Item 1. Business
The Registrant, Liberty Housing Partners Limited Partnership (the "Partnership"), is a limited partnership organized under the provisions of the Massachusetts Uniform Limited Partnership Act on March 20, 1984. Until December 27, 1995, the partners in the Partnership consisted of Liberty Real Estate Corporation, the managing general partner (the "Former Managing General Partner"), LHP Associates Limited Partnership, the associate general partner (the "Former Associate General Partner") and, together with the Former Managing General Partner, (the "Former General Partners"), and 998 Limited Partners owning 21,576 units of Limited Partnership Interest ("Units").
The Units were offered and sold commencing July 13, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The offering was completed on July 12, 1985.
On December 27, 1995, the Former General Partners withdrew from the Partnership and TNG Properties, Inc., a Massachusetts corporation (the "Managing General Partner"), was admitted to the Partnership as a substitute general partner with an interest equivalent to the aggregate interests of the Former General Partners.
The Partnership will terminate on December 31, 2020, unless sooner dissolved or terminated as provided in Section 11 of the Amended Agreement of Limited Partnership dated as of July 13, 1984, as amended to date (the "Partnership Agreement").
The Partnership has no employees. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership and its properties.
The Partnership is engaged in only one industry segment, the business of investing in, operating, owning, leasing and improving interests in real estate through ownership of interests in other limited partnerships (the "Local Limited Partnerships") which own and operate government- assisted, multi-family rental housing complexes. As described in Item 2, the Partnership owns interests in 13 Local Limited Partnerships, each of which owns and operates a government-assisted, garden-style, residential multi-family housing complex. Each complex consists of one-to-three- story buildings of wood frame and brick construction located on landscaped lots. The apartments within each of the complexes contain fully equipped kitchens and some of the complexes include swimming pools.
The Partnership paid for two of the 13 limited partnership interests in cash upon acquisition. The Partnership paid for 11 of such limited partnership interests by delivery of cash, short-term promissory notes (which have all been paid in full) and nonrecourse promissory notes which bear interest at the rate of 9% per annum ("Purchase Money Notes"). Each Purchase Money Note permits interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. The Purchase Money Notes do not require payment of any portion of the principal amount of the notes prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder).
Item 1. Business, continued
As a result of these interest accrual and payment provisions, each Purchase Money Note will require a substantial balloon payment at maturity. The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. The Purchase Money Notes had an original term of from 15 to 17 years and mature at varying dates during 1999, 2000 and 2001. Additional information concerning the Purchase Money Notes is set forth below under "Management's Discussion and Analysis of Financial Condition and Results of Operations." One of the two Local Limited Partnerships in which the Partnership acquired its interest for cash issued purchase money notes in connection with the purchase of its housing complex. Such notes have terms which are substantially identical to those of the Purchase Money Notes, and are secured by a pledge by all of the partners in such Local Limited Partnership (including the Partnership) of their respective partnership interests therein. See the table under Item 2
Item 2. Properties
The Partnership owns limited partnership interests in 13 Local Limited Partnerships, each of which owns the fee interest in a government-assisted residential multi-family rental housing complex. The following table reflects: (1) the name of each of the Local Limited Partnerships and the percentage of the total interests in the Local Limited Partnership represented by the Partnership's interest; (2) the date on which the Partnership acquired each of such interests; (3) the consideration paid for each interest, (including purchase money notes); (4) the original principal amount, the aggregate amount of the principal and accrued and unpaid interest outstanding as of December 31, 1996, and the maturity date of the Purchase Money Notes relating to each interest; (5) the Partnership's share of the mortgage indebtedness of each Local Limited Partnership; (6) the size and the location of the housing project owned by each Local Limited Partnership; and (7) the government program pursuant to which the complex receives assistance and the number of housing units in the project receiving such assistance.
More detailed information related to the properties owned by the Local Limited Partnerships, including their respective amounts of mortgage indebtedness is included in Schedule III, Real Estate and Accumulated Depreciation, included in Item 8, and is contained in the separate financial statements of the Local Limited Partnerships. It is unlikely that operating cash flows from the Local Limited Partnerships will generate any distributions to investors in the Partnership, because in nearly all cases, the Partnership's share of operating cash flows from the properties owned by the Local Limited Partnerships must be applied to repayment of accrued interest and principal on the related Purchase Money Notes.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is a party or, to the knowledge of the Managing General Partner, of which any of the properties owned by the Local Limited Partnerships is the subject.
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 Securities and Related Security Holder Matters
(a) Market Information
The Partnership's outstanding securities consist of units of limited partnership interest ("Units"). There is no public market for the Units, and it is not anticipated that such a public market will develop. Transfer of the Units is subject to compliance with state and federal securities laws, and in various states is subject to compliance with the minimum investment and suitability standards imposed by the Partnership and applicable "blue sky" laws.
(b) Holders.
As of March 18, 1997, there were 999 holders of record of the 21,576 Units outstanding.
(c) Dividends.
The Partnership Agreement requires that Distributable Cash from Operations (as defined in the Partnership Agreement) be distributed 99% to the Limited Partners and 1% to the General Partners, to the extent then available, within 120 days after completion of the Partnership's fiscal year.
The Partnership Agreement provides that Cash from Sales or Refinancings (as defined in the Partnership Agreement), if any, received by the Partnership, will be distributed (i) first, until the Limited Partners have received an amount equal to their total invested capital, 100% to the Limited Partners, and (ii) the balance, 85% to the Limited Partners and 15% to the General Partners; provided however that if the amount of Cash from Sales or Refinancings exceeds the amount of profits for tax purposes arising from such sale or refinancing, the amount of such excess is distributed to those Partners, if any, who have positive balances in their capital accounts following any
Item 5. Market for the Partnership's Securities and Related Security Holder Matters, continued
distributions made pursuant to clause (i) in connection with such sale or refinancing, in proportion to and to the extent of such positive balances, and prior to any distributions pursuant to clause (ii).
No distributions have been made by the Partnership since its organization in 1984.
Item 6.
Item 6. Selected Financial Data
The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Notes thereto, which are included in Items 7 and 8 of this Report. Amounts are expressed in thousands with the exception of per Unit calculations.
For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ----
Interest income $ 61 $ 32 $ 36 $ 34 $ 43 Net loss (1,962) (1,564) (1,527) (1,364) (1,488) Net loss per Unit(a) (90.02) (71.77) (69.92) (62.47) (68.15) Total assets at December 31 2,587 2,964 3,174 3,833 4,283 Long-term debt (including current portion, net of discount) at December 31 9,684 8,152 6,864 5,869 5,002 Distributable Cash From Operations per Unit(a) - - - - -
(a) Per Unit calculations as presented above are based on 21,576 Units outstanding as of the end of December 31, 1996 and 1995 and 21,616 units outstanding for the years ended December 31, 1992 through 1994.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership.
The Partnership is liable for the amount of the purchase money notes delivered to purchase its interests in the Local Limited Partnerships (as hereinafter described), and for the Partnership's day-to-day administrative and operating expenses.
The Partnership acquired its interests in two Local Limited Partnerships for cash. The Partnership acquired its interests in the other eleven Local Limited Partnerships by delivery of cash, short-term promissory notes (all of which have been paid in full) and purchase money promissory notes which bear interest at the rate of 9% per annum (the "Purchase Money Notes"). The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. Each note had an initial term of 15 to 17 years, and the Purchase Money Notes mature at varying dates between September 1999 and July 2001. None of the Purchase Money Notes is cross-defaulted to the others, nor are the Purchase Money Notes cross- collateralized in any manner.
The terms of each Purchase Money Note permit interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. Generally, the amount of such cash distributions have not been sufficient in any year to pay the full amount of interest accrued for that year on the Purchase Money Notes. The Purchase Money Notes do not require payment of any portion of the principal amount of the note prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). Accordingly, each Purchase Money Note will require a substantial balloon payment at maturity. The aggregate outstanding principal amount of and accrued and unpaid interest on the Purchase Money Note obligations of the Partnership, as of December 31, 1996, as set forth in the table included in Item 2 above, was $14,686,434. The outstanding obligations are expected to increase annually until maturity as interest continues to accrue under the Purchase Money Notes. The aggregate outstanding principal amount of the Purchase Money Notes reported on the Partnership's Balance Sheet ($9,684,281 at December 31, 1996), reflects a discount using an imputed interest rate of approximately 21%, which was applied to the face amount of the notes on the respective investment purchase dates and which is used to calculate an annual interest accrued in accordance with generally accepted accounting principles that will equate to the legal obligation (as presented in Item 2 and discussed above) expected at maturity of the notes.
Linden Park Limited Partnership, one of the two Local Limited Partnerships in which the Partnership acquired its interest for cash ("LPLP"), issued purchase money notes in connection with the purchase of its housing complex. The terms of such notes are substantially identical to those of the Partnership's Purchase Money Notes, requiring no payment of principal prior to maturity and permitting interest to accrue prior to maturity to the extent LPLP's cash flow is insufficient to pay such interest.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources, continued
The Partnership acquired its interest in LPLP for cash, and accordingly, no Purchase Money Notes were delivered in connection therewith. However, LPLP delivered purchase money notes in the original principal amount of $1,800,000 in connection with LPLP's acquisition of the housing project which it owns (the "LPLP Notes"). The LPLP Notes are secured by a pledge of LPLP's cash flow, and by a pledge by each of the partners in LPLP (including the Partnership) of its respective interest in LPLP. The LPLP Notes were issued on December 6, 1984, bear interest at the rate of 9% per annum and mature on December 11, 1999. The LPLP Notes permit interest to accrue to the extent that cash flow of LPLP is not sufficient to enable LPLP to pay interest on a current basis. The LPLP Notes do not require payment of any portion of the principal amount thereof prior to maturity (except that such notes require immediate payment following a default (as defined therein) by LPLP thereunder). As a result of such interest accrual and payment provisions, the LPLP Notes will require substantial balloon payments at maturity. As of December 31, 1996 the unpaid principal amount of and accrued and unpaid interest on the LPLP Notes equaled $2,707,748. In order for LPLP to pay at maturity the LPLP Notes, LPLP would most likely be required to sell or refinance its housing project in a transaction generating proceeds sufficient to repay the notes. There can be no assurance that LPLP will be able to successfully consummate any of such types of transactions. Accordingly, the LPLP Notes, while not technically Purchase Money Notes issued by the Partnership, will present the same issues to the Partnership as will the maturity of the Purchase Money Notes.
In order to pay at maturity the Purchase Money Notes with respect to any particular Local Limited Partnership, the Partnership will most likely be required to (a) sell its interest in the Local Limited Partnership for a price equal to or greater than the amounts due under the associated notes (b) obtain financing in an amount sufficient to repay the notes or (c) cause the Local Limited Partnership to sell or refinance its housing project in a transaction sufficient to repay indebtedness encumbering the project and generate net proceeds to the Partnership sufficient to enable the Partnership to repay the notes. Alternatively, the Partnership could seek extension or modification of the payment terms of the Purchase Money Notes. The process of exploring and negotiating any of the foregoing alternatives will require substantial time, effort and resources. There can be no assurance that the Partnership will be able to successfully consummate any of such types of transactions.
If Partnership funds are insufficient to pay when due the Purchase Money Notes, the holders of the Purchase Money Notes will have the right to foreclose on the Partnership's respective interests in the Local Limited Partnerships. The sale or other disposition by the Partnership of its interests in the Local Limited Partnerships, including in connection with such a foreclosure, is likely to result in recapture of previously claimed tax losses to the Partnership and may have other adverse tax consequences to the Partnership and to the Limited Partners. Such recapture may cause some or all of the Limited Partners to have taxable income from the Partnership without cash distributions from the Partnership with which to satisfy the tax liability resulting therefrom.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources, continued
The only sources of Partnership funds are (i) distributions from the Local Limited Partnerships (substantially all of which are presently required to be applied to payment of interest accruing on the Purchase Money Notes), (ii) payments to the Partnership of amounts due under certain promissory notes acquired by the Partnership from one of the Local Limited Partnerships (as hereinafter described) and (iii) Partnership reserves. At December 31, 1996, the Partnership's had reserves of $163,915 (in cash and cash equivalents), compared with $293,331 at December 31, 1995. Such reserves have partially funded the Partnership administrative expenses, including expense reimbursement to the Former Managing General Partner. Due to the assignment of the Former Managing General Partner's interest to the current Managing General Partner, the Partnership incurs certain administrative costs, including the partnership Management Fee, which are earned by or reimbursed to the current Managing General Partner. As discussed more fully in Note 6 to the financial statements, such administrative costs were $98,240 and $88,771 in 1996 and 1995, respectively.
In connection with the assignment of the Former General Partners' interests to the current Managing General Partner, the Former Managing General Partner refunded to the Partnership certain amounts previously received from the Partnership as expense reimbursements. The amount refunded in respect of expenses accrued prior to January 1, 1995 has been recorded as a $3,202 contribution to the Partnership's capital by the Former Managing General Partner.
During 1996, 1995 and 1994, distributable cash flow from the Local Limited Partnerships (LLP's) to which the Partnership delivered purchase money notes was distributed to the partnership, as follows: 1996: Seven LLP's - $288,086; 1995: Eight LLP's - $316, 819; and 1994: Eight LLP's - $298,385. On April 30, 1996, 1995, and 1994, the Partnership used such cash distributions to pay a portion of the accrued and unpaid interest on the related Purchase Money Notes.
In 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership, one of the Local Limited Partnerships ("Linden Park"). Such notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership (in connection with the Partnership's acquisition of an interest in Linden Park). The Partnership purchased such notes, which had an outstanding principal amount of $173,803 plus accrued and unpaid interest of $49,692, as of the date of acquisition, for $58,000. The notes mature on December 11, 1999, and bear interest at 9% per annum, payable only to the extent of available cash from Linden Park's operations. During 1996, the Partnership received $35,410 of interest payments on such notes and accrued unpaid interest of $81,450. As of December 31, 1996, the outstanding balance of principal and accrued and unpaid interest receivable on these notes amounted to $255,253.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Local Limited Partnerships.
The liquidity of the Local Limited Partnerships in which the Partnership has invested is dependent on the ability of the respective Local Limited Partnerships, which own and operate government assisted multi-family rental housing complexes, to generate cash flow sufficient to fund operations and debt service and to maintain working capital reserves. Each of the Local Limited Partnerships is regulated by government agencies which require monthly funding of certain operating and capital improvements reserves and which regulate the amount of cash to be distributed to owners. Each Local Limited Partnership's source of funds is rental income received from tenants and government subsidies. Certain of the Local Limited Partnership's receive rental income pursuant to Section 8 rental assistance contracts which expire beginning in 1998 and continuing through 2000. Certain government programs are currently in place which may allow the Local Limited Partnerships to renew or extend this government subsidy. It is not certain whether these programs will be available at the time the existing Section 8 contracts expire.
Each of the Local Limited Partnerships has incurred mortgage indebtedness as reflected in Item 8
Item 8. Financial Statements and Supplementary Data
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
INDEX
Page
Financial Statements:
Balance Sheets, December 31, 1996 and 1995 16-17
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 18
Statements of Changes in Partners' Deficit for the Years Ended December 31, 1996, 1995 and 1994 19
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 20
Notes to Financial Statements 21-30
Independent Auditors' Report 31 Report of Independent Accountants for the year ended December 31, 1994 32
Separate Financial Statements, including Reports of Independent Accountants, for Significant Subsidiaries:
Fuquay-Varina Homes for the Elderly, Ltd. 33-62 Fiddlers Creek Apartments, Ltd. 63-93 Austintown Associates 94-127 Osuna Apartments Company 128-157
Financial Statement Schedules:
Independent Auditors' Report 158
Schedule III - Real Estate and Accumulated Depreciation 159
All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
BALANCE SHEETS
December 31, --------------------------- 1996 1995 ---- ---- Assets
Current assets:
Cash and cash equivalents $ 163,915 $ 293,331
Other current assets 31 108 ---------- ----------
Total current assets 163,946 293,439
Long-term notes and accrued interest receivable 127,668 111,850
Investments in local limited partnerships 2,295,189 2,559,088 ---------- ---------- $2,586,803 $2,964,377 ========== ==========
(continued)
The accompanying notes are an integral part of these financial statements.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
BALANCE SHEETS (continued)
December 31, ---------------------------- 1996 1995 ---- ---- Liabilities and Partners' Deficit
Current liabilities: Accounts payable to affiliates $ 58,271 $ 88,771 Accounts payable 1,000 -- Accrued expense 15,600 15,650 Accrued interest payable 385,901 304,628 ------------ ------------
Total current liabilities 460,772 409,049
Purchase money notes 9,684,281 8,151,571 ------------ ------------
Total liabilities 10,145,053 8,560,620 ------------ ------------
Partners' deficit: General partners: Capital contributions 4,202 4,202 Accumulated losses (176,373) (156,753) ------------ ------------ (172,171) (152,551) ------------ ------------
Limited partners (21,576 Units in 1996 and in 1995): Capital contributions (net of offering costs of $1,134,440) 9,649,520 9,649,520 Accumulated losses (17,035,599) (15,093,212) ------------ ------------ (7,386,079) (5,443,692) ------------ ------------
Total partners' deficit (7,558,250) (5,596,243) ------------ ------------
Total liabilities and partners' deficit $ 2,586,803 $ 2,964,377 ============ ============
The accompanying notes are an integral part of these financial statements.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, -------------------------------- 1996 1995 1994 ---- ---- ----
Interest income $ 61,407 $ 32,035 $ 36,118
Expenses:
Interest expense 1,904,536 1,569,007 1,318,651
General and administrative expense 143,556 121,353 157,756 ----------- ----------- -----------
Total expenses 2,048,092 1,690,360 1,476,407 ----------- ----------- -----------
Loss before equity in income(loss) of local limited partnership investment (1,986,685) (1,658,325) (1,440,289)
Equity in income (loss) of local limited partnership investment 24,678 94,133 (86,319) ----------- ----------- -----------
Net loss $(1,962,007) $(1,564,192) $(1,526,608) =========== =========== ===========
Net loss per Limited Partnership Unit, based on 21,576 Units outstanding in 1996 and 1995 and 21,616 units outstanding in 1994 $ (90.02) $ (71.77) $ (69.92) =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the years ended December 31, 1996, 1995 and 1994
General Limited Partners Partners Total -------- -------- ----- Partners' deficit at December 31, 1993 $ (124,845) $(2,383,800) $(2,508,645)
Net loss (15,266) (1,511,342) (1,526,608) ----------- ----------- -----------
Partners' deficit at December 31, 1994 $ (140,111) $(3,895,142) $(4,035,253)
Net loss (15,642) (1,548,550) (1,564,192)
Capital Contributed 3,202 -- 3,202 ----------- ----------- -----------
Partners' deficit at December 31, 1995 $ (152,551) $(5,443,692) $(5,596,243)
Net loss (19,620) (1,942,387) (1,962,007) ----------- ----------- -----------
Partners' deficit at December 31, 1996 $ (172,171) $(7,386,079) $(7,558,250) =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Organization of Partnership
Liberty Housing Partners Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on March 20, 1984 for the primary purpose of investing in other limited partnerships which own and operate government assisted multi-family rental housing complexes (the "Local Limited Partnerships").
The General Partners of the Partnership through December 27, 1995 were Liberty Real Estate Corporation, which served as the Managing General Partner, and LHP Associates Limited Partnership, which served as the Associate General Partner. On December 27, 1995, Liberty Real Estate Corporation and LHP Associates Limited Partnership withdrew from the Partnership and assigned and transferred all of their interests in the Partnership to the Successor General Partner, TNG Properties Inc., which was admitted to the Partnership as Successor General Partner. TNG Properties Inc. serves as the Managing General Partner.
The Partnership Agreement authorized the sale of up to 30,010 units of Limited Partnership Interest ("Units") of which 21,616 were subscribed for and sold as of the completion of the offering on July 12, 1985. During fiscal 1995, the Partnership recorded as cancelled and no longer outstanding 40 units which were formally abandoned by the holders of such units.
Pursuant to terms of the Partnership Agreement, Profits or Losses for Tax Purposes (other than from sales or refinancings) and Distributable Cash From Operations, both as defined in the Partnership Agreement, are allocated 99% to the Limited Partners and 1% to the General Partners. Different allocations of profits or losses and cash distributions resulting from other events are specified in the Partnership Agreement.
2. Significant Accounting Policies
The Partnership records are maintained on the accrual basis of accounting.
Investments in Local Limited Partnerships are accounted for by the equity method whereby costs to acquire the investments, including cash paid, notes issued and other costs of acquisition, are capitalized as part of the investment account. The Partnership's equity in the earnings or losses of each of the Local Limited Partnerships is reflected as an addition to or reduction of the respective investment account. The Partnership does not recognize losses which reduce its investment account below zero.
Cash equivalents at December 31, 1996 and 1995, consist of a 16 day certificate of deposit with interest accruing at a rate of 4.3 percent and a 14 day certificate of deposit with interest accruing at a rate of 4.5 percent, respectively, and money market fund investments with no stated maturity, valued at cost, which approximates market value.
Discounts on long-term purchase money notes are amortized over the terms of the related notes using the effective interest method. Discounts on long-term notes receivable are amortized
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
2. Significant Accounting Policies, continued
over the term of the notes using the effective interest method.
Net loss per Unit is based on the weighted average number of Units outstanding in the applicable year. Refer to Note 1 for information regarding profit and loss sharing ratios. No provision for income taxes has been made since the liability for such taxes is the obligation of the Partners rather than the Partnership.
3. Changes in Accounting Principles
In 1996, the partnership adopted the Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No adjustment was required as a result of the adoption of SFAS No. 121.
4. Investments in Local Limited Partnerships
The Partnership acquired Local Limited Partnership interests in thirteen Local Limited Partnerships which own and operate government assisted multi-family housing complexes. The Partnership, as Investor Limited Partner pursuant to Local Limited Partnership Agreements, acquired interests ranging from 94% to 98% in the profit or losses from operations and cash from operations of each of the Local Limited Partnerships.
Twelve Local Limited Partnership interests were acquired from withdrawing partners of existing Local Limited Partnerships and one Local Limited Partnership interest was acquired from a newly formed Local Limited Partnership. In conjunction with the acquisition of eleven of the Local Limited Partnership interests from withdrawing partners, the Partnership issued long-term purchase money notes in the aggregate principal amount of $8,705,000, before discount, to such withdrawing partners. In conjunction with the acquisition of one of the Local Limited Partnership interests, the Local Limited Partnership issued purchase money notes to withdrawing partners amounting to $1,800,000 with the same terms as the purchase money notes issued by the Partnership in connection with its acquisition of interests in other Local Limited Partnerships. All of the Purchase Money Notes carry simple interest at 9% per annum. Interest is payable annually but only to the extent of cash distributed from the respective Local Limited Partnerships. Both principal and unpaid interest are due at maturity. Recourse on such purchase money notes is limited to the Partnership's respective Local Limited Partnership interests which are pledged as security on the notes. See Note 7 for further information on Purchase Money Notes.
The following is a summary of cumulative activity for investments in Local Limited Partnerships since their dates of acquisition:
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Local Limited Partnerships, continued
Years Ended December 31, ------------------------ 1996 1995 ---- ----
Total acquisition cost to the Partnership $ 9,356,379 $ 9,356,379
Additional capital contributed by the Partnership 11,425 11,425
Partnership's share of losses of Local Limited Partnerships (3,818,174) (3,842,845)
Cash distributions received from Local Limited Partnerships (3,254,441) (2,965,871) ----------- -----------
Investments in Local Limited Partnerships $ 2,295,189 $ 2,559,088 =========== ===========
Summarized financial information from the combined financial statements of all Local Limited Partnerships is as follows:
Summarized Balance Sheets ------------------------- December 31, ------------ 1996 1995 ---- ---- Assets:
Investment property, net of accumulated depreciation $ 17,379,631 $ 16,911,657 Current assets 2,637,472 2,847,206 Other assets 307,297 320,313 ------------ ------------ Total assets $ 20,324,400 $ 20,079,176 ============ ============
Liabilities and Partners' Equity (Deficit):
Current liabilities $ 1,945,146 $ 970,055 Long-term debt, net of discounts 17,217,990 17,583,554 ------------ ------------ Total liabilities 19,163,136 18,553,609
Partnership's equity(deficit) 1,344,630 1,703,695 Other partners' equity(deficit) (183,366) (178,128) ------------ ------------ Total liabilities and partners' equity(deficit) $ 20,324,400 $ 20,079,176 ============ ============
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Local Limited Partnerships, continued
Summarized Statements of Operations -----------------------------------
For the Years Ended December 31, ------------------------------- 1996 1995 1994 ---- ---- ----
Rental and other income $ 5,199,572 $ 5,191,089 $ 5,051,090 Expenses: Operating expenses 3,298,651 3,185,215 3,340,402 Interest expense 954,170 1,242,398 1,111,356 Depreciation and amortization 991,323 922,690 951,056 ----------- ----------- ----------- Total expenses 5,244,144 5,350,303 5,402,814 ----------- ----------- -----------
Net loss $ (44,572) $ (159,214) $ (351,724) =========== =========== ===========
Partnership's share of net loss $ (45,752) $ (161,616) $ (345,328) =========== =========== ===========
Other partners' share of net income (loss) $ 1,180 $ 2,402 $ (6,396) =========== =========== ===========
The difference between the Partnership's share of income (loss) in Local Limited Partnership investments in the Partnership's Statement of Operations for the years ended December 31, 1996 through 1994 and the share of loss in the above Summarized Statements of Operations consists of the Partnership's unrecorded share of losses as follows:
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Local Limited Partnerships, continued
The Partnership's investment in Local Limited Partnerships reported in its Balance Sheet at December 31, 1996 and 1995 are, respectively, $950,559 and $855,393 greater than the Partnership's equity reported in the Summarized Balance Sheets above. This is related to the share of unrecorded losses of the five Local Limited Partnerships where the investment has been reduced to zero.
The Partnership recorded its share of losses in Linden Park, Brierwood Ltd., Brierwood II, Ltd. Pine Forest Apartments, Ltd. and Surry Manor until its related investment was reduced to zero. Subsequent to that point, any cash distributions received from these five partnerships have been recognized as investment income rather than as a reduction in Investment in Local Limited Partnerships on the Partnership's Balance Sheet. The Partnership is not obligated to make additional capital contributions to fund the deficit in its capital accounts in these Local Limited Partnerships.
5. Long-term Notes and Interest Receivable
During 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership ("Linden Park"), a Local Limited Partnership. The notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership in connection with the Partnership's acquisition of an interest in Linden Park. The Partnership purchased such notes, which carried a face value of $173,803 plus accrued and unpaid interest of $49,692, for $58,000. The notes mature on December 11, 1999 and bear interest at 9% per annum payable only from available cash from operations of Linden Park. During the year ended December 31, 1996 the Partnership received $35,410 of interest on such notes. Any interest that is unpaid prior to maturity is due at maturity.
6.Transactions with Affiliates
During the years ended December 31, 1996, 1995 and 1994 the Partnership recognized general and administrative expenses owed to the current or predecessor Managing General Partner, as follows:
1996 1995 1994 ---- ---- ---- Reimbursement of Partnership administration expenses $48,240 $38,771 $59,211 Partnership management fees 50,000 50,000 50,000
As of December 31, 1996 and 1995, accounts payable to affiliates totaling $58,271 and $88,771 respectively, represents amounts owed for reimbursements of Partnership administration expenses of $7,771 and $38,771, respectively, and partnership management fees of $50,500 and $50,000, respectively.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership)
NOTES TO THE FINANCIAL STATEMENTS
7. Long-term Purchase Money Notes
Long-term purchase money notes consist of the following at December 31:
1996 1995 ---- ---- Purchase Money Notes, due July 9, 2001, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Surry Manor, Ltd.: Original principal balance $ 360,000 $ 360,000 Accrued and unpaid interest 287,304 254,904
Purchase Money Notes, due August 29, 2000, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Glendale Manor Apartments: Original principal balance 450,000 450,000 Accrued and unpaid interest 134,981 132,680
Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Oxford Homes for the Elderly, Ltd.: Original principal balance 643,600 643,600 Accrued and unpaid interest 182,165 159,241
Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Williamston Homes for the Elderly, Ltd.: Original principal balance 664,100 664,100 Accrued and unpaid interest 44,295 30,892
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership)
NOTES TO THE FINANCIAL STATEMENTS
7. Long-term Purhase Money Notes (Continued)
1996 1995 ------ ----- Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fuquay-Varina Homes for the Elderly, Ltd.: Original principal balance 707,300 707,300 Accrued and unpaid interest 45,907 51,449
Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fiddlers Creek Apartments: Original principal balance 1,750,000 1,750,000 Accrued and unpaid interest 1,076,436 1,067,442
Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Meadowwood, Ltd.: Original principal balance 610,000 610,000 Accrued and unpaid interest 651,185 596,285
Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Brierwood, Ltd.: Original principal balance 270,000 270,000 Accrued and unpaid interest 280,362 256,062
Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Pine Forest Apartments, Ltd.: Original principal balance 350,000 350,000 Accrued and unpaid interest 352,340 320,840
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership)
NOTES TO THE FINANCIAL STATEMENTS
7. Long-term Purhase Money Notes (Continued)
1996 1995 ----- ----- Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Austintown Associates: Original principal balance 1,600,000 1,600,000 Accrued and unpaid interest 1,622,822 1,503,918
Purchase Money Notes, due November 27, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Osuna Apartments Company: Original principal balance 1,300,000 1,300,000 Accrued and unpaid interest 1,303,637 1,195,738 ----------- -----------
Total principal and accrued and unpaid interest at 9% at December 31 14,686,434 14,274,451
Aggregate discount on the above purchase money notes plus accrued interest (based upon average imputed interest rates of 19%) (5,002,153) (6,122,880) ----------- -----------
Long-term purchase money note liability $ 9,684,281 $ 8,151,571 =========== ===========
The purchase money notes were originally discounted using an imputed interest rate of approximately 19% and assuming a certain level of cash flow from distributions from the underlying Local Limited Partnerships ("distributions"). Since 1990, on an annual basis, the Partnership has reviewed the estimated annual level of distributions expected to be received based on historical and re-forecasted future distributions and adjusted accordingly the future effective annual interest expense. The effective annual interest rate as of December 31, 1996 is approximately 21%.
All of the purchase money notes and accrued interest thereon may be repaid without penalty prior to maturity. However, it is not anticipated that any principal payments will be made prior to maturity and therefore the principal balances are classified as long-term.
The portion of interest which is expected to be paid currently is classified as a current liability and the portion of interest which is not expected to be paid until maturity has been reflected as interest added to purchase money note debt.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
8. Reconciliation of Loss in Financial Statements to Loss for Federal Income Tax Purposes
A reconciliation of the loss reported in the Statements of Operations for the years ended December 31, 1996, 1995 and 1994, to the loss reported for Federal income tax purposes is as follows:
1996 1995 1994 ---- ---- ---- Net loss per Statements of Operations $(1,962,007) $(1,564,192) $(1,526,608)
Less: Excess of tax equity over book equity in loss of Local Limited Partnership (746,209) (835,209) (1,019,519)
Add: Additional book basis interest 1,033,449 728,881 520,283
Expenses not deducted pursuant to I.R.C Section 267 (30,500) 88,771 -- ----------- ----------- ----------- Net loss for Federal income tax purposes $(1,705,267) $(1,581,749) $(2,025,844) =========== =========== ===========
9. Disclosure About Fair Value of Financial Instruments
Long Term Notes Receivable Management does not believe it is practical to estimate the fair value of the notes receivable because notes with similar terms and provisions are not available to the partnership.
Purchase Money Mortgages Payable Management does not believe it is practical to determine the fair value of the Purchase Money Notes payable because notes with similar terms and provisions are not currently available to the partnership.
10. Concentration of Credit Risk
The partnership maintains its cash and cash equivalents in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by this bank. As of December 31, 1996, the uninsured portion of the cash and cash equivalents balances held at this institution was $63,915.
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
11. Statement of Distributable Cash from Operations (Unaudited)
Distributable Cash From Operations for the year ended December 31, 1996, as defined in Section 17 of the Partnership Agreement, is as follows:
Interest income per Statement of Operations $ 61,407
Less: Interest income added to long-term notes receivable, net of discount amortization (15,818)
Plus: 1996 cash distributions to be received from Local Limited Partnerships 371,992
Less: 1996 interest payments on purchase money notes to be paid out of 1996 cash distributions from Local Limited Partnerships (371,992)
General and administrative expenses per Statement of Operations (143,556) --------- Cash from Operations, as defined (97,967) --------- Distributable Cash from Operations, as defined $ -- =========
INDEPENDENT AUDITORS' REPORT
To the Partners Liberty Housing Partners Limited Partnership
We have audited the accompanying balance sheets of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Liberty Housing Partners Limited Partnership as of and for the year ended December 31, 1994 were audited by other auditors whose report, dated February 24, 1995, expressed an unqualified opinion on those statements.
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 1996 and 1995 financial statements referred to above present fairly, in all material respects, the financial position of Liberty Housing Partners Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flow for the years then ended in conformity with general accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 18, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership)
We have audited the accompanying statements of operations, change in partners' deficit and cash flows of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) for the year ended December 31, 1994. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Liberty Housing Partners Limited partnership for the year ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P.
Boston, Massachusetts February 24, 1995
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) INDEPENDENT AUDITORS' REPORTS FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION DECEMBER 31, 1996
C O N T E N T S
Page
Certificate of Partners 3
Management Agent's Certification 4
Independent Auditors' Report 5
Auditor Information 6
Financial Statements:
Balance sheet 7 Statement of partners' equity 8 Statement of profit and loss 9-10 Statement of cash flows 11-12 Summary of accounting policies 13 Notes to financial statements 14-16
Supplemental Information: 17-22
Independent Auditors' Report on the Internal Control Structure 23-24
Independent Auditors' Report on Compliance Based on an Audit of Financial Statements 25
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major HUD Programs 26
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Programs 27
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing 28
Schedule of Findings and Questioned Costs 29
Auditors' Comments on Audit Resolution Matters Relating to the HUD Programs 30
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996
CERTIFICATE OF PARTNERS
We hereby certify that we have examined the accompanying financial statements of Fuquay- Varina Homes for the Elderly, Ltd. and, to the best of our knowledge and belief, the same are complete and accurate.
GENERAL PARTNERS
/s/ Billy P. Shadrick 2/18/97 Billy P. Shadrick Date
Liberty LGP Limited Partnership
Michael Stoller Date
Partnership Employer Identification Number: 56-1449307
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996
MANAGEMENT AGENT'S CERTIFICATION
I hereby certify that I have examined the accompanying financial statements and supplemental information of Fuquay-Varina Homes for the Elderly, Ltd. and, to the best of my knowledge and belief, the same are complete and accurate.
/s/ Billy P. Shadrick Billy P. Shadrick President, Triple S Management, Inc.
2/18/97 Date
Independent Auditors' Report
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the accompanying balance sheet of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership) as of December 31, 1996, and the related statements of profit and loss, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fuquay-Varina Homes for the Elderly, Ltd. as of December 31, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report dated January 17, 1997 on our consideration of Fuquay-Varina Homes for the Elderly, Ltd. 's internal control structure and a report dated January 17, 1997, on its compliance with laws and regulations.
The supplemental information on pages 17-22 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Fuquay-Varina Homes for the Elderly, Ltd. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic financial statements taken as a whole.
SHARRARD, McGEE & CO., P.A.
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996
AUDITOR INFORMATION
January 17, 1997
The Audit Partner on this engagement was Carroll L. Royster, 1813 North Main Street, P.O. Box 5869, High Point, North Carolina 27262, (910)884-0410.
Sharrard, McGee & Co., P.A.'s federal employer identification number is 56-1146197.
SHARRARD, McGEE & CO., P.A.
See accompanying summary of accounting policies and notes to financial statements.
See accompanying summary of accounting policies and notes to financial statements.
See accompanying summary of accounting policies and notes to financial statements.
See accompanying summary of accounting policies and notes to financial statements.
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUMMARY OF ACCOUNTING POLICIES
MANAGEMENT ESTIMATES
The presentation 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.
CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all investments purchased with a maturity of three months or less to be cash equivalents.
BASIS OF REPORTING
This report does not give effect to any assets that the partners may have outside their interests in the Partnership nor to any personal obligations, including income taxes, of the partners.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives using the straight-line method.
INCOME TAXES
No provision for income taxes has been included in these financial statements since the tax gains and losses pass through to and are reportable by the partners on their respective income tax returns. Taxable income or loss reported by the partners will differ from income or loss reflected in the financial statements, due to the different bases in certain assets (primarily property, buildings, and equipment) for financial reporting and income tax purposes.
AMORTIZATION
Loan costs are amortized by using the straight-line method over the life of the mortgage loan.
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
The Partnership was organized as a North Carolina limited partnership on February 28, 1977 to construct, own, and operate a 60-unit garden apartment project located in Fuquay-Varina, North Carolina, known as Fuquay-Varina Homes for the Elderly, Ltd., under Section 221(d)(4) of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The Regulatory Agreement limits distributions of net operating receipts to "surplus cash" available at the end of semi-annual periods.
On September 30, 1984, pursuant to an Amended and Restated Certificate of Limited Partnership dated as of that date, partners' ownership interests amounting to 99% of the existing partners' interests were transferred by the original partners to two new partners. As a result of the transfer of ownership interests, the Partnership, as of September 30, 1984, retained one of the original general partners as a local general partner, admitted a new general partner as associate general partner, and admitted a sole investor limited partner.
After the aforementioned transfer, the Amended and Restated Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner, and 98% to the investor limited partner. In the case of certain events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property), the allocation may be different than that described above for profits and losses from operations.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Partnership's policy is to maintain its cash balances in reputable financial institutions insured by the Federal Deposit Insurance Corporation which provides $100,000 of insurance coverage on each customer's cash balances.
NOTE 3 - MORTGAGE PAYABLE
The mortgage, originally in the amount of $863,400, is payable in monthly installments of $5,689, including interest at 7.5% per annum. The final payment is due in August 2018. The loan is secured by land and buildings and is insured by the Federal Housing Administration. Neither the Partnership nor any of the partners assume liability in the event of default.
The maturities of this debt are as follows: 1997 $ 13 986 1998 15 072 1999 16 242 2000 17 503 2001 18 862 2002 and after 648 478 -------------- $ 730 143 ==============
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 4 - RELATED PARTY TRANSACTIONS/IDENTITY OF INTEREST
A - Management of Project:
The Partnership contracted with Triple S Management, Inc. to manage the project. The contract calls for a management fee of 7% of gross revenue collections plus accounting fees of $2.50 per housing unit per month. Management and accounting fees are analyzed as follows:
Charged to Unpaid at Operations Unpaid at January 1, During December 31, 1996 1996 1996 ------------- ------------ -----------
Management fees $ 1 667 $ 20 376 $ 1 691 Accounting fees 150 1 800 150 ---------- ---------- ----------
$ 1 817 $ 22 176 $ 1 841 ========== ========== ==========
B - Partnership Administrative Fee:
For its services in overseeing the operations of the Partnership, the Partnership has agreed to pay its associate general partner a fee of $4,000 per annum. The Partnership administrative fee is payable from "surplus cash" as defined by HUD regulations.
C - Other:
During 1996, the Partnership also paid Triple S Management, Inc. $2,891 for an occupancy specialist.
NOTE 5 - DISTRIBUTION
The Partnership customarily makes a cash distribution of the maximum amount permitted by its Regulatory Agreement and other such restrictions under which it operates. In keeping with this custom, $50,124, including a Partnership administrative fee of $4,000, was distributed in the first quarter of 1996, and it is anticipated that $74,611 will be distributed in the first quarter of 1997.
NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. Such instruments include cash and cash equivalents and long-term debt.
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Cash and Cash Equivalents:
The carrying amount approximates fair value due to the short-term nature of these instruments.
Long-Term Debt:
The fair value of long-term debt is based on current rates at which the company could borrow funds with similar remaining maturities.
The carrying amounts and estimated fair values of Fuquay-Varina Homes for the Elderly, Ltd.'s financial instruments as of December 31, 1996 are as follows:
Carrying Fair Value -------- ---------- Financial assets: Cash and cash equivalents $ 71 408 $ 71 408 =============== =============
Financial liabilities: Long-term debt $ 730 143 $ 730 143 =============== =============
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996
ACCOUNTS AND NOTES RECEIVABLE (OTHER THAN FROM REGULAR TENANTS)
Name of Original Balance Debtor Date Terms Amount Due ---------- ------ ---------- --------- -----
None
DELINQUENT TENANT ACCOUNTS RECEIVABLE Number of Tenants Amount --------- -------- Current Delinquent 30 days Delinquent 31-60 days NONE Delinquent 61-90 days Delinquent over 90 days
MORTGAGE ESCROW DEPOSITS
Estimated amounts required as of December 31, 1996 for future payment of:
City and county property taxes $ 1 254 Property insurance 7 009 Mortgage insurance 3 681 ------------ 11 944 Total confirmed by mortgagee 14 667 ------------
Amount on deposit in excess of estimated requirements $ 2 723 ============
TENANT SECURITY DEPOSITS
Tenant security deposits are held in a separate bank account(s) in the name of the project. (See Schedule of Funds in Financial Institutions for identification of these bank accounts.)
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued)
RESERVE FOR REPLACEMENTS
In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgagee to be used for replacement of property with the approval of HUD as follows:
Balance at beginning of year $ 28 336
Monthly deposits: 8 @ $827.00 $ 6 616 1 @ $903.00 903 3 @ $846.00 2 538 10 057 ------------
Interest 777 Withdrawals:
ACCOUNTS PAYABLE (OTHER THAN TRADE CREDITORS)
Payable within 30 days None
ACCRUED TAXES (ACCOUNT 2150)
Description Basis for Period Date Amount of Tax Accrual Covered Due Accrued ----------- ---------- ------- ---- -------- None
COMPENSATION OF PARTNERS (FROM RENTAL INCOME) None
UNAUTHORIZED DISTRIBUTION OF PROJECT INCOME TO PARTNERS None
NOTE: Additions to fixed assets were: Dispositions of fixed assets included:
Item Cost Item Cost ----------------- ---------- --------------- ----------- 1 Storage Cabinet $ 1 030 1 Edger $ 341 1 Edger 383 11 Refrigerators 3 095 1 Blower 424 10 Ranges 2 814 ---------- 11 Refrigerators 4 929 $ 6 250 ========== 10 Ranges 2 937 Computer equipment 3 829 ---------- $ 13 532 ==========
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued)
SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS AS OF DECEMBER 31, 1996
A. Funds Held by Mortgagor - Regular Operating Account
1. Lexington State Bank, Lexington, NC 1 a. Fuquay-Varina Homes for the Elderly Rental Trust Account $ 66 338 b. Fuquay-Varina Homes for the Elderly Rental Trust Account 3 120 2. The Fidelity Bank, Fuquay-Varina, NC 2 a. Fuquay-Varina Homes for the Elderly Rental Account 1 700 b. Fuquay-Varina Homes for the Elderly Petty Cash Account 250 ---------- Operating Accounts - Subtotal 71 408 ---------- B. Funds Held by Mortgagor in Trust - Tenant Security Deposit
1. Lexington State Bank, Lexington, NC 1 a. Fuquay-Varina Homes for the Elderly Security Deposit - Trust Account - Interest Bearing 6 859 2. The Fidelity Bank, Fuquay-Varina, NC 2 a. Fuquay-Varina Homes for the Elderly Security Account/Trust Account - Noninterest Bearing 2 226 ---------- Tenant Security Deposit Accounts - Subtotal 9 085 ---------- Funds Held By Mortgagor - Total 80 493 ---------- C. Funds Held By Mortgagee in Trust 3
1. Tax and Insurance Escrow a. Bankers' Trust of New York - Demand Deposit 14 667 2. Reserve Fund for Replacements a. Bankers' Trust of New York - Money Market 25 043 ----------
Funds Held by Mortgagee - Total 39 710 ---------- Total Funds in Financial Institutions $ 120 203 ==========
1 Balances Confirmed by Lexington State Bank - January 13, 1997
2 Balances Confirmed by The Fidelity Bank - January 2, 1997
3 Balances Confirmed by Reilly Mortgage Associates, L.P. - January 21,
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued)
LISTING OF IDENTITY OF INTEREST COMPANIES AND ACTIVITIES DOING BUSINESS WITH OWNER/AGENT DURING THE YEAR ENDED DECEMBER 31, 1996:
Independent Auditors' Report on the Internal Control Structure
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. We have also audited Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with requirements applicable to major HUD-assisted programs and have issued our reports thereon dated January 17, 1997.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General in July, 1993. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether Fuquay-Varina Homes for the Elderly, Ltd. complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program.
The management of Fuquay-Varina Homes for the Elderly, Ltd. is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that effectiveness of the design and operation of policies and procedures may deteriorate.
(Continued)
In planning and performing our audit, we obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. and on its compliance with specific requirements applicable to its major HUD-assisted programs and to report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure.
We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to Fuquay-Varina Homes for the Elderly, Ltd. 's major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control structure policies and procedures. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure policies and procedures used in administering HUD- assisted programs would not necessarily disclose all matters in the internal control structure that might constitute material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
SHARRAD, McGEE & CO. P.A.
Independent Auditors' Report on Compliance Based on an Audit of Financial Statements
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
Compliance with laws, regulations, contracts and grants applicable to Fuquay-Varina Homes for the Elderly, Ltd. is the responsibility of Fuquay-Varina Homes for the Elderly, Ltd. 's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with certain provisions of laws, regulations, and contracts. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance that are required to be reported herein under Government Auditing Standards.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
SHARRAD, McGEE & CO. P.A.
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major HUD Programs
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. In addition, we have audited Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with specific program requirements governing Management, Maintenance and Replacement Reserve; Federal Financial Reports; Application, Eligibility, and Reexamination of Tenants; Security Deposits; Mortgage Status; Cash Receipts and Disbursements; and Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of Fuquay-Varina Homes for the Elderly, Ltd. is responsible for compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General in July, 1993. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, Fuquay-Varina Homes for the Elderly, Ltd. complied, in all material respects, with the requirements described above that are applicable to each of its major HUD-assisted programs for the year ended December 31, 1996.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
SHARRAD, McGEE & CO. P.A.
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Programs
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997.
In connection with our audit of the 1996 financial statements of Fuquay-Varina Homes for the Elderly, Ltd. and with our consideration of Fuquay-Varina Homes for the Elderly, Ltd. 's internal control structure used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development in July, 1993, we selected certain transactions applicable to certain nonmajor HUD-assisted programs for the year ended December 31, 1996.
As required by the Guide, we performed auditing procedures to test compliance with the requirements governing Federal Financial Reports; Management, Maintenance, and Replacement Reserve; Application, Eligibility, and Reexamination of Tenants; and Security Deposits that are applicable to those transactions. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with these requirements. Accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
SHARRAD, McGEE & CO. P.A.
Independent Auditors' Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing
January 17, 1997
To the Partners Fuquay-Varina Homes for the Elderly, Ltd.
We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997.
We have applied procedures to test Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996.
Our procedures were limited to the applicable compliance requirements described in the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of Inspector General in July, 1993. Our procedures were substantially less in scope than an audit, the objective of which would be the expression of an opinion on Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with the Affirmative Fair Housing requirements. Accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
SHARRAD, McGEE & CO. P.A.
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD Project No. 053-35198-PM-WAH-L8 (A Limited Partnership) SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 1996
NONE
FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD Project No. 053-35198-PM-WAH-L8 (A Limited Partnership) AUDITORS' COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO THE HUD PROGRAMS For the Year Ended December 31, 1996
We performed a review of findings, if any, from previous HUD required annual audits, HUD-OIG audits, or HUD management reviews and determined that no significant findings remained uncorrected at the time of our review.
FIDDLERS CREEK APARTMENTS, LTD HUD PROJECT NO. 053-35163-PM (A Limited Partnership)
INDEPENDENT AUDITORS' REPORTS FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
December 31, 1996
Page
CERTIFICATE OF PARTNERS 1
MANAGEMENT AGENT'S CERTIFICATION 2
INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION 3 - 4
FINANCIAL STATEMENTS
BALANCE SHEET 5
STATEMENT OF PARTNERS' EQUITY 6
STATEMENT OF PROFIT AND LOSS 7 - 8
STATEMENT OF CASH FLOWS 9 - 10
NOTES TO FINANCIAL STATEMENTS 11 - 14
SUPPLEMENTAL INFORMATION 15 - 21
INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE 22 - 23
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS 24
SCHEDULE OF FINDINGS AND QUESTIONED COSTS 26 - 28
AUDITORS' COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO THE HUD PROGRAMS 29
FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) December 31, 1996
CERTIFICATE OF PARTNERS
We hereby certify that we have examined the accompanying financial statements and supplemental information of Fiddlers Creek Apartments, Ltd. and, to the best of our knowledge and belief, the same is complete and accurate.
GENERAL PARTNERS
/s/Bob R. Badgett 2-7-97 ---------------------------------------- Bob R. Badgett Date
---------------------------------------- Date Liberty LGP Limited Partnership
Partnership Employer Identification Number: 56-1449286
FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) December 31, 1996
MANAGEMENT AGENT'S CERTIFICATION
I hereby certify that I have examined the accompanying financial statements and supplemental information of Fiddlers Creek Apartments, Ltd. and, to the best of my knowledge and belief, the same is complete and accurate.
/s/Bob R. Badgett ---------------------------------------- Bob R. Badgett, President Housing Management, Inc.
2-7-97 ---------------------------------------- Date
[Turlington and Company, L.L.P. Letterhead]
INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION
To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina
We have audited the accompanying balance sheet of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of December 31, 1996, and the related statements of profit and loss, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fiddlers Creek Apartments, Ltd. at December 31, 1996, and the results of its operations, and the changes in partners' equity, and cash flows for the year then ended, in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U. S. Department of Housing and Urban Development, we have also issued a report dated January 15, 1997 on our consideration of Fiddlers Creek Apartments, Ltd.'s internal control structure, and reports dated January 15, 1997 on its compliance with specific requirements applicable to major HUD programs, and specific requirements applicable to Affirmative Fair Housing.
Our audit was made for the purpose of formulating the opinion stated above. The supplemental information identified in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements of Fiddlers Creek Apartments, Ltd. Such information has
INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION (CONTINUED)
been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
/s/Turlington and Company, L.L.P.
January 15, 1997
The accompanying notes are an integral part of the financial statements
The accompanying notes are an integral part of the financial statements
The accompanying notes are an integral part of the financial statements
FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 1996
Note A - Summary of Accounting Policies
A summary of the partnership's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
1. Depreciation
Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method.
2. Amortization
Loan costs are amortized by using the straight-line method over the life of the mortgage loan.
3. Statement of Cash Flows
Cash and cash equivalents, as presented in the Statement of Cash Flows, consists entirely of interest and noninterest bearing cash accounts and petty cash. The partnership has no other assets that qualify as cash or cash equivalents.
4. Income Taxes
No provision for income taxes has been included in these financial statements since the tax gains and losses pass through to and are reportable by the partners on their respective income tax returns. Taxable income or loss reported by the partners will differ from income or loss reflected in the financial statements, due to the different bases in certain assets (primarily property, buildings, and equipment) for financial reporting and income tax purposes.
5. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note B - Organization
The partnership was organized as a North Carolina limited partnership on April 21, 1975 to construct, own, and operate a 160 unit apartment project located in Winston-Salem, North Carolina, known as Fiddlers Creek Apartments, under Section 221(d)(4) of the National Housing Act. The Regulatory Agreement limits distributions of net operating receipts to "surplus cash" available at the end of semi-annual periods.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note B - Organization (Continued)
On September 30, 1984, pursuant to an Amended and Restated Certificate of Limited Partnership dated as of that date, partners' ownership interests amounting to 99% of the existing partners' interests were transferred by the original partners to two new partners. As a result of the transfer of ownership interests, the partnership, as of September 30, 1984, retained one of the original general partners as a local general partner, admitted a new general partner as associate general partner, and admitted a sole investor limited partner.
After the aforementioned transfer, the Amended and Restated Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner, and 98% to the investor limited partner. In the case of certain events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property), the allocation may be different than that described above for profits and losses from operations.
Note C - Concentration of Credit Risk
The partnership's policy is to maintain its cash balances in reputable financial institutions insured by the Federal Deposit Insurance Corporation which provides $100,000 of insurance coverage on each customer's cash balances. At times during the year, the partnership's cash balances exceeded $100,000. Management believes this policy will not cause any adverse effect to the partnership.
Note D - Mortgage Payable
The mortgage, originally in the amount of $2,519,100, is payable in monthly installments of $17,515.73, including interest at 8.0% per annum. The final payment is due in February 2018. The loan is secured by the land and buildings and is insured by the Federal Housing Administration.
The maturities of this debt are as follows:
1997 $ 40,337 1998 43,685 1999 47,311 2000 51,238 2001 55,491 2002 and After 1,903,303
Note E - Related Party Transactions/Identity of Interest
1. Management of Project
The partnership contracted with Housing Management, Inc. (HMI) to manage the project. The local general partner is an officer of HMI. The contract in effect through July 31, 1996 called for a management fee of 6.0% of gross revenue collections plus accounting fees of $2.50 per housing unit per month. Effective
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note E - Related Party Transactions/Identity of Interest (Continued)
1. Management of Project (Continued)
Effective August 1, 1996, the management fee was increased to 7.5% of gross revenue collections and the accounting fees were increased to $3.00 per housing unit per month. Management and accounting fees are analyzed as follows:
2. Partnership Administrative Fee
For its services in overseeing the operations of the partnership, the partnership has agreed to pay its associate general partner a fee of $15,000 per annum. The partnership administrative fee is payable from surplus cash as defined by HUD regulations.
3. Other
The partnership also paid $600 to HMI for a computer and printer during 1996.
The partnership contracted with Housing Projects, Inc. (HPI) to repair the damages caused by a fire in one of the apartments. The local general partner is an officer of HPI. The partnership paid HPI $17,970 for these repairs.
Note F - Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
1. Cash and Security Deposits Funded
The carrying amount approximates fair value because of the short maturity of these instruments.
2. Restricted Deposits and Funded Reserves
The carrying amounts approximates fair value because of the short maturity of these instruments.
3. Long-term Debt
The fair value of the partnership's long-term debt is estimated based on the quoted market prices for the same or similar issues.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note F - Disclosures About Fair Value of Financial Instruments (Continued)
The estimated fair values of the partnership's financial instruments are as follows:
Note G - Fire Casualty
1. Property Damage
On January 26, 1996, one of the apartments suffered a fire. During 1996, the partnership received insurance reimbursement in the amount of $20,288 for removal of debris and repairs at the sight of the fire. These proceeds were offset against the expenses on the partnership's 1996 financial statements.
2. Loss of Rents
On May 19, 1995, one of the ten apartment buildings that comprise Fiddlers Creek Apartments suffered a fire.
In January 1996, the partnership received $32,280 of insurance proceeds to cover lost rents for six months of 1995 due to the fire damage of May 19, 1995. In May 1996, the partnership received $1,213 of insurance proceeds to cover lost rents for the fire in the one apartment on January 26, 1996.
Note H - Distribution
The partnership customarily makes a cash distribution of the maximum amount permitted by its Regulatory Agreement and other such restrictions under which it operates. In keeping with this custom, $104,727, including a partnership administrative fee of $15,000, was distributed during 1996, and it is anticipated that $166,536 will be distributed in the first quarter of 1997.
FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996
Tenant Security Deposits
Tenant security deposits are held in a separate bank account(s) in the name of the project. (See Schedule of Funds in Financial Institutions for specific information on these accounts.)
SUPPLEMENTAL INFORMATION (CONTINUED)
Loans and Notes Payable (Other Than Insured Mortgage)
None
SUPPLEMENTAL INFORMATION (CONTINUED)
Compensation of Partners (From Rental Income)
None
Unauthorized Distribution of Project Income to Partners
None
Changes in Partnership Interests
None
SUPPLEMENTAL INFORMATION (CONTINUED)
SUPPLEMENTAL INFORMATION (CONTINUED)
SUPPLEMENTAL INFORMATION (CONTINUED)
Turlington and Company L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697
INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE
To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina
We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997. We have also audited Fiddlers Creek Apartments, Ltd.'s compliance with requirements applicable to major HUD-assisted programs and have issued our reports thereon dated January 15, 1997.
We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U. S. Department of Housing and Urban Development, Office of the Inspector General, in July 1995. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether Fiddlers Creek Apartments, Ltd. complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program.
The management of Fiddlers Creek Apartments, Ltd. is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate.
In planning and performing our audits, we obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements of Fiddlers Creek Apartments, Ltd. and on its compliance with specific requirements applicable to
its major HUD-assisted programs and to report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure.
We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to Fiddlers Creek Apartments, Ltd.'s major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on such internal control structure policies and procedures. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements or that noncompliance with laws and regulations that would be material to a HUD assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
Turlington and Company, L.L.P.
January 15, 1997
Turlington and Company, L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina
We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997.
We have also audited Fiddlers Creek Apartments, Ltd. 's compliance with the specific program requirements governing Federal Financial Reports; Mortgage Status; Replacement Reserve; Security Deposits; Cash Receipts and Disbursements; Distributions to Owners; Tenant Application, Eligibility, and Reexamination; and Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of Fiddlers Creek Apartments, Ltd. is responsible for compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit.
We conducted our audit of compliance with those requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1995. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about Fiddlers Creek Apartments, Ltd.'s compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion.
The results of our audit procedures disclosed immaterial instances of noncompliance with the requirements referred to above, which are described in the accompanying Schedule of Findings and Questioned Costs. We considered these instances of noncompliance in forming our opinion on compliance which is expressed in the following paragraph.
In our opinion, Fiddlers Creek Apartments, Ltd. complied, in all material respects, with the requirements described above that are applicable to each of its major HUD-assisted programs for the year ended December 31, 1996.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
Turlington and Company, L.L.P.
January 15, 1997
Turlington and Company, L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING
To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina
We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997.
We have also applied procedures to test Fiddlers Creek Apartments, Ltd.'s compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996.
Our procedures were limited to the applicable compliance requirements described by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U. S. Department of Housing and Urban Development, Office of Inspector General, in July 1995. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Fiddlers Creek Apartments, Ltd.'s compliance with the Affirmative Fair Housing requirements. Accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide.
This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
Turlington and Company, L.L.P.
January 15, 1997
FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 1996
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
OTHER SUPPORTING DATA REQUIRED BY HUD DECEMBER 31, 1996
1. ACCOUNTS OR NOTES RECEIVABLE OTHER THAN REGULAR TENANT ACCOUNTS
None.
2. DELINQUENT TENANT ACCOUNTS Amount Past Due 0 to 30 days $ 686 31 to 60 days 84 61 to 90 days 52 Over 90 days 1,336 --------
$ 2,158 ========
3. ACCOUNTS PAYABLE OTHER THAN TRADE CREDITORS
Federal Management Co. $ 16,656 B & M Professional Services 9,809 --------
$ 26,465 ========
4. LOANS OR NOTES PAYABLE OTHER THAN THE INSURED MORTGAGE
9% operating loss loan dated March 24, 1978 in the original amount of $57,300. Balance at December 31, 1996:
Current $ 3,410 Long-term 19,507 --------
$ 22,917 ========
5. COMPENSATION OF PARTNERS
None.
6. CHANGES IN CAPITAL INTERESTS, PROFIT AND LOSS INTERESTS, AND CASH FLOW INTERESTS
None.
7. TRANSACTIONS WITH PARTIES-AT-INTEREST Amount Company Description Paid --------------------------- -------------------- -------- Liberty LGP Administrative fee $ 7,500 B & M Professional Services Painting and drywall services $ 16,917 B & M Professional Services Window replacement $ 31,860 Federal Management Co. Management fee $ 76,800
8. UNAUTHORIZED DISTRIBUTIONS
Distributions of $7,700 made in 1996 were returned by one of the General Partners on December 6, 1996.
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996
9. MORTGAGE ESCROW DEPOSITS
Estimated amount required as of December 31, 1996 for future payment of:
Mortgage insurance premium $ 14,957 Property insurance 6,918 Real estate taxes 29,071 -------- 50,946 Amount on deposit deficient of estimated requirements 1,830 --------
Total confirmed $ 49,116 ========
10. ACCRUED TAXES
Description Basis for Period Date Amount of tax Accrual Covered Due Accrued
Real Estate 1996 effective 01/01/96 to Semi-Annual tax rate 12/31/96 1997 $ 87,213 ========
11. RESERVE FOR REPLACEMENTS
In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgage servicing agent, Manufacturers and Traders Trust, and is used for replacement of property with the approval of HUD.
Balance at January 1, 1996 $ 242,293 Monthly deposits 54,000 Authorized releases: December 18, 1995 $(40,000) Various 1996 (83,704) (123,704) -------- --------- Interest income 9,225 ---------
Balance at December 31, 1996, confirmed by mortgagee $ 181,814 =========
Invested in: Money Market $ 54,890 Treasury Bill, due March 6, 1997 126,924 ---------
Balance at December 31, 1996 $ 181,814 =========
The following information pertains to Reserve for Replacement Reimbursement requests approved during December 31, 1996:
Amount Purpose Account Fiscal Year Affected of Request of Request Charged 1995 1996 ---------- -------------------------- ---------- -------- -------
$ 3,148 Refrigerators Building $ 3,148 $ - 2,518 Hot water tanks 6541 2,518 - 680 Garbage disposals 6541 680 - 1,835 Tiles 6541 1,835 - 2,329 Kitchen cabinets 6541 2,329 -
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996
11. RESERVE FOR REPLACEMENTS, CONTINUED
Amount Purpose Account Fiscal Year Affected of Request of Request Charged 1995 1996 ---------- -------------------------- ---------- -------- -------
$ 12,852 Carpeting Building $ 12,852 $ - 332 Freight - carpeting 6541 332 - 345 Dumpster 6542 345 - -------- -------- -------
$ 24,039 Form HUD 9250 approved January 8, 1996 $ 24,039 $ - ======== ======== =======
$ 4,370 Parking Lot 6541 $ - $ 4,370 2,308 Kitchen cupboards 6541, 6542 - 2,308 3,759 Refrigerators Building - 3,759 807 Exterior paint 6561 - 807 8,161 Drainage for building 1031 6541 ,6542 - 8,161 578 Door 6541 - 578 10,957 Floors 6541, 6542 980 9,977 7,687 Carpeting Building 630 7,057 5,400 Windows 6542 - 5,400 13,665 Roofs Building - 12,705 6541, 6542 - 960 567 Exterior panels 6542 - 567 579 Disposals 6541 - 579
827 Hot water tanks 6541 331 496 -------- ------- --------
$ 59,665 Form HUD 9250 approved October 31, 1996 $ 1,941 $ 57,724 ======== ======= ========
12. SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS AS OF DECEMBER 31, 1996
Funds held by mortgagor:
Mahoning National Bank (confirmed 1/6/97): Operating - investment account, 4.40% $ 87,256 Security deposit - savings, 2.5% 4,637 -------- $ 91,893 Metropolitan Savings (confirmed 1/3/97): Security deposit - CD, due 12/30/97, 5.20% 30,936 --------
Total funds held by mortgagor 122,829 --------
Funds held by mortgagee (confirmed 1/21/97):
Reserve for Replacements: Money Market 54,890 U.S. Treasury Bill, due 3/6/97 126,924 181,814 --------
Mortgage escrow 49,116 --------
Total funds held by mortgagee 230,930 --------
Total funds in financial institutions $353,759 ========
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996
13. TENANT SECURITY DEPOSITS
Tenant security deposits in the total amount of $35,573, which is sufficient to fund the related liability, are held in the following bank accounts at December 31, 1996:
Metropolitan Savings Certificate of Deposit (5.20% due 12/30/97) $ 30,936 Mahoning National Bank Savings 4,637 --------
$ 35,573 ========
14. DETAIL OF STATEMENT OF PROFIT AND LOSS SELECTED ACCOUNTS
Account 5990 Other Revenue Community room/office rentals $ 1,092 Air conditioning fee 2,105 Cable 4,733 Pool 692 Miscellaneous 307 --------
$ 8,929 ======== Account 6390 Miscellaneous Administration Expenses Computer services $ 1,117 Seminars 157 Travel 357 Miscellaneous 100 --------
$ 1,731 ======== 15. NON-REVENUE PRODUCING UNITS
None.
[Bick Fredman & Co Letterhead]
Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD-Assisted Programs
Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio
We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. In addition, we have audited Austintown Associates' compliance with the following specific program requirements:
Specific Compliance Requirements
o Federal Financial Reports o Mortgage Status o Replacement Reserve o Residual Receipts o Security Deposits o Cash Receipts and Disbursements o Distributions to Owners o Tenant Application, Eligibility and Recertification o Management Functions
that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of the Project is responsible for compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit.
We conducted our audit of compliance with those requirements in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. Those standards and The Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Project's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion.
The results of our audit procedures disclosed immaterial instances of noncompliance with the requirements referred to above, which are described in the accompanying Schedule of Findings and Questioned Costs. We considered these instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph.
In our opinion, Austintown Associates complied, in all material respects, with the specific compliance requirements described above, that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996.
This report is intended for the information of management and the U.S. Department of Housing and Urban Development. This restriction is not intended to limit the distribution of this report, which is a matter of public record.
/s/Bick Fredman & Co
Cleveland, Ohio January 9, 1997
[Bick Fredman & Co Letterhead]
Independent Auditor's Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing
Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio
We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. We have applied procedures to test the Project's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996.
Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Project's compliance with the Affirmative Fair Housing requirements. Accordingly, we do not express such an opinion.
The results of those procedures disclosed no instances of noncompliance with the Affirmative Fair Housing requirements that are required to be reported herein under Government Auditing Standards.
This report is intended for the information of management and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/Bick Fredman & Co
Cleveland, Ohio January 9, 1997
[Bick Fredman & Co Letterhead]
Independent Auditor's Report on The Internal Control Structure
Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio
We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. We have also audited the Project's compliance with requirements applicable to major HUD- assisted programs and have issued our reports thereon dated January 9, 1997.
We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide
for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, in July 1993. Those standards, and the Guide, require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Project complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program.
The management of Austintown Associates is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate.
In planning and performing our audits for the year ended December 31, 1996, we obtained an understanding of the internal control structure. With respect to the internal control structure, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinion on the Project's financial statements and its compliance with specific requirements applicable to its major HUD-assisted programs and not to provide an opinion on the internal control structure. Accordingly, we do not express such an opinion.
We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Project's HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control structure policy and procedures. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited or that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above.
This report is intended for the information of management and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/Bick Fredman & Co
Cleveland, Ohio January 9, 1997
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
SCHEDULE OF FINDINGS AND QUESTIONED COSTS DECEMBER 31, 1996
1. RESERVE FOR TAXES AND INSURANCE
At December 31, 1996, the Reserve for Taxes and Insurance was deficient by $1,830.
2. SURPLUS CASH CALCULATION/CURRENT YEAR DISTRIBUTIONS
On November 22, 1996, HUD informed the Project owner that the surplus cash calculation as of December 31, 1995 was in error in that Line 3 included a pending release from the Reserve for Replacements which was not authorized until 1996. As a consequence of eliminating this item, the Project had no surplus cash at December 31, 1995. In 1996, the Project distributed $7,700 to the partners based on the original surplus cash calculation. In order to comply with HUD's instructions, on December 6, 1996, one of the general partners returned the entire distribution of $7,700. This amount is repayable to him out of surplus cash that exists as of December 31, 1996.
No additional action is needed.
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213
AUDIT RESOLUTION MATTERS DECEMBER 31, 1996
The findings noted on the prior year's audit report and their depositions are reported below:
1. TENANT CERTIFICATIONS
HUD Handbook 4350.3 requires that the average six month checking account balance be used when computing net family assets. Three exceptions were noted in our 1995 testing (exception rate - 13%).
Action taken
No exceptions were noted during the current year audit.
2. TENANT LEASES
Three instances were noted where the tenant file did not contain a copy of the signed lease (exception rate - 13%).
Action taken
A copy of the signed lease has been inserted in the tenant's file.
MORTGAGOR'S CERTIFICATION
We hereby certify that we have examined the accompanying financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate.
/s/ James P. Manchi
Feb 24 , 1997 ------------------------------- Date
EIN: 74-2343727
MANAGING AGENT'S CERTIFICATION
We hereby certify that we have examined the accompanying 1996 financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate.
Federal Management Company, Inc.
By /s/ James P. Manchi James Manchi
Feb 24, 1997 Date
Federal I.D. #34-1527725
OSUNA APARTMENTS COMPANY HUD Project No. 116-44052-LDP (A Limited Partnership)
Financial Statements and Supplemental Data For the Year Ended December 31, 1996
INDEPENDENT AUDITOR'S REPORT
To the Partners of Osuna Apartments Company
I have audited the accompanying balance sheet of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP, as of December 31, 1996, and the related statements of profit and loss, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that I 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. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, I have also issued a report dated February 8, 1997, on my consideration of Osuna Apartments Company's internal control structure and reports dated February 8, 1997, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Affirmative Fair Housing, and specific requirements applicable to nonmajor HUD program transactions.
My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data required by HUD included in Schedules 1 and 2 provides additional analysis which is not a required part of the basic financial statements of the Partnership. The information in such schedules has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ James M. Klein, P.C.
February 8, 1997
The accompanying notes are an integral part of the financial statements.
The accompanyingnotes are an integral part of the financial statements.
Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership)
Statement of Cash Flows For the Year Ended December 31, 1996
Cash flows from operating activities: Rental receipts $ 401,868 Interest receipts 533 Other receipts 7,594 $ 409,995 ---------
Administrative expenses 26,013 Management fees 38,683 Utilities 91,188 Salaries and wages 37,700 Maintenance expenses 156,713 Real estate taxes and escrow deposits 33,472 Taxes - other 4,034 Insurance 13,110 Mortgage interest 11,509 Mortgage insurance premium 6,382 418,804 --------- ---------
Net cash used in operating activities (8,809)
Cash flows from investing activities: Deposit to residual receipts (19,030) Deposits to reserve for replacements (6,068) Deposits to reserve for exterior painting (3,600) Transferred to operations 31,332 Purchase of fixed assets (2,826) ---------
Net cash used in investing activities (192)
Cash flows from financing activities: Mortgage principal payments (32,415) Distribution to partners (9,312) ---------
Net cash used in financing activities (41,727) ---------
Decrease in cash (50,728)
Cash, beginning of year 110,742 ---------
Cash, end of year $ 60,014 =========
The accompanying notes are an integral part of the financial statements.
Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership)
Statement of Cash Flows (Continued) For the Year Ended December 31, 1996
Cash flows from operating activities: Net loss $(60,030) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $ 65,572 Increase in accounts receivable - tenants (892) Increase in accounts receivable - HUD (111) Decrease in prepaid expenses 82 Increase in mortgage escrow account (7,062) Increase in accounts payable - trade 11,434 Increase in accounts payable - HUD 515 Decrease in accrued interest payable (175) Increase in prepaid rent 365 Decrease in accrued payroll taxes (153) Interest earned on reserve accounts (18,354) 51,221 ------- -------
Net cash used in by operating activities $ (8,809) ========
Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 11,509 ========
Interest earned on restricted reserve accounts and maintained in the respective reserve accounts $ 18,354 ========
The accompanying notes are an integral part of the financial statements
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Notes to Financial Statements December 31, 1996
Note 1 - Organization and Summary of Significant Accounting Policies
The Partnership was organized as a limited partnership on February 25, 1974, to acquire an interest in real property located in Albuquerque, New Mexico and to construct and operate thereon an apartment complex of 110 units, under Section 236 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The project's major program is its insured loan under Section 236. The project's nonmajor program results from its participation in the Section 8 housing assistance program.
The Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner and 98% to the investor limited partner. However, the allocation of deductions in respect to depreciation on property contributed to the Partnership is to be allocated according to the basis contributed by respective partners. In the case of certain other events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property) the allocation may be different than as described above for profits and losses from operations.
The partnership does business under the assumed name of "Osuna Apartments ".
The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of the year. The maximum distributable amount for the year ended December 31, 1996 was $11,812 and "surplus cash" amounted to $36,537. Undistributed amounts are cumulative and may
be distributed in subsequent years if future operations provide "surplus cash" in excess of current requirements. The cumulative amount distributable at December 31, 1996 was $11,812.
The following significant accounting policies have been followed in the preparation of the financial statements:
Basis of accounting
The Partnership's policy is to prepare its financial statements on the basis of accounting practices prescribed by the Department of Housing and Urban Development. Assets and liabilities are classified as current based on the instructions provided in the Consolidated Audit Guide for Audits of HUD Programs, (July 1993) (Handbook IG 2000.04 REV-1). For purposes of the statement of cash flows, cash does not include tenant security deposits or restricted deposits.
Depreciation
Depreciation is provided using the accelerated and straight-line methods over the estimated useful lives of the assets which range from five to 40 years.
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Notes to Financial Statements December 31, 1996
Note 1 - Organization and Summary of Significant Accounting Policies (Continued)
Deferred expenses
Unamortized deferred expenses consist of fees for obtaining the HUD insured mortgage loan which are being amortized on the straight-line method over the life of the mortgage loan.
Income taxes
No income tax provision has been included in the financial statements since income or loss of the partnership is required to be reported by the respective partners on their income tax returns.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Rental revenue
Gross rental revenue earned (accounts 5120 and 5121) was based on the approved rental rate structure (revenue and non-revenue units) of the project. Two non-revenue apartments (a 1BR and a 2BR) were occupied by the resident manager and maintenance person during the year.
Concentration of credit risk
The Partnership maintains its cash in various insured bank accounts which, at times, may exceed Federally insured limits. At December 31, 1996 the uninsured cash balances approximated $3,000. The partnership has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash. Management is aware of the limitation and attempts to minimize any risk.
Note 2 - Replacement Reserves and Residual Receipts
Replacement reserve funds are held in cash ($45,192) and U.S. Treasury bills ($95,348) due April 1997. Residual receipts are held in cash ($63,575) and U.S. Treasury bills ($157,323) due April 1997. The Treasury bills bear interest at approximately 5.22% per annum. The amounts reported approximate fair value and are based on quoted market prices.
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Notes to Financial Statements December 31, 1996
Note 3 - Long-term Debt
The seven percent mortgage note payable is insured by HUD and is payable in monthly installments of $10,293 (before any interest supplement) through August, 2015. A portion of the interest is paid by HUD under its 236 Program. The apartment project is pledged as collateral for the note.
Current maturities of long-term debt over the next five years ending December 31, are as follows:
1997 $34,759 1998 $37,272 1999 $39,966 2000 $42,856 2001 $45,954
It is impractical to estimate, with any precision, the fair value of the outstanding debt without incurring excessive cost.
Note 4- Related Party Transactions
During 1996, the general partners earned $2,500 in local partnership administrative fees. This amount is reflected as an accrued expense at December 31, 1996. These fees are treated as a portion of the limited dividend payable and can only be paid as part of the allowable distribution from surplus cash.
Note 5 - Restricted Equity
Under the terms of the Regulatory Agreement, the Partnership is required to set aside specified amounts for the replacement of property and other project expenditures as approved by HUD. Restricted funds, which approximate $361,000 at December 31, 1996, are held in separate accounts and generally are not available for operating purposes without HUD's prior written approval.
Note 6 - Rent Increases
Under the regulatory agreement, the partnership may not increase rents charged to tenants without HUD approval.
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Notes to Financial Statements December 31, 1996
Note 7 - Management Fees
Management fees of $38,683 were earned under a HUD approved 9.4% management contract. Management fees are based on collections of rentals, commercial (laundry and vending), late and NSF fees and forfeited security deposits. In addition, accounting fees of four dollars per unit per month ($5,280) were paid to the management company.
Note 8: Contingency
The Partnership has been named in a lawsuit which is being handled by the Partnership's insurance carrier. The ultimate outcome of this litigation is unknown at the present time. Accordingly, no provision for any liability (if any) that might result has been made in the accompanying financial statements.
OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD
Accounts and Notes Receivable (Other Than Tenants)
Accounts receivable - HUD represent an adjustment of Section 8 funds received in January 1997.
Accounts Receivable - Tenants
Tenant accounts receivable at December 31, 1996 were comprised primarily of unpaid rents.
Number of Tenants Aging Amount Due --------- ------------ ---------- 3 0 - 30 Days $957 ====
Mortgage Escrow Deposits
Estimated amount required for future payment of: City, state and county taxes $ 2,201 Property insurance 5,219 Mortgage insurance 2,127 ---------- 9,547 Amount in excess of estimated requirements 1,427 ----------
Total held by mortgagee $ 10,974 ==========
This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements.
OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued)
Reserve for Replacements
In accordance with the provisions of the regulatory agreement, restricted cash and securities are held by GMAC Commercial Mortgage at December 31, 1996 to be used for replacement of property with the approval of HUD as follows:
Balance, January 1, 1996 $ 127,778 Monthly deposits ($506 x 12) 6,068 Interest earned 6,694 ---------
Balance, December 31, 1996 $ 140,540 =========
Reserve for Residual Receipts
In accordance with the provisions of the regulatory agreement, residual receipts cash and securities are held by GMAC Commercial Mortgage. Use of these funds is contingent upon HUD's prior written approval. The following is an analysis of 1996 transactions.
Balance, January 1, 1996 $ 178,305 Interest earned 9,774 1994 residual receipts transferred 19,030 Transfer from another property to correct prior year mortgagee error 13,789 ---------
Balance, December 31, 1996 $ 220,898 =========
Reserve for Exterior Painting
Restricted cash is held by a bank to be used for exterior painting as follows:
Balance, January 1, 1996 $ 58,076 Deposits for 1996 ($300 x 12) 3,600 Interest earned 1,332 Interest transferred to operating (1,332) Transfer to operating (30,000) --------- Balance, December 31, 1996 $ 31,676 =========
This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements.
OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued)
Accounts Payable (Other Than Trade Creditors)
None
Accounts Payable - Trade
Accounts payable trade represent current obligations of the Partnership due in 30 days.
Accounts Payable - HUD
Accounts payable HUD represents excess income collected and remitted in January 1997.
Accrued Taxes Basis Amount Description of Tax of Accrual Period Covered Date Due Accrued - ------------------ ---------- -------------- -------- -------
Payroll Monthly December 1996 January 1997 $227 ====
Tenant Security Deposits
Tenant security deposits are fully funded and are held in a separate interest bearing account in the name of the project in an account insured by the Federal government at Norwest Bank Texas, Waco, N.A. Interest earned on the account does not inure to the tenants and is transferred into the operating account. At December 31, 1996 and 1995 the account consisted of $11,105 and $10,805, respectively, in cash.
Partnership Changes
There were no changes in the partners' ownership during 1996.
Distributions to Partners
In March 1996, $11,812 in limited dividends, earned in 1995, were paid to the partners. At December 31, 1996 an equal amount ($11,812) was earned and is expected to be paid in 1997.
This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements.
OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued)
Unauthorized Distributions to Partners
There were no unauthorized distributions to partners during 1996.
Compensation of Partners
There was no compensation paid to partners.
Identity of Interest Companies
During 1996, the general partners earned $2,500 in local partnership administrative fees. These fees are treated as part of the limited dividend and are only paid out of surplus cash.
Loans (Other Than Insured Mortgages) and Notes Payable
None
Comments on Other Balance Sheet Items
None
Miscellaneous Information
The lead auditor of the engagement was James M. Klein, the shareholder in the firm of James M. Klein, P.C. (EIN: 75-2465724), located at 4901 LBJ Freeway, Suite 120, Dallas, Texas 75244.
This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements.
This supporting data is presented for purposes of additional analysis and is not a required part of the financial statements.
See Reverse for Instructions) HUD-93486 This supporting data is presented for additional analysis and is not a required part of the basic financial statements.
Schedule 2
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Schedule of Funds In Financial Institutions December 31, 1996
A. Funds held by mortgagor, regular operating account: 1. Norwest Bank Texas (checking) $ 26,259 2. Norwest Bank Texas (money market, 2.5%) 33,138 3. First Security Bank New Mexico (checking) 517 --------
Total operating funds 59,914
B. Funds held by mortgagor in trust, tenant security deposit: 1. Norwest Bank Texas (money market, 2.5%) 11,105
C. Funds held by mortgagor, exterior painting reserve: 1. Norwest Bank Texas (money market, 2.5%) 31,676 --------
Total funds held by mortgagor $102,695 ========
D. Funds held by mortgagee (in trust): 1. Tax and insurance escrow $ 10,974 -------- 2. Reserve fund for replacements a. 1-year Treasury Bill, 5.22%, maturing April 1997 95,348 b. GMAC Commercial Mortgage (Corestates Bank, N.A.) 45,192 -------- 140,540 -------- 3. Reserve for residual receipts a. 1-year Treasury Bill, 5.22%, maturing April 1997 157,323 b. GMAC Commercial Mortgage (Corestates Bank, N.A.) 63,575 -------- 220,898 --------
Total funds held by mortgagee $372,412 ========
Total funds in financial institutions $475,107 ========
NOTE: All funds held by mortgagor were verified as of December 31, 1996. All funds held by mortgagee servicing agent (GMAC) were confirmed as of December 31, 1996.
This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements.
Schedule 3
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
To the Partners of Osuna Apartments Company
I have audited the financial statements of Osuna Apartments Company (a limited partnership), Project No. 116-44052-LDP, as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997.
I have also audited Osuna Apartments Company's compliance with the specific program requirements governing federal financial reports, mortgage status, the replacement reserve, the residual receipts, tenant security deposits, cash receipts and disbursements, distributions to owners, tenant application, tenant eligibility, tenant recertification, and management functions, that are applicable to its major HUD-assisted program for the year ended December 31, 1996. The management of the Partnership is responsible for compliance with those requirements. My responsibility is to express an opinion on compliance with those requirements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban
Development, Office of Inspector General, in July 1993. Those standards and the Guide require that I plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Partnership's compliance with those requirements. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, Osuna Apartments Company complied, in all material respects, with the requirements described above that are applicable to its major HUD-assisted program for the year ended December 31, 1996.
This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/ James M. Klein, P.C.
Dallas, Texas February 8, 1997
Schedule 4
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR HUD TRANSACTIONS
To the Partners of Osuna Apartments Company
I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997.
In connection with my audit of the 1996 financial statements of Osuna Apartments Company and with my consideration of the Partnership's internal control structure used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993, I selected certain transactions applicable to certain nonmajor HUD-assisted programs for the year ended December 31, 1996. As required by the Guide, I performed auditing procedures to test compliance with the requirements governing affirmative fair housing, management, maintenance, the replacement reserve, federal financial reports, tenant application, tenant eligibility, tenant recertification, and tenant security deposits that are applicable to those transactions. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion of the Partnership's compliance with those requirements. Accordingly, I do not express such an opinion.
The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide.
This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/ James M. Klein, P.C.
Dallas, Texas February 8, 1997
Schedule 5
INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE
To the Partners of Osuna Apartments Company
I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. I have also audited the Partnership's compliance with requirements applicable to its major HUD-assisted program and have issued my report thereon dated February 8, 1997.
I conducted my audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, in July 1993. Those standards and the Guide require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Partnership complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program.
The management of Osuna Apartments Company is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate.
In planning and performing my audits, I obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had been placed in operation, and I assessed control risk, in order to determine my auditing procedures for the purpose of expressing my opinions on Osuna Apartments Company's financial statements and on its compliance with specific requirements applicable to its major HUD-assisted program and the report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure.
I performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that I considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Partnership's major HUD-assisted program. My procedures were less in scope than would be necessary to render an opinion on such internal control structure policies and procedures. Accordingly, I do not express such an opinion.
My consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements or that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. I noted no matters involving the internal control structure and its operations that I consider to be material weaknesses as defined above.
This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/ James M. Klein, P.C.
Dallas, Texas February 8, 1997
Schedule 6
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING
To the Partners of Osuna Apartments Company
I have audited the financial statements of Osuna Apartments Company as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997.
I have also applied procedures to test Osuna Apartments Company's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted program for the year ended December 31, 1996.
My procedures were limited to the applicable compliance requirements described by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Osuna Apartments Company's compliance with the Affirmative Fair Housing requirements. Accordingly, I do not express such an opinion.
The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide.
This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited.
/s/ James M. Klein, P.C.
Dallas, Texas February 8, 1997
Schedule 7
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Schedule of Findings and Questioned Costs December 31, 1996
There were no findings, including material questioned costs, noted during the audit.
Schedule 8
AUDITOR'S COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO HUD PROGRAMS
To the Partners of Osuna Apartments Company
I have audited the financial statements of Osuna Apartments Company (a limited partnership) as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997.
During the 1995 audit, no material matters involving the internal control structure and its operation or compliance with specific requirements applicable to its major HUD program were noted. Accordingly corrective action was not required during 1996. Further, based on the auditor's discussions with management, there were no HUD OIG audits or program reviews during 1996.
In March and August, 1996, the mortgagee conducted physical inspections of the project with the overall physical condition and maintenance policies and practices ultimately receiving a "superior" rating. Based on discussions with management and review of correspondence, items noted in the physical inspection reports have been corrected or are being addressed.
/s/ James M. Klein, P.C.
Dallas, Texas February 8, 1997
Schedule 9
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Auditee's Corrective Action Plan December 31, 1996
Section I - Internal Control Structure Review
There were no findings or recommendations listed in the 1995 report.
Section II - Compliance Review
There were no instances of noncompliance with laws and regulations listed in the 1995 report.
NOTE: As a result of the above, there is no need for a separate mortgagor letter proposing a corrective action plan.
Schedule 10
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Partners' Certification
We hereby certify that we have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1996, and, to the best of our knowledge and belief, the same is complete and accurate.
Personal Economics Development Corporation
By: /s/ Samuel R. Cambell
2-25-97 Samuel R. Cambell, President DATE GENERAL PARTNER (Printed Name)
By: ____________________________
DATE GENERAL PARTNER (Printed Name)
Employer Identification No. 74-2347236
Schedule 11
OSUNA APARTMENTS COMPANY (A Limited Partnership)
Managing Agent's Certification
I hereby certify that I have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1996, and, to the best of my knowledge and belief, the same is complete and accurate.
2-25-97 The Sovereign Management Corporation
DATE MANAGING AGENT
BY: /s/ Joyce Brow Joyce Brow (Printed Name)
TITLE: Director of Management
INDEPENDENT AUDITORS' REPORT
To the Partners Liberty Housing Partners Limited Partnership
Our report on the 1996 and 1995 financial statements of Liberty Housing Partners Limited Partnership is included on page 31 of this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
/s/ REZNICK FEDDER & SILVERMAN Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 18, 1997
The aggregate cost of the above properties for Federal income tax purposes at December 31, 1996 is $35,758,051.
A reconciliation of summarized carrying value of the above properties for the years ended December 31, 1996, 1995 and 1994 is a follows :
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Partnership
(a-b) Identification of Directors and Executive Officers
The Partnership has no directors or officers. As indicated in Item 1 of this report, the Managing General Partner of the Partnership, as of December 27, 1995, is TNG Properties Inc., a Massachusetts corporation. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. The names and ages of the directors and executive officers of the Managing General Partner, TNG Properties Inc., are as follows as of March 18, 1997:
The directors of the Managing General Partner generally are elected at the annual meeting of stockholders of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. The executive officers the Managing General Partner generally are elected at the annual meeting of directors of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.
(c) Identification of certain significant persons.
None.
(d) Family relationship
Mr. Stoller and Ms. Brooks are husband and wife.
Item 10. Directors and Executive Officers of the Partnership, continued
(e) Business experience
Michael A. Stoller is President, CEO, and a Director of the Managing General Partner and The Newton Group, LLC. From 1992 to 1994, Mr. Stoller was President and Director of MBMC, Inc. of Boston, and the Managing General Partner of MB Management Company Limited Partnership, of Boston, a property management company. From 1983 to 1992, Mr. Stoller was employed by REMAS, Inc. and was a Partner and Chief Operating Officer of MB Associates, which companies engaged in the development and management of government assisted housing properties. Mr. Stoller holds a B.S. from Babson College and is a Certified Public Accountant.
Stephen D. Puliafico is Director of the Managing General Partner. Since August 1995 Mr. Puliafico has been Executive Vice President of The Newton Group, LLC. From 1994 to 1995 Mr. Puliafico was a Regional Sales Manager for Staples, a seller of office supplies. From 1982 to 1994, Mr. Puliafico was a General Manager for Lechmere, a discount department store chain. Mr. Puliafico holds a B.S. from Southeastern Massachusetts University.
Clyde W. Sylvia is Director of the Managing General Partner. Since 1994, Mr. Sylvia has been the Chief Financial Officer of Imaging Technology, of Bedford, Massachusetts, a manufacturer of electronic imaging products. From 1989 to 1993 Mr. Sylvia was a Director at NADCO, of Lowell, Massachusetts, a manufacturer of reference directories. Mr. Sylvia holds a B.S. from the University of Massachusetts at Amherst., an M.B.A. from Suffolk University and is a Certified Public Accountant.
Wilma R. Brooks is Vice President, Treasurer and a Director of the Managing General Partner and Vice President and Treasurer of The Newton Group, LLC. From 1987 to 1993, Ms. Brooks was Chief Financial Officer and Treasurer of Congress Group Ventures, Inc., of Cambridge, Massachusetts, a commercial real estate developer. Ms. Brooks holds a B.S. from the University of Vermont and is a Certified Public Accountant.
Barbara A. Gilman is Vice President and Director of Management of the Managing General Partner. For the seven years prior to joining the Managing General Partner in 1994, Ms. Gilman was Director of Management of Beacon Management Company, of Boston, Massachusetts, a property management company. Ms. Gilman holds a B.S. from Stonehill College.
(f-g) Involvement in certain legal proceedings
The Partnership is not aware of any legal proceedings during the past five years which may be material to the evaluation of the ability and integrity of any director or executive officer of the Managing General Partner.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Partnership's officers and directors, and persons who own more than ten percent of a registered class of the Partnership's equity securities, to file reports of ownership on Form 3 and changes in ownership on
Item 10. Directors and Executive Officers of the Partnership, continued
Form 4 or 5 with the Securities and Exchange Commission. Such officers, directors and ten-percent security holders are also required by applicable rules to furnish the Partnership with copies of all Section 16(a) reports they file. Although the Partnership has no directors or officers, the rules promulgated under ss. 16(a) provide that, for purposes of ss. 16, officers of the Managing General Partner are considered to be officers of the Partnership. Based solely on its review of the copies of such forms received by it, or written representation from certain reporting persons that no Forms 3, 4 or 5 were required for such persons. The Partnership believes that, during the fiscal year ended December 31, 1996, its officers and ten percent security holders complied with all Section 16(a) filing requirements applicable to such individuals.
Item 11.
Item 11. Executive Compensation
(a), (b), (c), (d), and (e): The officers and directors of the Managing General Partner are compensated as employees of the Managing General Partner, but receive no compensation from the Partnership. The Managing General Partner and its affiliates receive compensation and expense reimbursement from the Partnership, as more fully described in Note 6 of the Notes to Financial Statements of the Partnership included in Item 8 of this report.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners and management.
Because it is organized as a limited partnership, the Partnership has issued no securities possessing traditional voting rights. However, the Partnership Agreement provides that certain matters require the approval of a majority in interest of the Limited Partners. Such matters include:
(1) Amendment of the Limited Partnership Agreement;
(2) Termination of the Partnership;
(3) Removal of any General Partner; and
(4) Sale of substantially all the assets of the Partnership.
Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. On December 27, 1995, the Former Managing General Partner and Former Associate General Partner withdrew from the Partnership and TNG Properties Inc. was admitted in their place as Successor General Partner and became Managing General Partner of the Partnership.
No person or group is known by the Managing General Partner to own beneficially more than 5% of the Partnership's 21,576 Units outstanding as of December 31, 1996.
(b) Security ownership of management.
Item 12. Security Ownership of Certain Beneficial Owners and Management, continued
By virtue of its organization as a limited partnership, the Partnership has no officers or directors. The Former Associate General Partner owns 10 Units which are to be assigned to the current Managing General Partner.
(c) Changes in Control.
None.
Item 13.
Item 13. Certain Relationships and Related Transactions
(a), (b), and (c): The managing general partner of the Partnership is TNG Properties, Inc., a Massachusetts corporation. See Note 6 to the Financial Statements of the Partnership contained in Item 8 of this report for a description of the fees and expense reimbursement paid by the Partnership to the current or former Managing General Partner and its affiliates. Directors and executive officers of TNG Properties, Inc. are identified in Item 10 of this report. During 1996, the Partnership was not involved in any transaction involving any of these directors or officers of the Corporation or any member of the immediate family of these individuals, nor did any of these persons provide services to the Partnership for which they received direct or indirect remuneration. Similarly, there exists no business relationship between the Partnership and any of the directors or officers of the Managing General Partner, nor were any of the individuals indebted to the Partnership. Liberty LGP, formerly an affiliate of the predecessor general partners and now an affiliate of the Managing General Partner is entitled to receive certain administrative fees from the Local Limited Partnerships. At January 1, 1996 an aggregate of $104,917 in accrued and unpaid administrative fees were due to Liberty LGP from the Local Limited Partnerships. During 1996, Liberty LGP accrued $68,500 in administrative fees due from the Local Limited Partnership and received payment aggregating $67,000. At December 31, 1996 accrued and unpaid administrative fees aggregated $106,417. Liberty LGP is not entitled to interest on the accrued and unpaid amount.
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
See Index included in Item 8, on page 15 of this Report.
2. Financial Statement Schedules
See Index included in Item 8 on page 15 of this Report for schedules applicable to registrant.
3. Exhibits
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued)
See (c) below
(b) Reports on Form 8-K
None
(c) Index to Exhibits
Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable.