnership agreements through which the Partnership has acquired these real estate interests.
The Partnership's original investment objectives were to invest the net cash proceeds from the offering of limited partnership units in rental apartment properties receiving various forms of federal, state or local assistance with the goals of providing:
(1) tax losses from deductions generated by investments; (2) capital preservation; (3) potential capital appreciation; and (4) potential future cash distributions from operations (on a limited basis), or from the sale or refinancing of the projects owned by the local limited partnerships, or from the sale of interests in the local limited partnerships.
The Partnership has generated tax losses since inception. However, the benefits of such losses to investors have been significantly reduced by changes in federal income tax law subsequent to the organization of the Partnership. The Partnership continues to retain an ownership interest in all six of its original operating investment properties. As of December 31, 1995, all of the properties are generating sufficient cash flow from operations to cover their operating expenses and debt service payments, and all properties are generating excess cash flow, a portion of which is being distributed to the Partnership on an annual basis in accordance with the respective regulatory and limited partnership agreements. Given the improvements in cash flow and the strong operating performances of the investment properties in recent years, management instituted a program of regular quarterly distributions in 1994 at an annual rate of 2% on original invested capital. Annual distributions to the Limited and General Partners totalled $177,000 during 1995. Management intends to maintain distributions at the present level for 1996 unless actual results of operations, economic conditions or other factors differ substantially from the assumptions used in setting the planned distribution rate.
The Partnership's success in meeting its capital appreciation objective will depend upon the proceeds received from the final sales of its investments. The amount of such proceeds will ultimately depend upon the value of the underlying investment properties at the time of their final disposition, which cannot presently be determined. Because of the government restrictions on rental revenues and the related capital expenditure reserve requirements and cash flow distribution limitations, there is a limited number of potential buyers in the market for government subsidized, low-income housing properties such as the Partnership has invested in. Furthermore, the current uncertainty regarding potential future reductions in the level of federal government assistance for these programs may further restrict the properties' marketability. Accordingly, management does not expect the General Partners of the local limited partnerships, which receive management fee revenues from the properties, to attempt to sell any of the properties in the near term. As discussed further in Item 7, as a limited partner in the local limited partnerships, the Partnership's ability to influence major business decisions, including any decision to sell the properties is restricted under the terms of the agreements.
All of the properties owned by the local limited partnerships in which the Partnership invested are located in real estate markets in which they face competition for the revenues they generate. The Partnership's apartment complexes, which are all government-assisted, low-income housing facilities, compete with several projects of similar type generally on the basis of price, location and amenities. The tenants at the Partnership's apartment properties are not as likely to be candidates for single-family home ownership as tenants of non-subsidized properties would be. Therefore, competition from the single family home market is not a significant factor.
The Partnership is engaged solely in the business of real estate investment, therefore, presentation of information about industry segments is not applicable. The Partnership has no real estate investments located outside the United States.
The Partnership has no employees; it has, however, entered into an Advisory Contract with PaineWebber Properties Incorporated (the "Adviser"), which is responsible for the day-to-day operations of the Partnership. The Adviser is a wholly-owned subsidiary of PaineWebber Incorporated (PWI), a wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber").
The Managing General Partner of the Partnership is PW Shelter Fund, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber. Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by the Adviser. The associate general partner is Properties Associates (the "Associate General Partner"), a Massachusetts general partnership, certain general partners of which are also officers of the Adviser and the Managing General Partner.
The terms of transactions between the Partnership and affiliates of the Managing General Partner of the Partnership are set forth in Items 11 and 13 below to which reference is hereby made for a description of such terms and transactions.
Item 2.
Item 2. Properties
The Partnership has acquired interests in six operating properties through investing in local limited partnerships. The local limited partnerships and related properties are referred to under Item 1 above to which reference is made for the description, name, location, and ownership interest in each property.
Occupancy figures for each quarter during 1995, along with an average for the year, are presented below for each property:
Percent Occupied At 3/31/95 6/30/95 9/30/95 12/31/95Average ------- ------- ------- -------- ------
Village at Fawcett's Pond Apartments 100% 100% 100% 99% 100%
Quaker Court and The Meadows 100% 99% 99% 99% 99%
Villages at Montpelier Apartments 96% 96% 93% 94% 95%
Marvin Gardens Apartments 100% 100% 99% 100% 100%
Colonial Farms Apartments 96% 98% 98% 98% 98%
Ramblewood Apartments 98% 99% 98% 99% 99%
Item 3.
Item 3. Legal Proceedings
As previously disclosed, in November 1994 PaineWebber Shelter Fund, Inc. and Properties Associates, L.P., the General Partners of the Partnership, were named as defendants in a class action lawsuit filed in the United States District court for the Southern District of New York against PaineWebber Incorporated ("PaineWebber") and a number of its affiliates relating to PaineWebber's sale of 70 direct investment offerings, including the offering of interests in the Partnership. The amended complaint in the New York Limited Partnership Actions alleges that, in connection with the sale of units of limited partnership interests in the Partnership, the defendants (1) failed to provide adequate disclosure of the risks involved; (2) made false and misleading representations about the safety of the investments and the Partnership's anticipated performance; and (3) marketed the Partnership to investors for whom such investments were not suitable. The plaintiffs, who purported to be suing on behalf of all persons who invested in the Partnership also alleged that following the sale of the Partnership interests, the defendants misrepresented financial information about the Partnership's value and performance. The amended complaint also alleges that the defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") and the federal securities laws. The plaintiffs sought unspecified damages, including reimbursement for all sums invested by them in the Partnership, as well as disgorgement of all fees and other income derived by PaineWebber from the Partnership. In addition, the plaintiffs also sought treble damages under RICO. In January 1996, PaineWebber signed a memorandum of understanding with the plaintiffs in this class action outlining the terms under which the parties have agreed to settle the case. Pursuant to that memorandum of understanding, PaineWebber irrevocably deposited $125 million into an escrow fund under the supervision of the court to be used to resolve the litigation in accordance with a definitive settlement agreement and a plan of allocation which the parties expect to submit to the court for its consideration and approval within the next several months. Until a definitive settlement and plan of allocation is approved by the court, there can be no assurance what, if any, payment or non-monetary benefits will be made available to unitholders in PaineWebber/CMJ Properties LP. Under certain limited circumstances, pursuant to the Partnership Agreement and other contractual obligations, PaineWebber affiliates could be entitled to indemnification for expenses and liabilities in connection with this class action litigation. At the present time, the General Partners are unable to estimate the impact, if any, that the resolution of this litigation may have on the Partnership's financial statements, taken as a whole.
In February 1996, approximately 150 plaintiffs filed an action entitled Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against PaineWebber Incorporated and various affiliated entities concerning the plaintiffs' purchases of various limited partnership interests, including those offered by the Partnership. The complaint alleges, among other things, that PaineWebber and its related entities committed fraud and misrepresentation and breached fiduciary duties allegedly owed to the plaintiffs by selling or promoting limited partnership investments that were unsuitable for the plaintiffs and by overstating the benefits, understating the risks and failing to state material facts concerning the investments. The complaint seeks compensatory damages of $15 million plus punitive damages. The eventual outcome of this litigation and the potential impact, if any, on the Partnership's unitholders cannot be determined at the present time.
The Partnership and the local limited partnerships are not subject to any other material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters
At December 31, 1995 there were 902 record holders of Units in the Partnership. There is no public market for the Units, and it is not anticipated that a public market for Units will develop. The Managing General Partner will not redeem or repurchase Units.
Reference is made to Item 6
Item 6. Selected Financial Data
Paine Webber/CMJ Properties, LP (In thousands, except per Unit data)
Years Ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ----
Revenues $ 244 $ 179 $ 293 $ 208 $ 128
Expenses $ 288 $ 268 $ 289 $ 285 $ 287
Partnership's share of local limited partnerships' income $ 174 $ 186 $ 203 $ 162 $ 155
Net income (loss) $ 130 $ 97 $ 207 $ 85 $ (4)
Cash distributions per Limited Partnership Unit $20.00 $10.00 - - -
Net income (loss) per Limited Partnership Unit $14.75 $11.01 $23.45 $9.63 $(0.45)
Total assets $ 486 $ 525 $ 729 $ 519 $ 801
(a) The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report.
(b) The above per Limited Partnership Unit information is based upon the 8,746 Limited Partnership Units outstanding during each year.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership offered limited partnership interests to the public from May 1983 to April 1984 pursuant to a Registration Statement filed under the Securities Act of 1933. The Partnership received gross proceeds of $8,746,000, and after deducting selling expenses and offering costs, the Partnership invested approximately $6,960,000 in six local limited partnerships owning housing projects that receive various forms of federal, state or local assistance and that may be classified as "low-income housing" under the Internal Revenue Code. The Partnership does not have any commitments for additional capital expenditures or investments.
Throughout the country the market for multi-family residential properties continued its trend of gradual improvement during 1995 as the ongoing absence of significant new construction activity allowed for further improvement in market occupancy and rental rates. The effects of the gradually improving market conditions on the Partnership's operating property investments, while positive, are limited by the government restrictions on rental rate increases to which the properties are subject. With the exception of The Villages at Montpelier Apartments, which has only 20% of its units restricted for low-income housing, cash flow from the properties in which the Partnership has invested is restricted by the Department of Housing and Urban Development ("HUD") and other applicable state housing agencies, which set rental rates for low-income units and require significant cash reserves to be established for future capital improvements. In addition, a substantial amount of the revenues generated by these properties comes from rental subsidy payments made by federal or state housing agencies. These features, which are characteristic of all subsidized low-income housing properties, significantly limit the pool of potential buyers for these real estate assets. Furthermore, the current uncertainty regarding potential future reductions in the level of federal government assistance for these programs may further restrict the properties' marketability. Accordingly, management does not expect the general partners of the local limited partnerships, which receive management fee revenues from the properties, to attempt to sell any of the properties in the near term. As a limited partner of the local limited partnerships, the Partnership does not control property disposition decisions. The partnership agreements state that the limited partner may cause the sale of the assets of the local limited partnerships subsequent to June 30, 1995, but not earlier than one year after it has given written notice to the operating general partner of its intent to cause such sale, and only if, during such one year period, the operating general partner does not cause the sale of such assets. If the operating general partner has not caused the assets of the partnership to be sold within such one year period the limited partner may cause such sale, but only after it has offered to sell such assets to the operating general partner, and either the operating general partner does not accept such offer within 90 days of receiving it, or the operating general partner does not complete the sale in accordance with such offer after accepting the terms.
All six of the Partnership's operating investment properties receive rental subsidy payments from the federal government under Section 8 of the National Housing Act. With the exception of The Villages at Montpelier Apartments, the subsidy agreements covering the operating investment properties do not expire for another 5 to 7 years. The subsidy agreement covering the 20% portion of The Villages at Montpelier Apartments is scheduled to expire in July 1997. Based on current market conditions, in the event that the agreement is not renewed, management believes that the units currently designated as low-income units could be re-leased at market rates which would keep the total revenues of the local limited partnership relatively unchanged from the current subsidized level. In addition, if the market for conventional multi-family apartment properties remains strong over the next 18 months, the expiration of the rental subsidy agreement at The Villages at Montpelier Apartments could enhance the property's marketability for a potential sale to a third-party. However, there are no assurances that the market conditions will remain strong over this period. If conditions were to deteriorate, The Villages at Montpelier Apartments could experience declines in occupancy and revenues upon the expiration of the subsidy agreement. It is uncertain at this time, what operating decisions and strategic actions the general partner of the local limited partnership will make concerning the expiration of this subsidy agreement. For the five properties which contain 100% low-income housing units, the government subsidy payments range from 75% to 82% of the total revenues of the related local limited partnerships. At the present time, certain legislative initiatives and governmental budget negotiations could result in a reduction in funds available for the various HUD-administered housing programs and new limitations on increases in subsidized rent levels. Such changes could adversely impact the net operating income generated by the local limited partnerships. In light of the uncertainty regarding the near term prospects for government assisted, low-income housing and the restrictions on the Partnership's ability to cause a sale of the operating properties, and since the properties are currently generating a stable, self-sustaining cash flow stream, management does not have any plans, at the present time, to initiate the sale process under the terms of the agreements described above. In addition, as noted above, management is not aware of any plans or intentions of the general partners of these partnerships to sell any of the investment properties in the near future.
During 1995, all six of the properties in which the Partnership has invested generated sufficient cash flow from operations to cover their operating expenses and debt service payments, and all properties generated excess cash flow, a portion of which will be distributed to the Partnership during 1996 in accordance with the respective regulatory and limited partnership agreements. The Partnership received distributions totalling $435,000 in 1995 ($407,000 in 1994) from its six limited partnership investments. The distributions received in the current year represent the available cash flow for distribution as of December 31, 1994, as determined by the general partners of the local limited partnerships in accordance with the partnership, financing and regulatory agreements. Distributions of 1995 cash flow will generally be made in the second quarter of 1996 and are expected to be at approximately the same level as the current year distributions. The distributions received in 1995 were more than sufficient to cover the Partnership's management fees and administrative expenses, which totalled $288,000, and enabled the Partnership to continue its program of regular quarterly distributions to the Limited and General Partners. During 1995, annual distributions to the Limited and General Partners totalled $177,000. Management intends to maintain distributions at the present level for 1996, unless actual results of operations, economic conditions or other factors differ substantially from the assumptions used in setting the planned distribution rate.
At December 31, 1995, the Partnership had available cash and cash equivalents of approximately $325,000, which it intends to use for its working capital requirements and for distributions to partners. The source of future liquidity and distributions to the partners is expected to be from cash generated from the operations of the Partnership's real estate investments and from the proceeds received from the sale or refinancing of the properties owned by the local limited partnerships. Such sources of liquidity are expected to be sufficient to meet the Partnership's needs on both a short-term and long-term basis.
Results of Operations 1995 Compared to 1994
The Partnership recorded net income of $130,000 for the year ended December 31, 1995, as compared to net income of $97,000 for 1994. The increase in net income of $33,000 is mainly the result of an increase in other income from local limited partnerships of $64,000. Distributions from the local limited partnerships are recorded as income for those investments for which the Partnership's equity method carrying value has been reduced to zero. Distributions totalling $221,000 from five partnerships were recorded as other income in the year ended December 31, 1995, as compared to $157,000 from the same five partnerships for 1994. The favorable change in other income from local limited partnerships was partially offset by an increase of $20,000 in the Partnership's general and administrative expenses in 1995.
In accordance with the equity method of accounting for limited partnership interests, the Partnership does not recognize losses from investment properties when losses exceed the Partnership's equity method basis in these properties. Five of the Partnership's six investments had an equity method basis of zero as of December 31, 1995 and 1994. Distributions from the Holbrook Apartments Company (Ramblewood Apartments), the only remaining investment which still has a positive equity method carrying value, are recorded as reductions of the investment carrying value and totalled $214,000 and $250,000 for 1995 and 1994, respectively. Distributions from the other five limited partnerships increased by $64,000 in 1995, as reflected in the change in other income. This increase results primarily from an increase of $47,000 in distributions from The Villages at Montpelier Apartments, which, as noted above, is the only one of the Partnership's properties which is not 100% low-income housing. The distributions received in 1995 reflect the available cash flow from 1994 operations.
The Partnership's recorded share of local limited partnerships' income in the current year consists of income of $174,000 from the Ramblewood Apartments limited partnership, as compared to income of $186,000 from the same partnership in 1994. Net income was down slightly at Ramblewood, mainly due to increases in salaries expense and real estate taxes. Overall, an increase in combined property operating expenses of $282,000 for the six local limited partnerships exceeded the increase in combined revenues of $75,000. Occupancy levels remained high throughout the year with the 1995 average occupancy above 95% at all properties. Revenues were up at all properties except at The Villages at Montpelier Apartments. At The Villages at Montpelier Apartments, revenues decreased slightly during 1995 due to a temporary decline in occupancy experienced in the third quarter. Occupancy at The Villages at Montpelier Apartments averaged 95% for 1995, but dropped to 91% in August 1995 as a result of management's efforts to increase rental rates for the market-rate units. Management stepped up its marketing efforts in conjunction with the rate increases. After the initial decline in occupancy, the marketing efforts are generating positive results as the occupancy level has recovered and the number of prospective tenants visiting the property has increased. Expenses in general were up at all of the local limited partnerships as repairs and maintenance expenses run high at these properties due to a combination of their ages, applicable regulatory requirements and management's operating philosophy. Such expenses do, however, fluctuate from year to year.
1994 Compared to 1993
For the year ended December 31, 1994, the Partnership recorded net income of $97,000, as compared to net income of $207,000 for the prior year. The decrease in net income was the result of a decrease in other income from local limited partnerships and a decrease in the Partnership's share of local limited partnerships' income. These unfavorable changes in net income were offset, in part, by a decrease in general and administrative expenses of $21,000 for 1994.
Five of the six investments had an equity method basis of zero as of December 31, 1994 and 1993. Other income from local limited partnerships reflects cash distributions received from investments which have an equity method basis of zero. Distributions from the Holbrook Apartments Company (Ramblewood Apartments), the only remaining investment which had a positive equity method carrying value, are recorded as reductions of the investment carrying value and totalled $250,000 and $204,000 for 1994 and 1993, respectively. Distributions from the other five limited partnerships declined by $123,000 in 1994, as reflected in the change in other income. This decrease resulted primarily from a decline in distributions from the Fawcett's Pond limited partnership of $54,000 and a drop in distributions from The Villages at Montpelier Apartments of $76,000. The distributions received in 1994 reflect the available cash flow from 1993 operations. The decline in distributions from these two properties primarily related to certain extraordinary maintenance projects completed in 1993. The Partnership's recorded share of local limited partnerships' income in 1994 consisted of income of $186,000 from the Ramblewood Apartments limited partnership. In the prior year, income of $206,000 from the operations of the Ramblewood Apartments was recorded in addition to a loss of $3,000 from the Colonial Farms limited partnership. The carrying value of the Partnership's investment in Colonial Farms was reduced to zero during 1993. The decrease in income from the Ramblewood Apartments in 1994 is mainly the result of higher management fees and real estate tax expenses.
In the aggregate, rental revenues increased at five of the six investment properties during 1994. The combined total rental revenues increased by $218,000, with the largest increase occurring at The Villages at Montpelier Apartments. Occupancy levels remained stable throughout 1994 at the Fawcett's Pond, Marvin Gardens, Quaker Court and Meadows and Ramblewood properties. At Colonial Farms, revenues decreased slightly during 1994 due to a temporary decline in occupancy experienced in the second and third quarters. Occupancy at Colonial Farms averaged 99% for 1993. Average occupancy for 1994 declined to 96%, although the property had rebounded to 98% as of December 31, 1994. The increase in revenues at The Villages at Montpelier Apartments was primarily attributable to the increase in the average occupancy of the property, from 89% for 1993 to 93% for 1994. In addition, management was able to reduce the level of concessions used to attract tenants throughout 1994. In addition to the improvement in revenues, the combined total expenses of the six operating properties decreased by $201,000 in 1994, primarily due to a decrease in repairs and maintenance expenses at certain of the properties. Several nonrecurring maintenance projects were completed at the properties during 1993. In general, repairs and maintenance expenses run high at these properties due to a combination of their ages, applicable regulatory requirements and management's operating philosophy. Such expenses do, however, fluctuate from year to year.
1993 Compared to 1992
The Partnership recorded net income of $207,000 for the year ended December 31, 1993, as compared to net income of $85,000 for the prior year. The increase in net income of $122,000 was mainly the result of an increase in the Partnership's share of local limited partnerships' income of $42,000 and an increase in other income from local limited partnerships of $88,000. Distributions from the local limited partnerships are recorded as income for those investments for which the Partnership's equity method carrying value has been reduced to zero. Distributions totalling $280,000 were recorded as other income in the year ended December 31, 1993, as compared to $192,000 for 1992. The increase in other income resulted from the increase in the level of distributions from 1992 property operations, as well as the fact that the Colonial Farms investment carrying value was reduced to zero during 1993.
The Partnership's recorded share of local limited partnerships' income for the year ended December 31, 1993 consisted of income of $206,000 from the Ramblewood Apartments limited partnership and a loss of $3,000 from the Colonial Farms Limited Partnership. In 1992, the Partnership recorded income from the Ramblewood and Colonial Farms partnerships in the amounts of $112,000 and $50,000, respectively. The increase in income from the Ramblewood Apartments was the result of an increase in rental income coupled with a decline in operating expenses. The increase in revenues was mainly due to improved rental rates. The decline in operating expenses was primarily due to a decrease in repairs and maintenance expenses and real estate taxes. Colonial Farms reported a slight decrease in revenues, coupled with an increase in property operating expenses. The increase in the Colonial Farm property operating expenses in 1993 resulted from an increase in repairs and maintenance costs and a non-recurring expense resulting from the settlement of an ongoing dispute. During 1993, the limited partnership refunded $147,000 of prior year excess rent subsidy income to The California Housing Finance Agency in final settlement of a dispute regarding the terms of the regulatory agreement. As of December 31, 1993, the Partnership's investments in Fawcett's Pond, Quaker/Meadows, Marvin Gardens, Colonial Farms, and Villages at Montpelier had equity method carrying values of zero and accumulated losses of approximately $179,000, $1,058,000, $127,000, $155,000 and $262,000, respectively.
In the aggregate, the revenues increased at three of the six properties in the year ended December 31, 1993. Rental rate increases pertaining to the Partnership's government-assisted low-income housing apartments are set by HUD and other applicable state housing agencies and are limited by law to 5% annually. Three of the investment properties with 100% of the units designated for low-income tenants achieved rental revenue increases during 1993 of between 2% and 5%. The combined total expenses of the six properties increased by $394,000, or 4%, in 1993 primarily due to an increase in certain property operating expenses (principally repairs and maintenance). The increase in property operating expenses was partially offset by a decrease in interest expense at the Marvin Gardens and Colonial Farms limited partnerships. During 1992, the interest rates on the mortgage debts secured by the Marvin Gardens and Colonial Farms properties were reduced in connection with a redemption and re-issuance of the tax-exempt bonds which financed the acquisitions of these properties. Annual cash flow savings from the reduction in debt service payments for the Marvin Gardens and Colonial Farms limited partnerships total $45,000 and $40,000, respectively.
Inflation
The Partnership completed its twelfth full year of operations in 1995. To date, the effects of inflation and changes in prices on the Partnership's operating results have not been significant.
In the future, with regard to the local limited partnerships, contract rental rates under "Section 8" agreements may be increased by the Department of Housing and Urban Development in response to inflationary pressures to cover increases in operating expenses due to inflation.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14 of this Annual Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Principal Executive Officers of the Partnership
The Managing General Partner of the Partnership is PW Shelter Fund, Inc., a Delaware corporation which is a wholly-owned subsidiary of PaineWebber. The Associate General Partner of the Partnership is Properties Associates, a Massachusetts general partnership, certain general partners of which are also officers of the Adviser and the Managing General Partner. The Managing General Partner has overall authority and responsibility for the Partnership's operation, however, the day-to-day business of the Partnership is managed by the Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive officers of the Managing General Partner of the Partnership are as follows:
Date Elected Name Office Age to Office ---- ------ --- ---------
Lawrence A. Cohen President, Chief Executive 42 5/15/91 Officer and Director Albert Pratt Director 84 12/10/82 * J. Richard Sipes Director 49 6/9/94 Walter V. Arnold Senior Vice President and Chief Financial Officer 48 10/29/85 James A. Snyder Senior Vice President 50 7/6/92 John B. Watts III Senior Vice President 42 6/6/88 David F. Brooks First Vice President and Assistant Treasurer 53 12/10/82 * Timothy J. Medlock Vice President and Treasurer 34 6/1/88 Thomas W. Boland Vice President 33 12/1/91
* The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the directors and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors and/or executive officers of the Managing General Partner of the Partnership. All of the foregoing directors and executive officers have been elected to serve until the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold similar positions in affiliates of the Managing General Partner, which are the corporate general partners of other real estate limited partnerships sponsored by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser. The business experience of each of the directors and principal executive officers of the Managing General Partner is as follows:
Lawrence A. Cohen is President and Chief Executive Officer of the Managing General Partner and President and Chief Executive Officer of the Adviser which he joined in January 1989. He is also a member of the Board of Directors and the Investment Committee of the Adviser. From 1984 to 1988, Mr. Cohen was First Vice President of VMS Realty Partners where he was responsible for origination and structuring of real estate investment programs and for managing national broker-dealer relationships. He is a member of the New York Bar and is a Certified Public Accountant.
Albert Pratt is a Director of the Managing General Partner, a consultant of PWI and a general partner of the Associate General Partner. Mr. Pratt joined PWI as Counsel in 1946 and since that time has held a number of positions including Director of both the Investment Banking Division and the International Division, Senior Vice President and Vice Chairman of PWI and Chairman of PaineWebber International, Inc.
J. Richard Sipes is a Director of the Managing General Partner and a Director of the Adviser. Mr. Sipes is an Executive Vice President at PaineWebber. He joined the firm in 1978 and has served in various capacities within the Retail Sales and Marketing Division. Before assuming his current position as Director of Retail Underwriting and Trading in 1990, he was a Branch Manager, Regional Manager, Branch System and Marketing Manager for a PaineWebber subsidiary, Manager of Branch Administration and Director of Retail Products and Trading. Mr. Sipes holds a B.S. in Psychology from Memphis State University.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of the Managing General Partner and Senior Vice President and Chief Financial Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in 1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice President and Controller since 1978, and where he continued until joining the Adviser. Mr. Arnold is a Certified Public Accountant licensed in the state of Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner and a Senior Vice President and Member of the Investment Committee of the Adviser. Mr. Snyder re-joined the Adviser in July 1992 having served previously as an officer of PWPI from July 1980 to August 1987. From January 1991 to July 1992, Mr. Snyder was with the Resolution Trust Corporation where he served as the Vice President of Asset Sales prior to re-joining PWPI. From February 1989 to October 1990, he was President of Kan Am Investors, Inc., a real estate investment company. During the period August 1987 to February 1989, Mr. Snyder was Executive Vice President and Chief Financial Officer of Southeast Regional Management Inc., a real estate development company.
John B. Watts III is a Senior Vice President of the Managing General Partner and a Senior Vice President of the Adviser which he joined in June 1988. Mr. Watts has had over 16 years of experience in acquisitions, dispositions and finance of real estate. He received degrees of Bachelor of Architecture, Bachelor of Arts and Master of Business Administration from the University of Arkansas.
David F. Brooks is a First Vice President and Assistant Treasurer of the Managing General Partner and a First Vice President and an Assistant Treasurer of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980, Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and also, from March 1974 to February 1980, the Assistant Treasurer of Capital for Real Estate, which provided real estate investment, asset management and consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing General Partner and Vice President and Treasurer of the Adviser which he joined in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate University in 1983 and received his Masters in Accounting from New York University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and a Vice President and Manager of Financial Reporting of the Adviser which he joined in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur Young & Company. Mr. Boland is a Certified Public Accountant licensed in the state of Massachusetts. He holds a B.S. in Accounting from Merrimack College and an M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings which are material to an evaluation of her or his ability or integrity as a director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities Exchange Act of 1934 requires the officers and directors of the Managing General Partner, and persons who own more than ten percent of the Partnership's limited partnership units, to file certain reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and ten-percent beneficial holders are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the Partnership believes that, during the year ended December 31, 1995, all filing requirements applicable to the officers and directors of the Managing General Partner and ten-percent beneficial holders were complied with.
Item 11.
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the General Partners are entitled to receive a share of cash distributions and a share of profits or losses. These items are described under Item 13.
The Partnership began paying cash distributions to the Unitholders on a quarterly basis at a rate of 2% per annum on original invested capital during 1994. The first payment was made on August 15, 1994 for the quarter ended June 30, 1994. However, the Partnership's Units of Limited Partnership Interest are not actively traded on any organized exchange, and no efficient secondary market exists. Accordingly, no accurate price information is available for these Units. Therefore, a presentation of historical Unitholder total returns would not be meaningful.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited partnership interest, not voting securities. All the outstanding stock of the Managing General Partner, PW Shelter Fund, Inc. is owned by PaineWebber. Properties Associates, the Associate General Partner, is a Massachusetts general partnership, general partners of which are also officers of the Adviser and the Managing General Partner. Properties Associates is also the Initial Limited Partner of the Partnership and owns one Unit of limited partnership interest. No limited partner is known by the Partnership to own beneficially more than 5% of the outstanding interests of the Partnership.
(b) Neither officers and directors of the Managing General Partner nor the general partners of the Associate General Partner, individually, own any Units of limited partnership interest of the Partnership. No officer or director of the Managing General Partner, nor any general partner of the Associate General Partner, possesses a right to acquire beneficial ownership of Units of limited partnership interest of the Partnership.
(c) 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.
Item 13.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are PW Shelter Fund, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber") and Properties Associates (the "Associate General Partner"), a Massachusetts general partnership, certain general partners of which are also officers of the Managing General Partner and PaineWebber Properties Incorporated (the "Adviser"). Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by the Adviser pursuant to an advisory contract. The Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber. The General Partners, the Adviser and PWI receive fees and compensation, determined on an agreed-upon basis, in consideration of various services performed in connection with the sale of the Units, the management of the Partnership and the acquisition, management, financing and disposition of Partnership investments. In addition, the Managing General Partner and the Adviser are reimbursed for their out-of-pocket expenses relating to the offering of Units, the administration of the Partnership and the acquisition and operation of the Partnership's real property investments.
Distributable cash, as defined, for each fiscal year shall be distributed annually in the ratio of 99% to the Limited Partners and 1% to the General Partners. However, it is not one of the investment objectives of the Partnership to generate any significant cash flow from property operations for distribution to the Limited Partners. All sale or refinancing proceeds will be distributed in varying proportions to the Limited and General Partners, as specified in the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax loss of the Partnership will be allocated 99% to the Limited Partners and 1% to the General Partners. Taxable income or tax loss arising from a sale or refinancing of investment properties will be allocated to the Limited Partners and the General Partners in proportion to the amounts of sale or refinancing proceeds to which they are entitled; provided that the General Partners shall be allocated at least 1% of taxable income arising from a sale or refinancing. If there are no sale or refinancing proceeds, taxable income or tax loss from a sale or refinancing will be allocated 99% to the Limited Partners and 1% to the General Partners. Allocations of the Partnership's operations between the General Partner and the Limited Partners for financial accounting purposes have been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management responsibilities, to administer the day-to-day operations of the Partnership and to report periodically the performance of the Partnership to the Managing General Partner. The Adviser earns a basic management fee of .5% of invested assets for these services. Invested assets is the sum of the amount invested by the Partnership in each local limited partnership plus a proportionate interest in the mortgage debt initially incurred by the local limited partnerships. The Adviser earned management fees of $199,000 for the year ended December 31, 1995.
In connection with the sale of each property, the Adviser may receive a disposition fee in an amount equal to 1% based on the selling price of the property, subordinated to the payment of certain amounts to the Limited Partners.
An affiliate of the Managing General Partner performs certain accounting, tax preparation, securities law compliance and investor communications and relations services for the Partnership. The total costs incurred by this affiliate in providing such services are allocated among several entities, including the Partnership. Included in general and administrative expenses for the year ended December 31, 1995 is $32,000, representing reimbursements to this affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees of $2,000 (included in general and administrative expenses) for managing the Partnership's cash assets during the year ended December 31, 1995. Fees charged by Mitchell Hutchins are based on a percentage of invested cash reserves which varies based on the total amount of invested cash which Mitchell Hutchins manages on behalf of PWPI.
See Note 3 to the accompanying financial statements for a further discussion of certain relationships and related party transactions.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a separate section of this report. See Index to Financial Statements at page.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at page IV-3 are filed as part of this report.
(b) No reports on Form 8-K were filed during the last quarter of 1995.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a separate section of this report. See Index to Financial Statements at page.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER/CMJ PROPERTIES, LP LIMITED PARTNERSHIP
By: PW Shelter Fund, Inc. Managing General Partner
By: /s/ Lawrence A. Cohen Lawrence A. Cohen President and Chief Executive Officer
By: /s/ Walter V. Arnold Walter V. Arnold Senior Vice President and Chief Financial Officer
By: /s/ Thomas W. Boland Thomas W. Boland Vice President
Dated: April 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated.
By: /s/ Albert Pratt Date: April 10 , 1996 Albert Pratt Director
By: /s/ J. Richard Sipes Date: April 10, 1996 J. Richard Sipes Director
ANNUAL REPORT ON FORM 10-K Item 14(a)(3)
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO EXHIBITS
Page Number in the Report Exhibit No. Description of Document Or Other Reference - ---------- ----------------------- -------------------------
(3) and (4) Prospectus of the Partnership Filed with the Commission dated May 25 1983, as pursuant to Rule 424(c) supplemented, with particular and incorporated reference to the Restated herein by reference. Certificate and Agreement of Limited Partnership
(10) Material contracts previously Filed with the Commission filed as exhibits to registration pursuant to Section 13 or statements and amendments thereto 15(d) of the Securities of the registrant together with all Act of 1934 and such contracts filed as exhibits of incorported herein previously filed Forms 8-K and by reference. Forms 10-K are hereby incorporated herein by reference.
(13) Annual Report to Limited Partners No Annual Report for the year ended December 31, 1995 has been sent to the Limited Partners. An Annual Report will be sent to the Limited Partners subsequent to this filing.
(22) List of subsidiaries Included in Item I of Part I of this Report Page I-1, to which reference is hereby made.
(27) Financial Data Schedule Filed as the last page of EDGAR submission following the Financial Statements required by Item 14.
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER/CMJ PROPERTIES, LP
Paine Webber/CMJ Properties, LP Reference
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of changes in partners' capital (deficit) for the years ended December 31, 1995, 1994 and 1993
Statement of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
Fawcett's Pond Apartments Company
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
Quaker Meadows Apartments Company
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS - continued
Reference
South Laurel Apartments Limited Partnership
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
Marvin Gardens Associates
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
Colonial Farms, Ltd.
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS - continued
Reference
Holbrook Apartments Company
Independent Auditors' Report
Balance sheets at December 31, 1995 and 1994
Statements of operations for the years ended December 31, 1995, 1994 and 1993
Statements of partners' deficit for the years ended December 31, 1995, 1994 and 1993
Statements of cash flows for the years ended December 31, 1995, 1994 and 1993
Notes to financial statements
All schedules have been omitted since the required information is not applicable, or because the information required is included in the financial statements, including the notes thereto.
INDEPENDENT AUDITORS' REPORT
The Partners of Paine Webber/CMJ Properties, LP
We have audited the accompanying balance sheets of Paine Webber/CMJ Properties, LP (a Limited Partnership) as of December 31, 1995 and 1994, and the related statements of operations, changes in partners' capital (deficit), and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Paine Webber/CMJ Properties, LP at December 31, 1995 and 1994, and the results of its operations, changes in partners' capital (deficit), and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland February 20, 1996
PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS December 31, 1995 and 1994 (In thousands, except per Unit data)
ASSETS
1995 1994 ---- ----
Investments in local limited partnerships, at equity $ 161 $ 201 Cash and cash equivalents 325 324 -------- ------- $ 486 $ 525 ======== =======
LIABILITIES AND PARTNERS' CAPITAL
Accrued expenses $ 22 $ 14
Partners' capital: General Partners: Capital contributions 1 1 Cumulative net losses (70) (71) Cumulative distributions (3) (1)
Limited Partners ($1,000 per Unit; 8,746 Units issued): Capital contributions, net of offering costs 7,679 7,679 Cumulative net losses (6,881) (7,010) Cumulative distributions (262) (87) -------- ------- Total partners' capital 464 511 -------- ------- $ 486 $ 525 ======== =======
The accompanying notes are an integral part of these financial statements.
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF OPERATIONS For the years ended December 31, 1995, 1994 and 1993 (In thousands, except per Unit data)
1995 1994 1993 ---- ---- ---- Revenues: Interest income $ 23 $ 22 $ 13 Other income from local limited partnerships 221 157 280 -------- --------- -------- 244 179 293
Expenses: Management fees 199 199 199 General and administrative 89 69 90 -------- --------- -------- 288 268 289 -------- --------- --------
Operating income (loss) (44) (89) 4
Partnership's share of local limited partnerships' income 174 186 203 -------- --------- --------
Net income $ 130 $ 97 $ 207 ======== ======== ========
Net income per Limited Partnership Unit $14.75 $11.01 $23.45 ======== ======== ========
Cash distributions per Limited Partnership Unit $20.00 $10.00 $ - ====== ====== ======
The above net income and cash distributions per Limited Partnership Unit are based upon the 8,746 Limited Partnership Units outstanding during each year.
The accompanying notes are an integral part of these financial statements.
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) For the years ended December 31, 1995, 1994 and 1993 (In thousands)
General Limited Partners Partners Totals -------- -------- ------
Balance at December 31, 1992 $ (73) $ 368 $ 295
Net income 2 205 207 ----- ------- ------
Balance at December 31, 1993 (71) 573 502
Cash distributions (1) (87) (88)
Net income 1 96 97 ----- ------- ------
Balance at December 31, 1994 (71) 582 511
Cash distributions (2) (175) (177)
Net income 1 129 130 ------ ------- ------
Balance at December 31, 1995 $ (72) $ 536 $ 464 ====== ====== ======
The accompanying notes are an integral part of these financial statements.
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENT OF CASH FLOWS For the years ended December 31, 1995, 1994 and 1993 Increase (Decrease) in Cash and Cash Equivalents (In thousands)
1995 1994 1993 ---- ---- ----
Cash flows from operating activities: Net income $ 130 $ 97 $ 207 Adjustments to reconcile net income to net cash used in operating activities: Other income from local limited partnerships (221) (157) (280) Partnership's share of local limited partnerships' income (174) (186) (203) Changes in assets and liabilities: Accounts receivable - - 1 Accounts payable - affiliates - (204) - Accrued expenses 8 (8) 2 ------ -------- -------- Total adjustments (387) (555) (480) ------ -------- -------- Net cash used in operating activities (257) (458) (273) ------ -------- --------
Cash flows from investing activities: Distributions from local limited partnerships 435 407 483 ------ -------- -------- Net cash provided by investing activities 435 407 483 ------ -------- --------
Cash flows from financing activities: Distributions to partners (177) (88) - ------ -------- -------- Net cash used in financing activities (177) (88) - ------ -------- --------
Net increase (decrease) in cash and cash equivalents 1 (139) 210
Cash and cash equivalents, beginning of year 324 463 253 ------ -------- --------
Cash and cash equivalents, end of year $ 325 $ 324 $ 463 ======= ======== ========
The accompanying notes are an integral part of these financial statements.
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
1. Organization
Paine Webber/CMJ Properties, LP (the "Partnership") is a limited partnership organized pursuant to the laws of the State of Delaware in December 1982 for the purpose of investing in a portfolio of interests in local limited partnerships owning apartment projects which receive governmental assistance in the form of low rate mortgages and rent subsidies. All of the properties owned by the local limited partnerships were developed by Corcoran, Mullins, Jennison, Inc. ("CMJ") or its affiliates. The initial capital was $2,000, representing capital contributions of $1,000 by the General Partners and $1,000 for one unit (a "Unit") by the Initial Limited Partner. The Partnership authorized the issuance of a maximum of 15,000 Partnership Units of which 8,745 were subscribed and issued between May 25, 1983 and April 30, 1984.
2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The accompanying financial statements include the Partnership's investments in six local limited partnerships which own operating properties. The Partnership accounts for its investments in local limited partnerships using the equity method. Under the equity method, the investment is carried at cost adjusted for the Partnership's share of the local limited partnerships' earnings and losses and distributions. In accordance with the equity method of accounting for limited partnership interests, the Partnership does not record losses for those limited partnership investments whose equity method basis has been reduced to zero, recognizing future income from these entities only when it exceeds the previously unrecorded losses. Distributions received from investments in limited partnerships whose basis has been reduced to zero are recorded as other income in the Partnership's statement of operations. See Note 4 for a description of the local limited partnerships.
The local limited partnerships in which the Partnership has invested own operating investment properties. The Partnership has reviewed FAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", which is effective for financial statements for years beginning after December 15, 1995, and believes this new pronouncement will not have a material effect on the Partnership's financial statements.
For purposes of reporting cash flows, cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less when acquired. The Partnership's cash reserves are invested in financial instruments which potentially subject the Partnership to concentrations of credit risk. The Partnership currently invests primarily in investment-grade rated commercial paper with overnight maturities. Management believes that no significant concentration of credit risk exists with respect to these cash investments as of December 31, 1995.
No provision for income taxes has been made, as the liability for such taxes is that of the partners rather than the Partnership. The cumulative difference between the book basis and tax basis of the Partnership's investment in local limited partnerships is approximately $16,890,000 due to the losses on investments recognized on the tax basis in excess of the book basis.
The carrying amount of cash and current liabilities approximates their fair value due to the short-term maturities of these instruments.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are PW Shelter Fund, Inc. (the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber Group Inc. ("PaineWebber") and Properties Associates (the "Associate General Partner"), a Massachusetts general partnership, certain general partners of which are also officers of the Managing General Partner and PaineWebber Properties Incorporated (the "Adviser"). Subject to the Managing General Partner's overall authority, the business of the Partnership is managed by the Adviser pursuant to an advisory contract. The Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of PaineWebber. The General Partners, the Adviser and PWI receive fees and compensation, determined on an agreed-upon basis, in consideration of various services performed in connection with the sale of the Units, the management of the Partnership and the acquisition, management, financing and disposition of Partnership investments.
Distributable cash, as defined, for each fiscal year shall be distributed annually in the ratio of 99% to the Limited Partners and 1% to the General Partners. However, it is not one of the investment objectives of the Partnership to generate any significant cash flow from property operations for distribution to the Limited Partners. All sale or refinancing proceeds will be distributed in varying proportions to the Limited and General Partners, as specified in the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax loss of the Partnership will be allocated 99% to the Limited Partners and 1% to the General Partners. Taxable income or tax loss arising from a sale or refinancing of investment properties will be allocated to the Limited Partners and the General Partners in proportion to the amounts of sale or refinancing proceeds to which they are entitled; provided that the General Partners shall be allocated at least 1% of taxable income arising from a sale or refinancing. If there are no sale or refinancing proceeds, taxable income or tax loss from a sale or refinancing will be allocated 99% to the Limited Partners and 1% to the General Partners. Allocations of the Partnership's operations between the General Partner and the Limited Partners for financial accounting purposes have been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management responsibilities, to administer the day-to-day operations of the Partnership and to report periodically the performance of the Partnership to the Managing General Partner. The Adviser earns a basic management fee of .5% of invested assets for these services. Invested assets is the sum of the amount invested by the Partnership in each local limited partnership plus a proportionate interest in the mortgage debt initially incurred by the local limited partnerships. The Adviser earned management fees of $199,000 for each of the three years in the period ended December 31, 1995.
In connection with the sale of each property, the Adviser may receive a disposition fee in an amount equal to 1% based on the selling price of the property, subordinated to the payment of certain amounts to the Limited Partners.
Included in general and administrative expenses for the years ended December 31, 1995, 1994 and 1993 is $32,000, $38,000 and $39,000, respectively, representing reimbursements to an affiliate of the Managing General Partner for providing certain financial, accounting and investor communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins"), an affiliate of the Managing General Partner, for the managing of cash assets. Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees of $2,000, $1,000 and $1,000 (included in general and administrative expenses) for managing the Partnership's cash assets during 1995, 1994 and 1993, respectively.
4. Local Limited Partnerships
The Partnership has investments in six local limited partnerships. These local limited partnerships are accounted for on the equity method in the Partnership's financial statements. Condensed combined financial statements of these local limited partnerships follow:
Condensed Combined Balance Sheets December 31, 1995 and 1994 (In thousands) Assets 1995 1994 ---- ---- Current assets $ 1,872 $ 2,000 Restricted assets 1,778 1,757 Operating investment property, net 26,565 27,324 Other assets 1,088 1,129 -------- -------- $31,303 $32,210 ======== ======== Liabilities and Capital
Current liabilities $ 1,303 $ 1,235 Due to general partner 2,509 2,509 Long-term mortgage debt, less current portion 33,368 33,846
Partnership's share of combined partners' deficit accounts (2,826) (2,377) Local partners' shares of combined partners' deficit accounts (3,051) (3,003) -------- -------- $31,303 $32,210 ======== ========
Condensed Combined Summary of Operations For the years ended December 31, 1995, 1994 and 1993 (In thousands)
1995 1994 1993 ---- ---- ---- Rental revenues, including government subsidies $ 9,891 $ 9,851 $ 9,633 Other income 103 68 56 ------- ------- ------- 9,994 9,919 9,689
Property operating expenses 5,701 5,419 5,637 Interest expense and mortgage insurance 3,005 3,042 3,081 Depreciation and amortization 1,294 1,246 1,190 ------- ------- ------- 10,000 9,707 9,908 ------- ------- ------- Net income (loss) $ (6) $ 212 $ (219) ======= ======= =======
Net income (loss): Partnership's share of operations $ (15) $ 183 $ (207) Local partners' share of operations 9 29 (12) ------- ------- ------- $ (6) 212 $ (219) ======= ======= =======
Reconciliation of Partnership's share of operations (In thousands)
1995 1994 1993 ---- ---- ---- Partnership's share of operations, as shown above $ (15) $ 183 $ (207) Losses in excess of basis not recognized by Partnership 234 108 421 Income offset with prior year unrecognized losses (45) (105) (11) ------- ------- ------- Partnership's share of local limited partnerships' income $ 174 $ 186 $ 203 ======= ======= =======
Reconciliation of Partnership's Investments (In thousands) 1995 1994 ---- ----
Partnership's share of combined partners' deficit accounts, as shown above $(2,826) $(2,377) Accumulated losses in excess of basis not recognized by Partnership 1,978 1,784 Cumulative distributions in excess of investment basis 994 773 Excess basis in local limited partnerships 15 21 ------- ------- Investments in local limited partnerships, at equity $ 161 $ 201 ======= =======
"Investments in local limited partnerships, at equity" is the Partnership's net investment in the local limited partnerships. These local limited partnerships are subject to partnership agreements which determine the distribution of available funds, the disposition of the limited partnership's assets and the rights of the partners, regardless of the Partnership's percentage ownership interest in the local limited partnership.
"Investments in local limited partnerships, at equity" on the balance sheets is comprised of the following local limited partnership investments, at the balances indicated (in thousands):
1995 1994 ---- ----
Fawcett's Pond Apartments Company $ - $ - Quaker Meadows Apartments Company - - South Laurel Apartments Limited Partnership - - Marvin Gardens Associates - - Colonial Farms Ltd. - - Holbrook Apartments Company 161 201 ----- ------ Investments in local limited partnerships, at equity $ 161 $ 201 ===== ======
The Partnership received cash distributions from the limited partnerships as set forth below (in thousands):
1995 1994 1993 ---- ---- ----
Fawcett's Pond Apartments Company $ 24 $ 24 $ 78 Quaker Meadows Apartments Company 66 59 55 South Laurel Apartments Limited Partnership 63 16 92 Marvin Gardens Associates 27 12 7 Colonial Farms Ltd. 40 46 47 Holbrook Apartments Company 215 250 204 ------- ------ ----- $ 435 $ 407 $ 483 ======= ====== =====
The investments in Fawcett's Pond Apartments Company, Quaker Meadows Apartments Company, South Laurel Apartments Limited Partnership, Marvin Gardens Associates and Colonial Farms Ltd. at December 31, 1995 do not reflect accumulated losses therefrom of $55,000, $1,208,000, $392,000, $163,000 and $160,000, respectively, because the equity method carrying values of such investments have been reduced to zero. Future income from these entities will not be recorded until it exceeds the previously unrecognized accumulated losses.
A description of the local limited partnership properties and the terms of the local limited partnership agreements is summarized below:
a) Village at Fawcett's Pond - Hyannis, Massachusetts
On June 30, 1983, the Partnership acquired a 95% limited partnership interest in Fawcett's Pond Apartments Company, an existing Massachusetts limited partnership ("Fawcett's Pond"), that owns and operates a 100-unit housing project in Hyannis, Massachusetts. The Federal Housing Administration (FHA) contracted with the limited partnership under Section 8 of Title II of the Housing and Community Development Act of 1974 to make housing assistance payments to the limited partnership on behalf of qualified tenants. The agreement expires August 19, 2002. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $768,000, $769,000 and $752,000, respectively. Such amounts comprised approximately 79%, 81% and 80%, respectively, of the limited partnership's total revenues for such years.
The aggregate investment by the Partnership for the 95% interest was $879,606, comprised of cash and notes payable to the seller (including an acquisition fee of $63,025 payable to the Adviser of the Partnership). The Partnership's interest is held subject to a permanent nonrecourse mortgage loan due April 1, 2024 from the Government National Mortgage Association (GNMA) with an outstanding balance at December 31, 1995 of approximately $4,328,000, payable in monthly installments of $30,746 including principal and interest at 7.5%.
The partnership agreement generally provides that the Partnership will receive 95% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 5% of annual distributable cash flow. Cash distributions are limited by agreements between the limited partnership and HUD to the extent of surplus cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributed in that year.
Generally, the first $1,105,725 of proceeds from the sale or refinancing of the investment property will be distributed to the Partnership. The remaining proceeds will be distributed to the local general partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners. The management fee is 5% of gross receipts. An incentive management fee will also be paid on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $6,000, $6,000 and $44,000 were paid to an affiliate of the local general partners for the years ended December 31, 1995, 1994 and 1993, respectively.
b) Quaker Court and The Meadows - Lynn, Massachusetts
On June 30, 1983, the Partnership acquired a 95% limited partnership interest in Quaker Meadows Apartments Company, an existing Massachusetts limited partnership ("Quaker Meadows"), that owns and operates two apartment complexes in Lynn, Massachusetts. There are a total of 104 apartment units in the two complexes. FHA contracted with the limited partnership under Section 8 of Title II of the Housing and Community Development Act of 1974 to make housing assistance payments to the limited partnership on behalf of qualified tenants. The agreement expires in May 2002 and has two five-year renewal options. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $1,335,000, $1,321,000 and $1,302,000, respectively. Such amounts comprised approximately 82% of the limited partnership's total revenues in each of such years.
The aggregate investment by the Partnership for the 95% interest was $1,378,906 (including an acquisition fee of $104,525 paid to the Adviser of the Partnership). The Partnership's interest is held subject to a permanent nonrecourse mortgage loan due September 1, 2013 with an outstanding balance at December 31, 1995 of approximately $5,297,000, payable in monthly installments of $62,930 including principal and interest at 12.5%.
The restated partnership agreement generally provides that the Partnership will receive 95% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 5% of annual distributable cash flow.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributed in that year.
Generally, the first $1,739,424 of proceeds from the sale or refinancing of the investment properties will be distributed to the Partnership. Remaining proceeds will be distributed to the local venture partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners. The management fee is 4% of gross receipts. An incentive management fee will also be paid on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $45,000, $38,000 and $35,000 were paid to an affiliate of the local general partners for the years ended December 31, 1995, 1994 and 1993, respectively.
c) Villages at Montpelier - Laurel, Maryland
On June 30, 1983, the Partnership acquired an 85% limited partnership interest in South Laurel Apartments Limited Partnership, an existing Maryland limited partnership ("South Laurel"), that owns and operates a 520-unit housing project in Laurel, Maryland. FHA contracted with the limited partnership under Section 8 of Title II of the Housing and Community Development Act of 1974 to make housing assistance payments to the limited partnership on behalf of qualified tenants for 20% of the rental units. The agreement expires July 31, 1997. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $677,000, $694,000 and $685,000, respectively. Such amounts comprised approximately 17% of the limited partnership's total revenues for each of such years.
The aggregate investment by the Partnership for the 85% interest was $2,446,135 (including an acquisition fee of $186,725 paid to the Adviser of the Partnership). The Partnership's interest is held subject to a permanent nonrecourse mortgage loan due December 1, 2023 with an outstanding balance at December 31, 1995 of approximately $12,119,000, payable to GNMA in monthly installments of $86,395 including principal and interest at 7.5%.
The restated partnership agreement generally provides that the Partnership will receive 85% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 15% of annual distributable cash flow. Cash distributions are limited by agreements between the limited partnership and HUD to the extent of surplus cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributable in that year.
Generally, the first $3,107,104 of proceeds from the sale or refinancing of the investment property will be distributed to the Partnership. Remaining proceeds will be distributed to the local venture partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners. The management fee is 5.25% of gross receipts. An incentive management fee will also be paid on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $1,000 and $24,000 were paid to an affiliate of the local general partners for 1995 and 1993, respectively. No incentive management fees were earned for the year ended December 31, 1994.
d) Marvin Gardens Apartments, Cotati, California
On July 29, 1983, the Partnership acquired a 95% limited partnership interest in Marvin Gardens Associates, an existing California limited partnership that owns a 37-unit apartment complex project in Cotati, California. The apartment complex operates under Section 8 of the National Housing Act and, therefore, receives monthly rental subsidies from the Federal Department of Housing and Urban Development (HUD). The agreement expires in July 2003 and has two five-year renewal options. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $337,000, $332,000 and $324,000, respectively. Such amounts comprised approximately 81%, 82% and 81%, respectively, of the limited partnership's total revenues for such years.
The aggregate investment by the Partnership for the 95% interest was $379,581 (including an acquisition fee of $27,800 paid to the Adviser of the Partnership). The Partnership's interest was acquired subject to a permanent nonrecourse mortgage loan due June 1, 2013 with an outstanding balance at December 31, 1995 of approximately $1,707,000, payable to the California Housing Finance Agency (CHFA). Effective August 1, 1992, the terms of the mortgage loan were modified as a result of a bond redemption by CHFA which lowered the effective annual interest rate from 11.25% to 8.15% and monthly principal and interest payments from $19,105 to $15,138.
The restated partnership agreement generally provides that the Partnership will receive 95% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 5% of annual distributable cash flow. Cash distributions are limited by agreements between the limited partnership and CHFA to $20,151 per year to the extent of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributed in that year.
Generally, the first $462,336 of proceeds from the sale or refinancing of the investment property will be distributed to the Partnership. Remaining proceeds will be distributed to the local venture partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners who in turn hired an unaffiliated management agent to provide management services on their behalf. An incentive management fee will also be paid on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $12,000 and $2,000 were paid to an affiliate of the local general partners for the years ended December 31, 1995 and 1994, respectively. No incentive management fees were earned for the year ended December 31, 1993.
e) Colonial Farms - Modesto, California
On July 29, 1983, the Partnership acquired a 95% limited partnership interest in Colonial Farms Ltd. an existing California limited partnership that owns a 100-unit apartment project in Modesto, California. The apartment complex operates under Section 8 of the National Housing Act and, therefore, receives monthly rental subsidies from the Federal Department of Housing and Urban Development (HUD). The agreement expires in July 2002 and has two five-year renewal options. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $586,000, $556,000 and $563,000, respectively. Such amounts comprised approximately 74%, 72% and 73%, respectively, of the limited partnership's total revenues for such years. During 1993, the limited partnership refunded $147,000 of prior year excess rent subsidy income to CHFA in final settlement of a dispute regarding the terms of the regulatory agreement. This amount is recorded in property operating expenses in the accompanying condensed combined summary of operations for 1993.
The aggregate investment by the Partnership for the 95% interest was $623,351 (including an acquisition fee of $48,125 paid to the Adviser to the Partnership). The Partnership's interest is held subject to a permanent nonrecourse mortgage loan due June 1, 2013 with an outstanding balance at December 31, 1995 of approximately $2,860,000, payable to CHFA. Effective August 1, 1992, the terms of the mortgage loan were modified as a result of a bond redemption by CHFA which lowered the effective annual interest rate from 10.8% to 9.15% and monthly principal and interest payments from $30,770 to $27,411.
The restated partnership agreement generally provides that the Partnership will receive 95% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 5% of annual distributable cash flow. Cash distributions are limited by agreements between the limited partnership and CHFA to $35,299 per year to the extent of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributed in that year.
Generally, the first $800,928 of proceeds from the sale or refinancing of the investment property will be distributed to the Partnership. Remaining proceeds will be distributed to the local venture partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners who in turn hired an unaffiliated management agent to provide management services on their behalf. An incentive management fee will also be paid to the affiliate of the local general partners on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $16,000, $20,000 and $21,000 were paid to an affiliate of the local general partners for the years ended December 31, 1995, 1994 and 1993, respectively.
f) Ramblewood Apartments - Holbrook, Massachusetts
On August 30, 1983, the Partnership acquired an 85% limited partnership interest in Holbrook Apartments Company, an existing Massachusetts limited partnership that owns and operates a 170-unit housing project in Holbrook, Massachusetts. FHA contracted with the limited partnership under Section 8 of Title II of the Housing and Community Development Act of 1974 to make housing assistance payments to the limited partnership on behalf of qualified tenants. The agreement expires July 1, 2001. Total rent subsidies received by the limited partnership during 1995, 1994 and 1993 were $1,587,000, $1,577,000 and $1,555,000, respectively. Such amounts comprised approximately 75%, 76% and 75% respectively, of the limited partnership's total revenues for such years.
The aggregate investment by the Partnership for the 85% interest was $1,250,583, (including an acquisition fee of $94,500 paid to the Adviser of the Partnership). The Partnership's interest was acquired subject to a nonrecourse first mortgage loan due February 1, 2023 with an outstanding balance at December 31, 1995 of approximately $7,535,000, payable to GNMA in monthly installments of $54,207 including principal and interest at 7.5%.
The restated partnership agreement generally provides that the Partnership will receive 85% of annual distributable cash flow payable annually and that the local partners will be entitled to receive 15% of annual distributable cash flow. Cash distributions are limited by agreements between the limited partnership and HUD to the extent of surplus cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each year will be allocated, generally, in the same proportion as cash flow is distributed in that year.
Generally, the first $1,571,956 of proceeds from the sale or refinancing of the investment property will be distributed to the Partnership. Remaining proceeds will be distributed to the local partners and the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management contract with an affiliate of the local general partners. The management fee is 4.75% of gross receipts. An incentive management fee will also be paid on an annual basis in the event that the property's cash flow exceeds certain target amounts. Incentive management fees of $138,000, $166,000 and $129,000 were paid to an affiliate of the local general partners for the years ended December 31, 1995, 1994 and 1993, respectively.
5. Subsequent Event
On February 15, 1996, the Partnership distributed approximately $4,000 to the General Partners and $40,000 to the Limited Partners for the quarter ended December 31, 1995.
6. Contingencies
The Partnership is involved in certain legal actions. At the present time, the Managing General Partner is unable to estimate the impact, if any, of these matters on the Partnership's financial statements, taken as a whole.
INDEPENDENT AUDITORS' REPORT
To the Partners Fawcett's Pond Apartments Company
We have audited the accompanying balance sheets of Fawcett's Pond Apartments Company as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Fawcett's Pond Apartments Company as of December 31, 1995 and 1994, and the results of its operations, changes in partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 27, 1996
Fawcett's Pond Apartments Company
BALANCE SHEETS
December 31, 1995 and 1994
1995 1994 ---- ----
ASSETS
CURRENT ASSETS Cash and cash equivalents $ 239,549 $ 183,321 Accounts receivable - HAP 1,218 472 Prepaid expenses 14,016 13,898 ---------- ----------
Total current assets 254,783 197,691 ---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES Tenants' security deposits 24,400 23,257 Mortgage escrow deposits 34,824 35,202 Reserve for replacements 222,853 194,321 ---------- ---------- 282,077 252,780 ---------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $1,892,521 and $1,756,280 3,556,441 3,650,737 ---------- ----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $105,784 and $97,622 230,969 239,131 ---------- ----------
Total assets $4,324,270 $4,340,339 ========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES Current maturities of mortgage payable $ 45,914 $ 42,607 Accounts payable and accrued expenses 22,046 16,783 Accrued interest payable 27,049 27,315 Rent deferred credits 583 2,272 ---------- ---------- Total current liabilities 95,592 88,977
LONG-TERM LIABILITIES Mortgage payable, less current maturities 4,281,973 4,327,887 Due to general partner 277,400 277,400 Tenants' security deposits 21,170 20,165 ---------- ---------- Total liabilities 4,676,135 4,714,429
PARTNERS' DEFICIT (351,865) (374,090) ---------- ----------
Total liabilities and partners' deficit $4,324,270 $4,340,339 ========== ========== The accompanying notes are an integral part of these financial statements.
Fawcett's Pond Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Revenue Rental income $940,355 $935,002 $920,673 Vacancies - (1,128) (364) Financial revenue 16,052 6,579 4,766 Other income 16,371 15,236 15,140 -------- -------- --------
Total revenue 972,778 955,689 940,215 -------- -------- --------
Expenses Operating expenses Marketing 804 801 1,014 Administration 53,043 52,130 51,637 Utilities 35,578 27,940 38,891 Management fee 46,933 46,686 45,886 Maintenance and repairs 129,259 90,131 99,828 Salaries 73,337 72,087 81,201 Insurance 21,667 21,674 22,128 Real estate taxes 65,567 61,375 59,833 -------- -------- --------
Total operating expenses 426,188 372,824 400,418 -------- -------- --------
Non-operating expenses Interest 326,076 329,165 332,719 Mortgage insurance premium 21,737 21,943 22,134 Depreciation and amortization 144,403 142,344 129,072 Incentive management fee 6,303 6,303 44,124 Miscellaneous financial expenses 632 615 - -------- -------- --------
Total non-operating expenses 499,151 500,370 528,049 -------- -------- --------
Total expenses 925,339 873,194 928,467 -------- -------- --------
EXCESS OF REVENUE OVER EXPENSES $ 47,439 $ 82,495 $ 11,748 ======== ======== ========
The accompanying notes are an integral part of these financial statements.
Fawcett's Pond Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
General Limited Partner Partner Total
Partners' deficit, December 31, 1992 $(74,918) $(286,257) $(361,175)
Distributions (4,097) (77,847) (81,944)
Excess of revenue over expenses 587 11,161 11,748 -------- -------- --------
Partners' deficit, December 31, 1993 (78,428) (352,943) (431,371)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 4,125 78,370 82,495 -------- -------- --------
Partners' deficit, December 31, 1994 (75,564) (298,526) (374,090)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 2,372 45,067 47,439 -------- -------- --------
Partners' deficit, December 31, 1995 $ (74,453) $(277,412) $ (351,865) ========== ========= ==========
Profit and loss sharing percentage 5% 95% 100% == == ====
The accompanying notes are an integral part of these financial statements.
Fawcett's Pond Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Cash flows from operating activities Rental income received $ 938,666 $ 933,799 $ 919,503 Interest received 9,468 2,599 1,990 Other income received 15,625 15,089 15,033 Administration expenses paid (83,865) (46,686) (80,621) Management fees paid (46,933) (83,189) (45,886) Utilities paid (35,266) (27,959) (34,469) Maintenance and repairs expenses paid (160,520) (123,364) (147,189) Real estate taxes paid (65,567) (61,375) (59,833) Payroll taxes paid (7,107) (7,812) (8,026) Property insurance paid (10,191) (9,909) (11,031) Other taxes and insurance paid (11,664) (11,161) (11,682) Interest paid on mortgage (326,342) (329,413) (332,260) Mortgage insurance paid (21,667) (21,877) (22,073) Miscellaneous financial expenses paid (632) (615) (688) Increase (decrease) in mortgage escrow deposits 378 (3,704) 349 Mortgagor entity expenses paid (6,303) (6,303) (44,124) Net security deposits (paid) received (138) (899) 4,000 -------- -------- ---------
Net cash provided by operating activities 187,942 217,221 142,993 -------- -------- ---------
Cash flows from investing activities Additions to property and equipment (41,945) (101,603) (21,783) Deposits to reserve for replacements (21,948) (22,440) (20,940) -------- -------- ---------
Net cash used in investing activities (63,893) (124,043) (42,723) -------- -------- ---------
Cash flows from financing activities Repayment of mortgage payable (42,607) (39,538) (36,689) Distributions (25,214) (25,214) (81,944) -------- -------- ---------
Net cash used in financing activities (67,821) (64,752) (118,633) -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 56,228 28,426 (18,363)
Cash and cash equivalents, beginning 183,321 154,895 173,258 -------- -------- ---------
Cash and cash equivalents, ending $ 239,549 $ 183,321 $ 154,895 ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Fawcett's Pond Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Reconciliation of excess of revenue over expenses to net cash provided by operating activities Excess of revenue over expenses $ 47,439 $ 82,495 $ 11,748 Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities Depreciation 136,241 134,182 120,910 Amortization 8,162 8,162 8,162 Interest earned on reserve for replacements (6,584) (3,980) (2,776) Changes in assets and liabilities Decrease in tenant accounts receivable - 71 1,776 Increase in accounts receivable - other (746) (147) (107) Decrease (increase) in mortgage escrow deposits 378 (3,704) 349 (Increase) decrease in tenants' security deposits - net (138) (899) 4,000 (Increase) decrease in prepaid expenses (118) 670 (524) Increase in accounts payable and accrued expenses 5,263 758 2,266 Decrease in accrued interest payable (266) (248) (229) Decrease in rent deferred credits (1,689) (139) (2,582) -------- ------- --------
Net cash provided by operating activities $ 187,942 $ 217,221 $ 142,993 ========= ======== =========
The accompanying notes are an integral part of these financial statements.
Fawcett's Pond Apartments Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the State of Massachusetts on June 30, 1983, for the purpose of constructing and operating a rental housing project under Section 221(d)(4) of the National Housing Act. The project consists of 100 units located in Hyannis, Massachusetts and is currently operating under the name of Fawcett's Pond Apartments. All leases between the Partnership and the tenants of the property are operating leases.
Cash distributions are limited by agreements between the Partner-ship and HUD to the extent of surplus cash as defined by HUD.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and repurchase agreements with maturities of three months or less when acquired, stated at cost, which approximates market.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used.
Deferred Financing Costs
Deferred financing costs are amortized over the term of the mortgage using the straight-line method.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANT SECURITY DEPOSITS
At December 31, 1995 and 1994, the Partnership maintained tenant security deposits of $4,843 and $3,772, respectively, in an interest-bearing escrow bank account. At December 31, 1995, tenant security deposits included $19,557 in a U.S. Treasury Bill at a 5.483% interest rate which matures June 1, 1996. At December 31, 1994, tenant security deposits included $19,485 in a U.S. Treasury Bill at a 6.124% interest rate which matured on June 1, 1995. The investment in a U.S. Treasury Bill is held to maturity and is carried at cost which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the Government National Mortgage Association (GNMA) which is insured by the Federal Housing Administration (FHA) and is collateralized by a deed of trust on the rental property. The mortgage, which is due April 1, 2024, is payable in equal monthly installments of principal and interest totalling $30,746 and bears interest at a rate of 7.5%. Interest incurred during December 31, 1995, 1994, and 1993 amounted to $326,076, $329,165, and $332,719, respectively.
Under agreements with the mortgage lender and FHA, the Partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
1996 $45,914 1997 $49,479 1998 $53,320 1999 $57,459 2000 $61,920
Management believes it is not practical to estimate the fair value of the mortgage payable insured by FHA because programs with similar characteristics are not currently available to the Partnership.
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Partnership on behalf of qualified tenants for all units. The agreement expires August 19, 2002. Total housing assistance payments received during 1995, 1994, and 1993 were $768,409, $769,446, and $752,000, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Due to General Partners
At December 31, 1995 and 1994, due to general partner consisted of unpaid developer advances of $277,400. These advances are non-interest bearing and payable from proceeds upon sale or refinancing of the project after certain priority payments, as defined in the Partnership agreement.
Management Fees
Management fees of 5% of gross receipts are paid to CMJ Management Company, Inc., an affiliate of the general partner, for its services as managing agent to the project pursuant to a management agreement approved by HUD. Such fees amounted to $46,933, $46,686, and $45,886 for the years ended December 31, 1995, 1994, and 1993, respectively. In addition, CMJ Management Company received incentive management fees of $6,303, $6,303, and $44,124 for the years ended December 31, 1995, 1994, and 1993, respectively.
Reimbursed Costs
CMJ Management Company, Inc., an affiliate of the general partner, makes monthly expenditures (primarily payroll, central office accounting services, direct marketing and insurance costs) on behalf of the Partnership which are reimbursed the following month.
NOTE F - TAX BASIS INCOME
The reconciliation of the excess of revenue over expenses reported in the accompanying statements of operations with the profit reported on the federal income tax basis follows:
1995 1994 1993 ---- ---- ----
Excess of revenue over expenses per statement of operations $ 47,439 $ 82,495 $ 11,748 Additional depreciation and amortization on tax basis (75,550) (63,352) (107,925) (Decrease) increase in deferred rental income (1,689) (139) (2,582) -------- -------- --------- Income (loss) for federal tax purposes $(29,800) $ 19,004 $ (98,759) ======== ========= =========
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in one bank, which consists of an operating account and security deposits held in trust. The operating account is comprised of an overnight repurchase agreement backed by government securities and a checking account. The security deposits held in trust are comprised of a United States Treasury Bill and a savings account. Account balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. The Partnership also has a reserve for replacements and escrow funds totalling $257,677 at December 31, 1995, on deposit with Reilly Mortgage Group, Inc.
INDEPENDENT AUDITORS' REPORT
To the Partners Quaker Meadows Apartments Company
We have audited the accompanying balance sheets of Quaker Meadows Apartments Company as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit, and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Quaker Meadows Apartments Company as of December 31, 1995 and 1994, and the results of its operations, changes in partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 30, 1996
Quaker Meadows Apartments Company
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 154,566 $ 197,822 Accounts receivable 2,772 1,558 Other receivables 16,114 6,522 Prepaid expenses 10,394 10,219 ----------- ----------- Total current assets 183,846 216,121 ----------- -----------
RESTRICTED FUNDS Mortgage escrow deposits 16,938 16,391 Reserve for replacements 265,353 239,160 Tenants' security deposits 20,009 19,174 ----------- ----------- 302,300 274,725 ----------- ----------- PROPERTY AND EQUIPMENT, less accumulated depreciation of $3,526,272 and $3,269,189 4,208,046 4,441,160 ----------- -----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $54,396 and $50,331 75,755 79,820 ----------- ----------- Total assets $ 4,769,947 $ 5,011,826 =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES Current maturities of mortgage payable $ 94,935 $ 84,413 Accounts payable and accrued expenses 42,822 42,481 Accrued interest payable 60,082 60,082 Rent deferred credits 2,519 5,102 ----------- ----------- Total current liabilities 200,358 192,078
LONG-TERM LIABILITIES Mortgage payable, less current maturities 5,201,613 5,296,548 Due to general partner 1,072,952 1,072,952 Tenants' security deposits 15,892 16,205 ----------- ----------- Total liabilities 6,490,815 6,577,783
PARTNERS' DEFICIT (1,720,868) (1,565,957) ----------- -----------
Total liabilities and partners' deficit $ 4,769,947 $ 5,011,826 =========== ===========
The accompanying notes are an integral part of these financial statements.
Quaker Meadows Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Revenue Rental income $1,596,066 $1,589,728 $1,574,805 Vacancies (5,331) (350) (993) Other income 27,834 13,819 9,548 ---------- ---------- ----------
Total revenue 1,618,569 1,603,197 1,583,360 ---------- ---------- ---------- Expenses Operating expenses Administration 122,910 128,528 121,823 Management fees to affiliate 63,546 63,567 62,785 Utilities 125,584 122,063 112,540 Maintenance and repairs 310,136 282,689 258,222 Insurance 15,416 16,208 18,083 Real estate taxes 65,161 65,218 65,391 ---------- ---------- ---------- Total operating expenses 702,753 678,273 638,844 ---------- ---------- ---------- Nonoperating expenses Interest 671,237 680,607 688,937 Depreciation and amortization 261,148 258,164 252,264 Incentive management fee to affiliate 45,390 38,239 34,761 Social services expenses 23,062 20,081 18,632 ---------- ---------- ---------- Total nonoperating expenses 1,000,837 997,091 994,594 ---------- ---------- ---------- Total expenses 1,703,590 1,675,364 1,633,438 ---------- ---------- ---------- EXCESS OF EXPENSES OVER REVENUE $ (85,021) $ (72,167) $ (50,078) ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Quaker Meadows Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
General Limited Partner Partner Total ------ ------ -----
Partners' deficit, December 31, 1992 $(311,725) $(1,011,469) $(1,323,194)
Distributions (2,918) (55,457) (58,375)
Excess of expenses over revenue (2,504) (47,574) (50,078) --------- ----------- -----------
Partners' deficit, December 31, 1993 (317,147) (1,114,500) (1,431,647)
Distributions (3,107) (59,036) (62,143)
Excess of expenses over revenue (3,608) (68,559) (72,167) --------- ----------- -----------
Partners' deficit, December 31, 1994 (323,862) (1,242,095) (1,565,957)
Distributions (3,494) (66,396) (69,890)
Excess of expenses over revenue (4,251) (80,770) (85,021) --------- ----------- -----------
Partners' deficit, December 31, 1995 $(331,607) $(1,389,261) $(1,720,868) ========= =========== ===========
Profit and loss sharing percentage 5% 95% 100% == ==== ====
The accompanying notes are an integral part of these financial statements.
Quaker Meadows Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Cash flows from operating activities Rental income received $1,572,590 $1,588,714 $1,569,771 Interest received 22,043 13,212 12,184 Other income received 10,547 2,233 42 Administration expenses paid (122,910) (137,263) (122,857) Management fees paid (63,546) (63,567) (62,785) Utilities paid (119,506) (122,063) (104,641) Maintenance and repair expenses paid (315,873) (312,077) (217,647) Real estate taxes paid (65,161) (65,218) (65,319) Property insurance paid (16,081) (15,834) (18,083) Interest paid on mortgage (670,747) (680,102) (688,937) Incentive fees paid (68,452) (58,320) (53,393) Increase in mortgage escrow deposits (547) (5,463) - Net security deposits (paid) received (1,148) (863) 280 --------- --------- --------
Net cash provided by operating activities 161,209 143,389 248,615 --------- --------- --------
Cash flows from investing activities Acquisition of land, building and equipment (23,969) (13,751) (61,602) Increase in reserve for replacements (26,193) (26,565) (63) --------- --------- -------- Net cash used in investing activities (50,162) (40,316) (61,665)
Cash flows from financing activities Repayment of mortgage payable (84,413) (75,058) (66,739) Distributions (69,890) (62,143) (58,375) --------- --------- -------- Net cash used in financing activities (154,303) (137,201) (125,114) --------- --------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (43,256) (34,128) 61,836
Cash and cash equivalents, beginning 197,822 231,950 170,114 --------- --------- -------- Cash and cash equivalents, ending $ 154,566 $ 197,822 $231,950 ========= ========= ========
Quaker Meadows Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Reconciliation of excess of expenses over revenue to net cash provided by operating activities Excess of expenses over revenue $ (85,021) $ (72,167) $ (50,078) Adjustments to reconcile excess of expenses over revenue to net cash provided by operating activities Depreciation and amortization 261,148 258,164 252,264 Changes in assets and liabilities (Increase) decrease in accounts receivable (10,806) 1,073 2,831 Increase in mortgage escrow deposits (547) (5,463) - (Increase) decrease in tenants' security deposits - net (1,148) (864) 280 (Increase) decrease in prepaid expenses (175) 879 (1,034) Increase (decrease) in accounts payable and accrued expenses 341 (38,122) 48,546 Decrease in rent deferred credits (2,583) (111) (4,194) ---------- ----------- ----------
Net cash provided by operating activities $ 161,209 $ 143,389 $ 248,615 ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Quaker Meadows Apartments Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the State of Massachusetts on February 1, 1982, for the purpose of constructing and operating a rental housing project under Massachusetts Housing Finance Agency's (MHFA) housing program. The project consists of 104 units located in Lynn, Massachusetts and is currently operating under the name of Quaker Meadows Apartments. All leases between the Partnership and tenants of the property are operating leases.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid debt instruments with maturities of three months or less when acquired, stated at cost which approximates fair value.
Property and Equipment
Property and equipment are carried at cost. The Partnership provides for depreciation by use of the straight-line method over estimated useful lives of the assets as follows: buildings, 30 years, and equipment, 3-8 years.
Deferred Financing Costs
Deferred financing costs, which consist principally of financing fees are amortized by the straight-line method over the life of the related debt.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS
At December 31, 1995 and 1994, the Partnership maintained tenants' security deposits of $20,009 and $19,174 in an interest-bearing escrow bank account and U.S. Treasury bills, with a maturity of six months or less when acquired, stated at cost, which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the Massachusetts Housing Finance Agency (MHFA), due September 1, 2013, and payable in equal monthly installments of $62,930 (principal and interest) at an interest rate of 12.5%. The terms of the permanent mortgage also require monthly escrow deposits for real estate taxes and a replacement reserve.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
1996 $ 94,935 1997 $106,768 1998 $119,880 1999 $135,044 2000 $151,877
Management believes it is not practical to estimate the fair value of the mortgage payable insured by MHFA because programs with similar characteristics are not currently available to the Partnership.
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
The Federal Housing Administration (FHA) has contracted with the Partnership under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Partnership on behalf of qualified tenants. The agreement expires May 2002 and has two five-year renewal options. Total housing assistance payments received during 1995, 1994 and 1993 were $1,335,437, $1,321,357, and $1,301,889, respectively.
NOTE E - RECONCILIATION OF FINANCIAL STATEMENT INCOME TO TAX BASIS INCOME
The reconciliation of the loss reported in the accompanying statement of operations with the loss reported on a federal income tax basis follows:
1995 1994 1993 ---- ---- ----
Net loss per statement of operations $(85,021) $(72,167) $(50,078) Decrease (increase) in depreciation 8,071 (18,503) (36,813) (Decrease) increase in deferred rental income (2,583) (111) (4,194) -------- -------- -------- Loss for federal income tax purposes $(79,533) $(90,781) $(91,085) ======== ======== ========
NOTE F - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, due to the general partner consists of development advances totaling $1,072,952. These advances are non-interest bearing and payable from proceeds upon the sale or refinancing of the project as defined in the Partnership agreement.
Management fees of 4% of gross receipts are paid to CMJ Management Company, Inc., an affiliate of the general partner, for its services as management agent to the project, pursuant to a management agreement approved by MHFA. Such fees amounted to $63,546, $63,567, and $62,785, and for the years ended December 31, 1995, 1994 and 1993, respectively. In addition, CMJ Management Company, Inc., received incentive management fees of $45,390, $38,239 and $34,761 for the years ended December 31, 1995, 1994 and 1993 respectively.
CMJ Management Company, Inc., an affiliate of the general partner, makes monthly expenditures (primarily payroll, central office accounting, direct marketing and insurance costs) on behalf of the Partnership which are reimbursed the following month.
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances with one bank, which consists of an overnight repurchase agreement backed by government securities and an operating checking account. Account balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by each bank. The Partnership also has a reserve for replacements and escrow funds totaling $282,291 on deposit with the Massachusetts Housing Finance Agency.
INDEPENDENT AUDITORS' REPORT
To the Partners South Laurel Apartments Limited Partnership
We have audited the accompanying balance sheets of South Laurel Apartments Limited Partnership as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 South Laurel Apartments Limited Partnership as of December 31, 1995 and 1994, and the results of its operations, changes in partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 27, 1996
South Laurel Apartments Limited Partnership
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 282,541 $ 329,635 Accounts receivable 98,186 67,210 Other receivables 63,452 10,134 Prepaid expenses 171,166 214,272 ----------- ----------- Total current assets 615,345 621,251
----------- ----------- RESTRICTED DEPOSITS AND FUNDED RESERVES Tenants' security deposits 110,774 115,697 Mortgage escrow deposits 159,086 169,745 Reserve for replacements 124,923 210,867 ----------- ----------- 394,783 496,309 ----------- ----------- PROPERTY AND EQUIPMENT, less accumulated depreciation of $5,949,207 and $5,515,858 9,189,556 9,352,404 ----------- -----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $161,272 and $149,110 349,454 361,616 ----------- -----------
Total assets $10,549,138 $10,831,580 =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES Current maturities of mortgage payable $ 132,273 $ 122,744 Accounts payable and accrued expenses 151,002 146,012 Accrued interest payable 75,746 76,513 Rent deferred credits 56,668 32,074 Deferred income - laundry 45,000 50,000 ----------- ----------- Total current liabilities 460,689 427,343
LONG-TERM LIABILITIES Mortgage payable, less current maturities 11,987,062 12,119,335 Due to general partner 645,989 645,989 Tenants' security deposits 106,558 99,501 ----------- -----------
Total liabilities 13,200,298 13,292,168 PARTNERS' DEFICIT (2,651,160) (2,460,588) ----------- ----------- Total liabilities and partners' deficit $10,549,138 $10,831,580 =========== ===========
The accompanying notes are an integral part of these financial statements.
South Laurel Apartments Limited Partnership
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Revenue Rental income $4,188,172 $4,230,214 $4,295,874 Vacancies (210,793) (233,900) (466,248) Financial revenue 27,955 15,885 15,232 Other income 87,625 81,660 82,531 ---------- ---------- ----------
Total revenue 4,092,959 4,093,859 3,927,389 ---------- ---------- ----------
Expenses Operating expenses Marketing 118,426 99,484 262,768 Administration 368,243 434,060 337,689 Utilities 556,935 553,622 593,199 Management fee 215,298 211,572 205,377 Maintenance and repairs 647,209 588,592 538,752 Salaries 545,833 498,319 461,609 Insurance 68,236 85,604 102,767 Real estate taxes 264,590 257,736 265,935 ---------- ---------- ----------
Total operating expenses 2,784,770 2,728,989 2,768,096 ---------- ---------- ----------
Nonoperating expenses Interest 913,226 922,124 933,875 Mortgage insurance premium 60,882 61,475 62,025 Depreciation and amortization 445,511 413,901 388,703 Incentive management fee 806 - 23,563 Miscellaneous financial expenses 4,142 3,801 - ---------- ---------- ----------
Total nonoperating expenses 1,424,567 1,401,301 1,408,166 ---------- ---------- ----------
Total expenses 4,209,337 4,130,290 4,176,262 ---------- ---------- ----------
EXCESS OF EXPENSES OVER REVENUE $ (116,378) $ (36,431) $ (248,873) ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
South Laurel Apartments Limited Partnership
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
Special Class A Class B General Limited Limited Limited Partners Partners Partner Partners Total ------- ------- ------- ------- -----
Partners' deficit, December 31, 1992 $ (97,479) $(1,241,052) $(263,986) $(445,663)$(2,048,180)
Distributions (1,083) (4,333) (92,079) (10,833) (108,328)
Excess of expenses over revenue (2,489) (9,955) (211,542) (24,887) (248,873) --------- ---------- --------- -------- ----------
Partners' deficit, December 31, 1993 (101,051) (1,255,340) (567,607) (481,383)(2,405,381)
Distributions (188) (751) (15,960) (1,877) (18,776)
Excess of expenses over revenue (364) (1,457) (30,967) (3,643) (36,431) --------- ---------- --------- -------- ----------
Partners' deficit, December 31, 1994 (101,603) (1,257,548) (614,534) (486,903)(2,460,588)
Distributions (742) (2,967) (63,065) (7,420) (74,194)
Excess of expenses over revenue (1,164) (4,655) (98,921) (11,638) (116,378) --------- ---------- --------- -------- ----------
Balance, December 31, 1995 $(103,509)$(1,265,170) $(776,520) $(505,961)$(2,651,160) ========= =========== ========= ========= ==========
Profit and loss sharing percentage 1% 4% 85% 10% 100% == == === === ====
The accompanying notes are an integral part of these financial statements.
South Laurel Apartments Limited Partnership
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1996 1995 1994 ---- ---- ---- Cash flows from operating activities Rental income received $ 3,970,997 $3,985,744 $3,845,652 Interest received 21,737 15,694 9,348 Other income received 82,130 82,103 62,386 Administration expenses paid (616,037) (642,875) (711,618) Management fees paid (215,298) (224,966) (205,377) Utilities paid (543,544) (583,140) (565,116) Maintenance and repairs expenses paid (1,026,412) (893,727) (784,262) Real estate taxes paid (265,876) (253,363) (272,051) Payroll taxes paid (45,663) (50,570) (53,534) Property insurance paid (46,696) (24,158) (33,752) Other taxes and insurance paid (36,565) (55,401) (72,827) Mortgage insurance paid (1,465) (60,682) (123,700) Interest paid on mortgage (913,993) (922,836) (931,041) Miscellaneous financial expenses paid (4,142) (3,801) (3,494) (Increase) decrease in mortgage escrow deposits 11,980 (59,029) 58,522 Mortgagor entity expenses paid (806) - (23,563) Net security deposits received (paid) 10,659 52,083 (2,340) ---------- --------- --------- Net cash provided by operating activities 381,006 361,076 193,233 ---------- --------- ---------
Cash flows from investing activities Additions to property and equipment (270,501) (155,382) (133,154) Deposits to reserve for replacements (52,520) (120,744) (52,520) Withdrawals from reserve for replacements 91,859 153,186 162,094 ---------- --------- --------- Net cash used in investing activities (231,162) (122,940) (23,580) ---------- --------- --------- Cash flows from financing activities Mortgage principal payments (122,744) (113,902) (105,696) Distributions to partners (74,194) (18,776) (108,328) ---------- --------- --------- Net cash used in financing activities (196,938) (132,678) (214,024) ---------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (47,094) 105,458 (44,371)
Cash and cash equivalents, beginning 329,635 224,177 268,548 ---------- --------- --------- Cash and cash equivalents, ending $ 282,541 $ 329,635 $ 224,177 =========== ========== ==========
South Laurel Apartments Limited Partnership
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1996 1995 1994 ---- ---- ----
Reconciliation of excess of expenses over revenue to net cash provided by operating activities Excess of expenses over revenue $ (116,378) $ (36,431) $ (248,873) Adjustments to reconcile excess of expenses over revenue to net cash provided by operating activities Depreciation 433,349 401,739 376,541 Amortization 12,162 12,162 12,162 Interest on reserve for replacements (6,218) (191) (5,884) Changes in assets and liabilities (Increase) decrease in tenant accounts receivable (30,976) 17,829 (1,638) (Increase) decrease in accounts receivable - other (495) 5,443 (15,145) Decrease (increase) in prepaid expenses 43,106 7,129 (65,670) Decrease (increase) in mortgage escrow deposits 10,659 (59,029) 58,522 Increase (decrease) in accounts payable and accrued expenses 4,990 (5,547) 73,557 Decrease in accrued interest payable (767) (712) (660) Tenants' security deposits received (paid) - net 11,980 52,083 (2,340) Increase (decrease) in rent - deferred credits 24,594 (28,399) 17,661 Decrease in deferred laundry income (5,000) (5,000) (5,000) ---------- --------- ---------
Net cash provided by operating activities $ 381,006 $ 361,076 $ 193,233 ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
South Laurel Apartments Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the State of Maryland on June 30, 1983, for the purpose of constructing and operating a rental housing project under Section 221(d)(4) of the National Housing Act. The project consists of 520 units located in Laurel, Maryland and is currently operating under the name of Villages at Montpelier. All leases between the Partnership and the tenants of the property are operating leases.
Cash distributions are limited by agreements between the Partner-ship and HUD to the extent of surplus cash as defined by HUD.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and repurchase agree-ments with a bank with maturities of three months or less when acquired, stated at cost, which approximates market.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used.
Deferred Financing Costs
Deferred financing costs are amortized over the term of the mortgage using the straight-line method.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS
At December 31, 1995 and 1994, the Partnership maintained tenant security deposits of $11,906 and $16,476, respectively, in an interest-bearing escrow bank account. At December 31, 1995, tenant security deposits included $98,868 in a U.S. Treasury Bill at a 5.45% interest rate which matures March 21, 1996. At December 31, 1994, tenant security deposits included $99,221 in a U.S. Treasury Bill at a 5.5% interest rate which matured on February 23, 1995. The investments in U.S. Treasury Bills are held to maturity and are carried at cost which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage is insured by the Federal Housing Administration (FHA) and collateralized by a deed of trust on the rental property. The mortgage, which is due December 1, 2023, is payable in equal monthly installments of principal and interest totalling $86,395 and bears interest at a rate of 7.5%. Interest incurred during 1995, 1994, and 1993 amounted to $913,226, $922,124, and $933,875, respectively.
Under agreements with the mortgage lender and FHA, the Partnership is required to make monthly escrow deposits for taxes, insurance and replacement of partnership assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
1996 $132,273 1997 $142,542 1998 $153,608 1999 $165,533 2000 $178,384
Management believes it is not practical to estimate the fair value of the mortgage payable insured by FHA because programs with similar characteristics are not currently available to the Partnership.
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Partnership on behalf of qualified tenants for 20% of the rental units. The agreement expires July 31, 1997. Total housing assistance payments received during 1995, 1994, and 1993 were $677,108, $694,002, and $685,324, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Due to General Partner
At December 31, 1995 and 1994, due to general partner consists of unpaid development advances of $645,989. These advances are non-interest bearing and payable from proceeds upon sale or refinancing of the project after certain priority payments as defined in the Partnership agreement.
Management Fees
Management fees of 5.25% of gross receipts are paid to CMJ Man-agement Company, Inc., an affiliate of the general partner, for its services as management agent to the project pursuant to a management agreement approved by HUD. Such fees amounted to $215,298, $211,572, and $205,377 for the years ended December 31, 1995, 1994 and 1993, respectively. In addition, CMJ Management Company, Inc., received incentive management fees of $808, $ - 0 -, and $23,563 for the years ended December 31, 1995, 1994 and 1993, respectively.
Reimbursed Costs
CMJ Management Company, Inc., an affiliate of the general part-ner, makes monthly expenditures (primarily payroll, central office accounting, direct marketing and insurance costs) on behalf of the Partnership which are reimbursed the following month.
NOTE F - TAX BASIS LOSS
The reconciliation of the excess of expenses over revenue reported in the accompanying statement of operations with the loss reported on a federal income tax basis follows:
1995 1994 1993 ---- ---- ----
Excess of expenses over revenue per statement of profit and loss $(116,378) $ (36,431) $(248,873) Increase (decrease) in deferred rental and laundry income 19,593 (33,399) 12,661 Additional depreciation and amortization (181,224) (172,836) (190,322) ---------- ---------- ---------
Loss for federal income tax purposes $(278,009) $(242,666) $(426,534) ========= ========= =========
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in two banks. The operating account consists of an overnight repurchase agreement backed by government securities and a checking account. The tenant security deposit accounts are held in trust and consist of a checking account and a United States Treasury Bill. The balances are insured up to $100,000 by each bank. The Partnership also has $284,009 of money market funds held in escrow by Reilly Mortgage Group, Inc., carried at cost, which approximates fair value.
INDEPENDENT AUDITORS' REPORT
To the Partners Marvin Gardens Associates
We have audited the accompanying balance sheets of Marvin Gardens Associates as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit, and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Marvin Gardens Associates as of December 31, 1995 and 1994, and the results of its operations, changes in its partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 27, 1996
Marvin Gardens Associates
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994 ---- ---- CURRENT ASSETS Cash $ 15,301 $ 65,733 Accounts receivable 837 812 Accounts receivable - tenant subsidy 3,221 3,036 Prepaid expenses 6,643 6,046 ---------- ---------- Total current assets 26,002 75,627 ---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES Tenants' security deposits 9,241 8,865 Real estate tax impound fund 6,128 6,319 Replacement reserve fund 116,539 123,853 Insurance impound fund 4,190 3,902 Interest income receivable - impounds 1,198 1,098 ---------- ---------- 137,296 144,037 ---------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $964,277 and $891,240 1,443,439 1,483,640 ---------- ----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $18,199 and $16,859 28,170 29,510 ---------- ----------
Total assets $1,634,907 $ 1,732,814 ========== ===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES Current maturities of mortgage payable $ 46,375 $ 42,757 Accounts payable 14,539 13,736 Accrued expenses 4,241 3,886 Deferred rental income 2,055 - ---------- ---------- Total current liabilities 67,210 60,379
Mortgage payable, less current maturities 1,660,927 1,707,302 Due to general partner 194,019 194,019 Tenants' security deposits 6,960 6,773 ---------- ---------- Total liabilities 1,929,116 1,968,473
PARTNERS' DEFICIT (294,209) (235,659 ---------- ----------)
Total liabilities and partners' deficit $1,634,907 $1,732,814 ========== ==========
The accompanying notes are an integral part of these financial statements.
Marvin Gardens Associates
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Revenue Rental income $409,395 $399,915 $392,060 Vacancies (1,533) (2,258) (901) Financial revenue 7,817 5,989 6,669 Other income 3,174 3,430 3,451 -------- -------- --------
Total revenue 418,853 407,076 401,279 -------- -------- --------
Expenses Operating expenses Administration 15,866 17,876 12,677 Utilities 27,992 22,262 19,051 Management fee 17,052 15,852 14,652 Maintenance and repairs 73,953 58,546 68,196 Salaries 57,141 55,854 52,215 Insurance 7,839 7,361 6,320 Real estate taxes 21,824 21,152 19,888 -------- -------- --------
Total operating expenses 221,667 198,903 192,999 -------- -------- --------
Non-operating expenses Interest 141,056 144,392 147,467 Depreciation and amortization 74,377 70,272 69,033 Incentive management fee 12,090 1,970 - -------- -------- --------
Total non-operating expenses 227,523 216,634 216,500 -------- -------- --------
Total expenses 449,190 415,537 409,499 -------- -------- -------- EXCESS OF EXPENSES OVER REVENUE $ (30,337) $ (8,461) $ (8,220) ========= ======== ========
The accompanying notes are an integral part of these financial statements.
Marvin Gardens Associates
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
Special General Limited Limited Partner Partner Partner Total ------- ------- ------- ------
Beginning, December 31, 1992 $(7,904) $(65,738) $(124,255) $(197,897)
Distributions (81) (322) (7,648) (8,051)
Excess of expenses over revenue (82) (329) (7,809) (8,220) ------ -------- --------- ---------
Balance, December 31, 1993 (8,067) (66,389) (139,712) (214,168)
Distributions (130) (521) (12,379) (13,030)
Excess of expenses over revenue (85) (338) (8,038) (8,461) ------ -------- --------- ---------
Balance, December 31, 1994 (8,282) (67,248) (160,129) (235,659)
Distributions (282) (1,129) (26,802) (28,213)
Excess of expenses over revenue (303) (1,214) (28,820) (30,337) ------ -------- --------- ---------
Balance, December 31, 1995 $(8,867) $(69,591) $(215,751) $(294,209) ======= ======== ========= =========
Profit and loss sharing percentage 1% 4% 95% 100% == == === ====
The accompanying notes are an integral part of these financial statements.
Marvin Gardens Associates
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Cash flows from operating activities Rental income received $ 409,707 $ 393,918 $ 398,713 Interest received 1,797 1,884 1,571 Other income received 3,074 3,430 3,451 Administration expenses paid (15,866) (17,876) (12,676) Management fees paid (16,952) (15,852) (14,615) Utilities paid (26,892) (22,262) (21,396) Salaries and wages paid (43,690) (42,383) (39,336) Maintenance and repairs expenses paid (74,165) (71,309) (63,664) Real estate taxes paid (21,824) (21,152) (19,888) Payroll taxes paid (13,281) (13,471) (12,859) Property and other insurance paid (8,436) (7,433) (7,160) Interest paid on mortgage (141,056) (144,392) (147,467) Decrease (increase) in real estate tax impound fund 191 (35) (210) Incentive management fee paid (12,090) (1,970) - Increase in insurance impound fund (288) (196) (234) Net security deposits (paid) received (189) (1) 89 -------- -------- ---------
Net cash provided by operating activities 40,040 40,900 64,319 -------- -------- ---------
Cash flows from investing activities Additions to property and equipment (32,836) (9,776) (14,034) Deposits to reserve for replacements (16,064) (15,700) (15,426) Withdrawals from reserve for replacements 29,398 37,473 22,919 -------- -------- ---------
Net cash (used in) provided by investing activities (19,502) 11,997 (6,541) -------- -------- ---------
Cash flows from financing activities Repayment of mortgage payable (42,757) (39,422) (36,346) Distributions (28,213) (13,030) (8,051) -------- -------- ---------
Net cash used in financing activities (70,970) (52,452) (44,397) -------- -------- ---------
NET (DECREASE) INCREASE IN CASH (50,432) 445 13,381
Cash, beginning 65,733 65,288 51,907 -------- -------- ---------
Cash, ending $ 15,301 $ 65,733 $ 65,288 ========= ========= =========
Marvin Gardens Associates
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Reconciliation of excess of expenses over revenue to net cash provided by operating activities Excess of expenses over revenue $ (30,337) $ (8,461) $ (8,220) Adjustments to reconcile excess of expenses over revenue to net cash provided by operating activities Depreciation 73,037 68,932 67,693 Amortization of deferred financing costs 1,340 1,340 1,340 Interest earned on reserve for replacements (6,020) (5,457) (5,151) Changes in assets and liabilities (Increase) decrease in accounts receivable - rent subsidy (185) (3,036) 7,711 Increase in tenant accounts receivable (25) (676) (99) (Increase) decrease in interest income receivable - impounds (100) 1,352 23 Increase in prepaid expense (597) (72) (840) Decrease (increase) in real estate tax impound fund 191 (35) (210) Increase in insurance impound fund (288) (196) (234) Increase (decrease) in accounts payable - trade 803 (12,793) 2,244 Increase in accrued expenses 355 30 31 Increase (decrease) in deferred rent credits 2,055 (27) (58) Net security deposits (paid) received (189) (1) 89 -------- -------- ---------
Net cash provided by operating activities $ 40,040 $ 40,900 $ 64,319 ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Marvin Gardens Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Marvin Gardens Associates (the Partnership) is a California Limited Partnership which commenced operations in February 1983. The Partnership owns and operates a 37-unit rental housing project (the project). The project operates under Section 8 of the National Housing Act and, therefore, receives monthly rental subsidies from the U.S. Department of Housing and Urban Development (HUD). The agreement expires in July 2003 and has two five year renewal options. For the years ended December 31, 1995, 1994 and 1993, rental subsidies for the project totaled $337,072, $332,339, and $324,256, respectively. All leases between the Partnership and the tenants of the property are operating leases.
Cash distributions are limited by agreements between the Partner-ship and the California Housing Finance Agency (CHFA) to $20,151 per year to the extent of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are carried at cost. The Partnership provides for depreciation by use of the straight-line method over estimated useful lives as follows: buildings, 30 years and equipment, 3-8 years.
Deferred Financing Costs
Deferred financing costs are amortized by the straight-line method over the life of the related debt.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND
At December 31, 1995 and 1994, the Partnership maintained tenants' security deposit fund balances of $9,241 and $8,865, respectively, in an interest bearing bank account and a certificate of deposit.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a mortgage from the CHFA which is due on June 1, 2013 and is collateralized by a deed of trust on the rental property and the CHFA has been granted a security interest in rental subsidies. The terms of the mortgage require monthly principal and interest payments of $15,138 and bear interest at the rate of 8.15%. Interest charged to operations during 1995, 1994 and 1993 amounted to $141,056, $144,392, and $147,467, respectively. Terms of the loan agreement also require monthly escrow deposits to be made to fund real estate tax, insurance, and a replacement reserve account.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
1996 $46,375 1997 $50,299 1998 $54,555 1999 $59,171 2000 $64,178
Management believes it is not practical to estimate the fair value of the mortgage payable to CHFA because programs with similar characteristics are not currently available to the Partnership.
NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME TO TAX BASIS INCOME
The reconciliation of the excess (deficiency) of revenue over expenses reported in the accompanying statements of operations with the loss reportable on a federal income tax basis for the years ended December 31, 1995, 1994 and 1993 follows:
1995 1994 1993 ---- ---- ----
Excess of expenses over revenue per statements of operations $(30,337) $ (8,461) $ (8,220) Additional depreciation for tax purposes (12,556) (12,630) (30,730) Deferred rental income adjustments 2,055 (27) (58) -------- --------- --------
Loss for federal income tax purposes $(40,838) $(21,118) $(39,008) ======== ======== ========
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, due to developer/general partner consisted of development advances of $194,019. These advances are non-interest bearing and payable from proceeds upon sale or refinancing of the project after certain priority payments as defined in the Partnership agreement.
The Partnership has a contractual management agreement with CMJ Management Company, Inc., an affiliate of the general partner, to provide property management services for the project. CMJ Management Company, Inc. has hired an unaffiliated management agent to provide those services on its behalf. Total management fees paid for each of the years ended December 31, 1995, 1994 and 1993 were $17,052, $15,852, and $14,652, respectively. Effective September 1994, CMJ Management Company, Inc. receives 30% of the monthly fee which totaled $5,082 for the year ended December 31, 1995. In addition, for the years ended December 31, 1995 and 1994, incentive fees paid to CMJ Management Company, Inc. totalled $12,090 and $1,970, respectively, based on the prior years surplus cash, as defined.
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership's real estate tax impound fund, replacement reserve fund, and insurance impound fund totalling $126,857 as of December 31, 1995 are on deposit with CHFA.
INDEPENDENT AUDITORS' REPORT
To the Partners Colonial Farms, Ltd.
We have audited the accompanying balance sheets of Colonial Farms, Ltd. as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit, and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Colonial Farms, Ltd. as of December 31, 1995 and 1994, and the results of its operations, changes in its partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 27, 1996
Colonial Farms, Ltd.
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994 ---- ----
CURRENT ASSETS Cash and cash equivalents $ 60,141 $ 145,241 Rents receivable 5,961 3,686 Prepaid expenses 8,789 8,205 --------- ----------
Total current assets 74,891 157,132 --------- ----------
RESTRICTED FUNDS Tenants' security deposits 22,533 20,488 Real estate tax impound fund 14,518 13,511 Replacement reserve fund 232,164 212,730 Insurance impound fund 7,023 5,171 Reserve fund for operations 40,781 43,478 Interest income receivable - impounds 2,431 2,265 --------- ----------
319,450 297,643 --------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $1,690,985 and $1,573,369 2,365,370 2,445,064 --------- ----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $31,309 and $29,032 44,458 46,735 --------- ----------
Total assets $ 2,804,169 $ 2,946,574 =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES Current maturities of mortgage payable $ 70,134 $ 64,024 Accounts payable 22,109 27,724 Accrued expenses 33,736 33,330 Deferred rental income 369 94 --------- ----------
Total current liabilities 126,348 125,172
Mortgage payable, less current maturities 2,789,928 2,860,062 Due to general partner 318,115 318,115 Tenants' security deposits 17,337 15,699 --------- ----------
Total liabilities 3,251,728 3,319,048
PARTNERS' DEFICIT (447,559) (372,474) --------- ----------
Total liabilities and partners' deficit $ 2,804,169 $ 2,946,574 ============ ===========
The accompanying notes are an integral part of these financial statements.
Colonial Farms, Ltd.
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Revenue Rental income $785,378 $776,784 $ 762,473 Vacancies (24,535) (26,649) (11,925) Financial revenue 16,256 12,817 18,002 Other income 10,237 7,132 6,844 -------- -------- ---------
Total revenue 787,336 770,084 775,394 -------- -------- ---------
Expenses Operating expenses Administration 22,779 19,504 23,655 Utilities 31,659 30,713 24,426 Management fee 39,600 38,435 37,200 Maintenance and repairs 144,185 139,278 169,881 Salaries 65,249 55,219 77,000 Insurance 12,074 12,067 10,888 Real estate taxes 39,762 39,272 38,860 -------- -------- ---------
Total operating expenses 355,308 334,488 381,910 -------- -------- ---------
Nonoperating expenses Interest 264,913 270,491 275,583 Depreciation and amortization 119,893 117,523 116,318 Incentive management fee 16,435 20,109 21,179 Earned surplus reimbursement 63,571 - 146,574 -------- -------- ---------
Total nonoperating expenses 464,812 408,123 559,654 -------- -------- ---------
Total expenses 820,120 742,611 941,564 -------- -------- ---------
EXCESS (DEFICIENCY) OF REVENUE OVER EXPENSES $ (32,784) $ 27,473 $ (166,170) ========= ========= ==========
The accompanying notes are an integral part of these financial statements.
Colonial Farms, Ltd.
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
Special General Limited Limited Partner Partner Partner Total ------- ------- ------- -----
Beginning, December 31, 1992 $(17,494) $(85,864) $ (33,187) $(136,545)
Distributions (988) (1,483) (46,948) (49,419)
Excess of expenses over revenue (3,323) (4,985) (157,862) (166,170) --------- -------- --------- ---------
Balance, December 31, 1993 (21,805) (92,332) (237,997) (352,134)
Distributions (956) (1,435) (45,422) (47,813)
Excess of revenue over expenses 550 824 26,099 27,473 --------- -------- --------- ---------
Balance, December 31, 1994 (22,211) (92,943) (257,320) (372,474)
Distributions (846) (1,269) (40,186) (42,301)
Excess of expenses over revenue (656) (983) (31,145) (32,784) --------- -------- --------- ---------
Balance, December 31, 1995 $(23,713) $(95,195) $(328,651) $(447,559) ========= ======== ========= =========
Profit and loss sharing percentage 2% 3% 95% 100% == == === ====
The accompanying notes are an integral part of these financial statements.
Colonial Farms, Ltd.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Cash flows from operating activities Rental income received $ 751,795 $ 750,466 $ 750,550 Interest received 5,901 5,528 8,913 Other income received 10,237 7,132 6,844 Residual receipts reimbursement paid (63,571) - (146,574) Administration expenses paid (22,779) (19,504) (23,574) Management fees paid (39,500) (38,435) (37,200) Utilities paid (33,372) (30,713) (24,426) Salaries and wages paid (56,258) (47,327) (61,393) Maintenance and repairs expenses paid (141,608) (155,907) (152,303) Real estate taxes paid (39,762) (39,272) (38,860) Payroll taxes paid (8,116) (7,892) (15,607) Property and other insurance paid (12,658) (11,971) (11,918) Interest paid on mortgage (264,913) (270,491) (275,583) Incentive management fee paid (16,435) (20,109) (21,179) Decrease in residual receipts impound fund - - 12,884 Increase in reserve fund for operations 2,697 (1,816) (3,890) (Increase) decrease in real estate tax impound fund (1,007) (1,289) (1,025) Increase in insurance impound fund (1,852) (26) (565) Net security deposits received (paid) (407) 107 777 --------- -------- --------- Net cash provided by (used in) operating activities 68,392 118,481 (34,129) --------- -------- ---------
Cash flows from investing activities Purchases of equipment (37,922) - (19,934) Deposits to reserve for replacements (22,384) (22,139) (21,739) Withdrawals from reserve for replacements 13,139 46,506 39,161 --------- -------- --------- Net cash (used in) provided by investing activities (47,167) 24,367 (2,512) --------- -------- ---------
Cash flows from financing activities Repayment of mortgage payable (64,024) (58,446) (53,354) Distributions (42,301) (47,813) (49,419) --------- -------- ---------
Net cash used in financing activities (106,325) (106,259) (102,773) --------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (85,100) 36,589 (139,414)
Cash and cash equivalents, beginning 145,241 108,652 248,066 --------- -------- ---------
Cash and cash equivalents, ending $ 60,141 $ 145,241 $ 108,652 ========= ========= =========
Colonial Farms, Ltd.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ---- Reconciliation of excess (deficiency) of revenue over expenses to net cash provided by (used in) operating activities Excess (deficiency) of revenue over expenses $ (32,784) $ 27,473 $(166,170) Adjustments to reconcile excess (deficiency) of revenue over expenses to net cash provided by operating activities Depreciation 117,616 115,246 114,041 Amortization of deferred financing costs 2,277 2,277 2,277 Interest earned on reserve for replacements (10,189) (9,847) (8,431) Changes in assets and liabilities (Increase) decrease in tenant accounts receivable (2,275) 504 931 (Increase) decrease in prepaid expenses (584) 96 (1,030) (Increase) decrease in interest income receivable - impounds (166) 2,558 (658) Net tenants' security deposits received (paid) (407) 107 777 Increase in real estate tax impound fund (1,007) (1,289) (1,025) Increase in insurance impound fund (1,852) (26) (565) Decrease in residual receipt fund - - 12,884 Increase (decrease) in reserve fund for operations 2,697 (1,816) (3,890) (Decrease) increase in accounts payable (5,615) (16,712) 17,577 Increase in accrued expenses 406 83 82 Increase (decrease) in rent deferred credits 275 (173) (929) --------- -------- --------- Net cash provided by (used in) operating activities $ 68,392 $ 118,481 $ (34,129) ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Colonial Farms, Ltd.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Colonial Farms, Ltd. (the Partnership) is a California Limited Partnership which commenced operations in February 1983. The Partnership owns and operates a 100-unit residential project (the project) located in Modesto, California. The project operates under Section 8 of the National Housing Act and, therefore, receives monthly rental subsidies from the U.S. Department of Housing and Urban Development (HUD). The agreement expires June 2002 and has two five-year renewal options. For the years ended December 31, 1995, 1994, and 1993, rental subsidies for the project totaled $586,267, $555,597, and $562,628, respectively. All leases between the Partnership and the tenants of the property are operating leases.
Cash distributions are limited by agreements between the Partner-ship and the California Housing Finance Agency (CHFA) to $35,299 per year to the extent of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market accounts and U.S. Treasury bills, with a maturity of three months or less when acquired, stated at cost, which approximates market.
Property and Equipment
Property and equipment are carried at cost. The Partnership provides for depreciation by using the straight-line method over estimated useful lives as follows: buildings, 30 years and equipment, 8 years.
Deferred Financing Costs
Deferred financing costs are amortized by the straight-line method over the life of the related debt.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND
At December 31, 1995 and 1994, the Partnership maintained tenants' security deposit fund balances of $22,533 and $20,488, respectively, in an interest bearing bank account and a certificate of deposit.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the CHFA which is due on June 1, 2013 and is collateralized by a deed of trust on the rental property and the CHFA has been granted a security interest in rental subsidies. The terms of the mortgage require annual interest of 9.15% and monthly principal and interest payments of $27,411. Interest charged to operations during 1995, 1994, and 1993 amounted to $264,913, $270,491, and $275,583, respectively. Terms of the loan agreement require that monthly escrow deposits be made to fund real estate tax, insurance, and replacement reserve escrow accounts.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
1996 $ 70,134 1997 $ 76,827 1998 $ 84,159 1999 $ 92,191 2000 $110,990
Management believes it is not practical to estimate the fair value of the mortgage payable to CHFA because programs with similar characteristics are not currently available to the Partnership.
NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAX BASIS INCOME (LOSS)
The reconciliation of the excess (deficiency) of revenue over expenses reported in the statements of operations with the income (loss) reported on a federal income tax return for the years ended December 31, 1995, 1994, and 1993 follows:
1995 1994 1993 ---- ---- ---- Net income (loss) per state- ments of operations $(32,784) $ 27,473 $(166,170) Additional depreciation for tax purposes (17,603) (18,120) (49,454) Deferred rental income adjustments 275 (173) (929) ------- ------- ------- Income (loss) for federal income tax purposes $(50,112) $ 9,180 $(216,553) ======== ========= =========
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1995 and 1994, due to developer/general partner consisted of development advances of $318,115. These advances are non-interest bearing and payable from proceeds upon sale or refinancing of the project after certain priority payments as defined in the Partnership agreement.
The Partnership has a contractual management agreement with CMJ Management Company, Inc., an affiliate of the general partner, to provide property management services for the project. CMJ Management Company, Inc. has hired an unaffiliated management agent to provide these services on its behalf.
Total management fees paid for the years ended December 31, 1995, 1994, and 1993 were $39,600, $38,435, and $37,200, respectively. Effective December 1994, CMJ Management Company, Inc. receives 30% of the monthly fee which totaled $11,850 for the year ended December 31, 1995. CMJ Management Company, Inc. also is entitled to receive an incentive management fee. For the years ended December 31, 1995, 1994, and 1993, incentive fees charged for the project totaled $16,435, $20,109, and $21,179, respectively, in accordance with the terms of the supplemental management agreement.
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership's real estate tax impound fund, replacement reserve fund, insurance impound fund, and reserve fund for operations totalling $294,486 as of December 31, 1995 are on deposit with CHFA.
INDEPENDENT AUDITORS' REPORT
To the Partners Holbrook Apartments Company
We have audited the accompanying balance sheets of Holbrook Apartments Company as of December 31, 1995 and 1994, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 Holbrook Apartments Company as of December 31, 1995 and 1994, and the results of its operations, changes in partners' deficit and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman REZNICK FEDDER & SILVERMAN
Baltimore, Maryland January 27, 1996
Holbrook Apartments Company
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1996 1995 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 486,602 $ 509,173 Accounts receivable 8,240 6,040 Accounts receivable - HAP - 570 Other receivables 16,803 9,700 Prepaid expenses 18,427 18,164 Other current assets 475 475 ---------- ---------- Total current assets 530,547 544,122 ---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES Mortgage escrow deposits 42,895 53,225 Reserve for replacements 486,650 425,881 ---------- ----------
529,545 479,106 ---------- ----------
PROPERTY AND EQUIPMENT, less accumulated depreciation of $3,657,426 and $3,422,387 5,801,902 5,950,896 ---------- ----------
DEFERRED FINANCING COSTS, net of accumulated amortization of $195,076 and $181,535 358,875 372,416 ---------- ----------
Total assets $7,220,869 $7,346,540 ========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES Current maturities of mortgage payable $ 88,328 $ 81,964 Accounts payable and accrued expenses 45,749 47,192 Accrued interest payable 47,095 47,608 Rent deferred credits 4,589 5,468 ---------- ---------- Total current liabilities 185,761 182,232
LONG-TERM LIABILITIES Mortgage payable, less current maturities 7,446,966 7,535,294 ---------- ---------- Total liabilities 7,632,727 7,717,526 PARTNERS' DEFICIT (411,858) (370,986) ---------- ----------
Total liabilities and partners' deficit $7,220,869 $7,346,540 ========== ==========
The accompanying notes are an integral part of these financial statements.
Holbrook Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Revenue Rental income $2,062,798 $2,060,656 $2,045,211 Vacancies (486) (3,458) (309) Financial revenue 34,734 26,487 11,817 Other income 6,381 5,588 5,128 --------- ---------- ----------
Total revenue 2,103,427 2,089,273 2,061,847 --------- ---------- ----------
Expenses Operating expenses Marketing 208 329 476 Administration 120,673 123,390 113,219 Utilities 77,662 111,338 114,006 Management fee 98,221 97,710 97,136 Maintenance and repairs 195,276 192,998 206,502 Salaries 170,174 142,105 138,443 Insurance 40,196 41,951 44,768 Real estate taxes 197,441 139,335 122,181 --------- ---------- ---------- Total operating expenses 899,851 849,156 836,731 --------- ---------- ----------
Nonoperating expenses Interest 568,003 573,944 579,458 Mortgage insurance premium 37,865 38,261 38,629 Depreciation and amortization 248,580 243,525 234,770 Incentive management fee 137,695 165,684 129,347 --------- ---------- ----------
Total nonoperating expenses 992,143 1,021,414 982,204 --------- ---------- ----------
Total expenses 1,891,994 1,870,570 1,818,935 --------- ---------- ----------
EXCESS OF REVENUE OVER EXPENSES $ 211,433 $ 218,703 $ 242,912 ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Holbrook Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1995, 1994 and 1993
General Limited Partner Partner Total ------- ------- -----
Partners' deficit, December 31, 1992 $(556,082) $ 257,523 $(298,559)
Distributions (35,967) (203,816) (239,783)
Excess of revenue over expenses 36,437 206,475 242,912 --------- --------- --------
Partners' deficit, December 31, 1993 (555,612) 260,182 (295,430)
Distributions (44,139) (250,120) (294,259)
Excess of revenue over expenses 32,805 185,898 218,703 --------- --------- --------
Partners' deficit, December 31, 1994 (566,946) 195,960 (370,986)
Distributions (37,846) (214,459) (252,305)
Excess of revenue over expenses 31,715 179,718 211,433 --------- --------- --------
Partners' deficit, December 31, 1995 $(573,077) $ 161,219 $(411,858) ========= ========= =========
Profit and loss sharing percentage 15% 85% 100% === === ====
The accompanying notes are an integral part of these financial statements.
Holbrook Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Cash flows from operating activities Rental income received $2,059,803 $2,051,763 $2,035,812 Interest received 14,645 13,418 10,023 Other income received 9,418 6,046 6,677 Administration expenses paid (166,891) (164,640) (155,160) Management fees paid (98,221) (97,710) (97,136) Utilities paid (88,787) (118,133) (116,565) Maintenance and repairs expenses paid (303,582) (275,034) (290,539) Real estate taxes paid (197,441) (139,335) (122,181) Payroll taxes paid (16,316) (16,269) (15,721) Property insurance paid (18,192) (17,799) (20,618) Other taxes and insurance paid (22,335) (23,077) (24,888) Interest paid on mortgage (568,516) (574,419) (579,902) Mortgage insurance paid (37,797) (38,199) (38,572) Decrease (increase) in mortgage escrow deposits 10,330 12,966 (43,790) Mortgagor entity expenses paid (137,695) (165,684) (129,347) ---------- ---------- --------- Net cash provided by operating activities 438,423 453,894 418,093 ---------- ---------- ---------
Cash flows from investing activities Additions to property and equipment (86,045) (97,229) (23,938) Deposits to reserve for replacements (40,680) (40,776) (40,200) Net cash used in investing activities (126,725) (138,005) (64,138) ---------- ---------- ---------
Cash flows from financing activities Repayment of mortgage payable (81,964) (76,060) (70,580) Distributions paid to partners (252,305) (294,259) (239,783) ---------- ---------- --------- Net cash used in financing activities (334,269) (370,319) (310,363) ---------- ---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,571) (54,430) 43,592
Cash and cash equivalents, beginning 509,173 563,603 520,011 ---------- ---------- ---------
Cash and cash equivalents, ending $ 486,602 $ 509,173 $ 563,603 ========== ========= ==========
Holbrook Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---- ---- ----
Reconciliation of excess of revenue over expenses to net cash provided by operating activities Excess of revenue over expenses $ 211,433 $ 218,703 $ 242,912 Adjustments to reconcile excess of revenue over expenses to net cash provided by operating activities Depreciation 235,039 229,984 221,229 Amortization of deferred financing costs 13,541 13,541 13,541 Interest earned on replacement reserves (20,089) (11,805) - Changes in assets and liabilities Increase in tenant accounts receivable (2,200) (194) (4,020) Decrease in accounts receivable - HAP 570 490 - Increase in accounts receivable - other (7,103) (806) (245) (Increase) decrease in prepaid expenses (263) 2,742 (2,286) Decrease (increase) in mortgage escrow deposits 10,330 12,966 (43,790) Decrease in accounts payable and accrued expenses (1,443) (5,521) (3,734) Decrease in accrued interest payable (513) (475) (444) Decrease in rent deferred credits (879) (5,731) (5,070) ---------- ---------- ---------
Net cash provided by operating activities $ 438,423 $ 453,894 $ 418,093 ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
Holbrook Apartments Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995, 1994 and 1993
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the State of Massachusetts in July 1981, for the purpose of constructing and operating a rental housing project under Section 221(d)(4) of the National Housing Act. The project consists of 170 units located in Holbrook, Massachusetts and is currently operating under the name of Holbrook Apartments. All leases between the Partnership and the tenants of the property are operating leases.
Cash distributions are limited by agreements between the Partner-ship and HUD to the extent of surplus cash as defined by HUD.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and a repurchase agree-ments with a bank with maturities of three months or less when acquired, stated at cost, which approximates market.
Reserve for Replacements
Reserve for replacements includes investments in money market accounts which are held to maturity. The investments are carried at cost which approximates market value.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives by use of the straight-line method for financial reporting purposes. For income tax purposes, accelerated lives and methods are used.
Deferred Financing Costs
Deferred financing costs are amortized over the term of the mortgage using the straight-line method.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned.
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually.
NOTE B - MORTGAGE PAYABLE
The mortgage is insured by the Federal Housing Administration (FHA) and collateralized by a deed of trust on the rental property. The mortgage, which is due February 1, 2023, is payable in equal monthly installments of principal and interest totalling $54,207 and bears interest at a rate of 7.5%. Interest incurred during December 31, 1995, 1994 and 1993, amounted to $568,003, $573,944, and $579,458, respectively.
Under agreements with the mortgage lender and FHA, the Partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage is limited to the underlying value of the real estate, plus other amounts deposited with the lender.
Aggregate annual maturities of the mortgage payable for the five years following December 31, 1995 are as follows:
December 31, 1996 $ 88,328 1997 $ 95,185 1998 $102,574 1999 $110,538 2000 $119,119
Management believes it is not practical to estimate the fair value of the mortgage payable insured by FHA because programs with similar characteristics are not currently available to the Partnership.
NOTE C - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the Partnership on behalf of qualified tenants. The agreement expires July 1, 2001. Total housing assistance payments received during 1995, 1994, and 1993 were $1,587,132, $1,577,104, and $1,554,508, respectively.
NOTE D - MANAGEMENT AGREEMENT
Management fees of 4.75% of gross receipts are paid to CMJ Management Company, Inc., an affiliate of the general partner, for its services as management agent to the project pursuant to a management agreement approved by HUD. Such fees amounted to $98,221, $97,710, and $97,136 for the years ended 1995, 1994, and 1993, respectively. In addition, CMJ Management Company, Inc., received incentive management fees of $137,695, $165,684, and $129,347 for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE D - MANAGEMENT AGREEMENT (continued)
CMJ Management Company, Inc., an affiliate of the general partner, makes monthly expenditures (primarily payroll, central office accounting, direct marketing and insurance costs) on behalf of the Partnership which are reimbursed the following month.
NOTE E - TAX BASIS INCOME
The reconciliation of the excess of revenue and expenses in the accompanying statements of operations with the loss reported on a federal income tax basis follows:
1995 1994 1993 ---- ---- ----
Excess of revenue over expenses per statement of operations $ 211,433 $ 218,703 $ 242,912 Additional amortization of deferred costs 8,393 8,393 3,226 Decrease in deferred rental income (879) (5,731) (5,070) Additional depreciation (126,502) (139,140) (180,722) --------- --------- ----------
Income for federal income tax purposes $ 92,445 $ 82,225 $ 60,346 ========= ========= =========
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in one bank, which consists of an overnight repurchase agreement backed by government securities and an operating checking account. Account balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by the bank. The Partnership also has a reserve for replacements and escrows totalling $529,545 on deposit with WMF/Huntoon, Paige Associates Limited, including money market account totalling $400,441.