Item 1. Business
Assisted Housing Fund L.P. I (the Partnership) is a limited partnership formed on November 2, 1987 and organized under the laws of the State of Washington.
The Partnership raised $3,511,000 from the sale of 703 units of limited partnership through a public offering completed on April 14, 1989. The Partnership has invested as a limited partner in eleven other limited partnerships (Property Partnerships) which develop, own, and operate residential apartment complexes located in small towns across the country. Each apartment complex benefits from several forms of federal assistance programs and qualifies for low-income housing credits (Tax Credits) pursuant to the Internal Revenue Code by the Tax Reform Act of 1986. There are 331 partners in the Partnership.
The Partnership's general partner is Murphey Favre Properties, Inc., (MFP), a wholly-owned subsidiary of WM Financial, Inc. which is a wholly-owned subsidiary of Washington Mutual Bank (WMB), a wholly- owned subsidiary of Washington Mutual, Inc.
Table A on page 4 lists the Property Partnerships in which the Partnership has invested. Item 7 of this Report contains other significant information with respect to such Property Partnerships.
Each Property Partnership has, as its general partner (developer), one or more individuals or an entity not affiliated with the Partnership or MFP. In accordance with the Partnership Agreements under which such entities are organized, the Partnership depends on the developers for the management of each Property Partnership. As of December 31, 1997, the Property Partnerships and their developers were:
PROPERTY PARTNERSHIP DEVELOPER GENERAL PARTNER
1. Fairview Apartments Company Limited Rural Housing Corporation Partnership (Fairview)
2. Ionia Limited Divided Housing Rural Housing Corporation Association (LDHA) Limited Partnership (Ionia)
3. Logan Apartments Company Limited Rural Housing Corporation and Partnership (Logan) Arthur H. Winer
4. Rolling Brook II LDHA Limited Rural Housing Corporation Partnership (Rolling Brook)
5. Wexford Manor LDHA Limited Rural Housing Corporation Partnership (Wexford
6. Blue Heron Apartment Associates Dujardin Development Co. Limited Partnership (Blue Heron)
7. Glenwood Apartment Associates Limited Dujardin Development Co. Partnership (Glenwood)
8. Pacific Place Apartment Associates Dujardin Development Co. Limited Partnership (Pacific Place)
9. Cove LDHA Limited Partnership (Cove) Kenneth & Lowell Werth
10. Washington Street LDHA Limited Kenneth & Lowell Werth Partnership (Washington)
11. Fayette Hills Limited Partnership LeRoy Eslinger and (Fayette) Douglas E. Pauley
A wholly-owned subsidiary of MFP, Murphey Favre Housing Managers (MFHM), is a special limited partner in each Property Partnership and has certain approval rights over the actions by the developers of the Property Partnerships.
Table A
SELECTED PROPERTY PARTNERSHIP DATA
Item 2.
Item 2. Properties
Rental property consists of apartment projects renting to low- and moderate-income tenants.
As of December 31, 1997, the Property Partnerships had placed rental properties into operation in the following locations:
Date Placed Location In Service
Plymouth, WI June 13, 1990 Ionia, MI August 8, 1990 Logan, OH January 11, 1991 Algonac, MI March 8, 1990 Onsted, MI February 21, 1990 Bainbridge Island, WA May 1, 1990 Lake Stevens, WA April 1, 1989 South Bend, WA May 1, 1989 Big Rapids, MI March 1, 1990 Perry, MI January 1, 1990 Fayetteville, WV December 1, 1989
Item 3.
Item 3. Legal Proceedings
None
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II Item 5.
Item 5. Market for the Registrant's Securities and Related Security Holder Matters
The Registrant's securities consist of 703 units of Limited Partnership Interest, valued at $5,000 per unit, for which there is no market. Units may only be sold, assigned, exchanged or otherwise transferred upon compliance with the terms of the Limited Partnership Agreement.
As of the date of filing of this report, the Partnership has 331 limited partners and one general partner.
The Partnership has not made any distributions in 1995, 1996 and 1997 and does not anticipate making any significant distributions in the future.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
During the year, management's emphasis was on the continued operation of eleven properties. At December 31, 1997, four properties were 100% occupied, four were were between 96% and 97% occupied and three were between 85% and 88% occupied. In 1997, one property located in the state of Michigan, had an average occupancy of 80% which reduced cash flow. Property Management deferred property taxes which were delinquent at December 31, 1997. Subsequent to year end, Property Management requested RHS approval for use of reserve funds to pay the delinquent taxes. This property will continue to be closely monitored by management.
The properties are located in rural towns with populations of 14,000 or less. Five properties are located in Michigan, three in Washington, and one each in Ohio, West Virginia and Wisconsin. The properties range in size from 24 to 68 units for a total portfolio of 394 units.
Results of Operations
On a consolidated basis, net income (loss) before depreciation and amortization for 1997, 1996 and 1995 was $96,827, $12,241, and $12,570 respectively. Rental revenues for 1997 were up 2.3% from 1996 as compared to increases of 3% from 1995 to 1996, and 3% from 1994 to 1995. Expenses for 1997, including depreciation, were up 0.9% over 1996, while expenses, including depreciation, for 1996 and 1995 were up 1.8% and 3.1% over 1995 and 1994, respectively.
The Partnership paid $25,726, $22,226, and $22,666, in accounting expenses for the Partnership for 1997, 1996 and 1995, respectively.
Interest revenue for 1997 decreased .9% from 1996 and increased 3% from 1995 to 1996.
Liquidity and Capital Resources
The Partnership completed its public offering of units of limited partnership on April 14, 1989, with proceeds totaling $3,511,000 from 339 limited partners. As of December 31, 1997, the Partnership had invested $2,542,000 of offering proceeds in eleven Property Partnerships.
Offering proceeds equal to $175,750 were reserved by the Partnership to fund its operating expenses. As of December 31, 1997, the cash reserves of the Partnership totaled $8,195. It is expected that the Partnership will draw on the reserves in future years to fund accounting and other operating expenses of the Partnership. Nominal cash distributions from the Property Partnerships will supplement the cash reserves. In 1997, the Partnership received $14,332 in distributions from the Property Partnerships. The expectation is that all cash distributions received from the Property Partnerships will be used to defray the operating expenses of the Partnership and thus it is not likely any distribution will be made to the limited partners.
The Partnership is not required to fund additional amounts to the Property Partnerships based on each Property Partnership agreement. Additionally, each Property Partnership is operated as an individual project, and without any contractual arrangements of any kind between the Property Partnerships. In 1997, ten properties generated positive cash flow and one property generated deficit cash flow. The deficits were funded from rental operating cash and from authorized withdrawals from the reserve accounts.
As of December 31, 1997, one developer general partner had advanced $14,209 to a Property Partnership under the deficit funding agreement in place during the guarantee period. The guarantee periods ended in 1991 and 1992. The developer general partners are no longer obligated to fund operating deficits.
The Property Partnerships financed construction with a combination of bank financing and funds from the Partnership. The permanent loans for the properties were provided by the Farmers Home Administration, now known as Rural Housing Service (RHS), under Section 515 of the National Housing Act of 1949, as amended. RHS provides an interest credit to the Property Partnerships which reduces the interest rates stated in the mortgage notes to an effective 1 percent rate over the lives of the mortgages. All property loans are current.
It is expected that capital expenditures on the properties will be low in the initial years because the properties are recently constructed (10 properties) or rehabilitated (1 property). As part of RHS loan requirements, a reserve account is funded at an annual rate of 1% of the original property loan balance until the balance equals 10% of the original loan balance. Additions to reserve accounts are funded from property operations and are established for future capital expenditures.
Included in cash deposits on the consolidated balance sheets were $8,195 and $7,197 held as deposits by the Partnership in WMB accounts as of December 31, 1997 and 1996, respectively. As discussed in Part I, Item 1, WMB is affiliated with MFP.
There are no additional acquisitions nor any dispositions planned.
Regulatory Restrictions
Because the properties are operated under RHS loans and benefit from the federal low-income housing tax credit program, the properties are restricted as to their use and must comply with the requirements of the respective federal programs.
The tenants of all the properties must be tax credit and RHS eligible tenants. It is management's goal to have all units, except for managers' units, occupied by tax credit eligible tenants. In order to meet established income requirements, tenants must not earn more than 60% of the median income for the areas in which the properties are located. Seven of the eleven properties are further restricted to renting apartment units only to senior citizens.
Additionally, the properties cannot be sold without prior approval of the RHS, cannot make more than an 8% cash distribution annually to its owner (as described in Note 6 to the Partnership's financial statements), and must remain under the low-income housing tax credit program for 15 years to avoid any recapture of the low-income housing tax credits. Furthermore, pursuant to RHS loan agreements, RHS may refuse prepayment of the loans and require the properties be used for the purpose of providing housing to eligible tenants for a minimum period of 20 years.
Inflation
Operating expenses and rental revenues of each property are subject to inflationary factors. Low rates of inflation could result in rental revenues remaining constant or increasing at slower rates than in periods of high inflation. High rates of inflation raise the operating expenses of the properties, and to the extent the increased operating expenses are not passed on to the tenants by rental increases, the properties' operation could be adversely affected.
Tax Credit
As of December 31, 1997, 1996 and 1995, tax credits equal to 15.17%, 15.17% and 15.17%, respectively, of the limited partners' capital contributions have been generated.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements of Assisted Housing Fund L.P. I as of December 31, 1997, 1996 and 1995, together with the independent auditors' reports thereon, are filed herewith in Part IV, Item 14 of this Form 10-K.
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 Registrant
Murphey Favre Properties, Inc. (MFP) is the managing general partner of the Partnership. The Registrant has no employees.
Item 11.
Item 11. Executive Compensation
Name of Individual Capacities or Number of in Which Cash Persons in Group Served Compensation
Year Ended Year Ended Year Ended 12/31/97 12/31/96 12/31/95
None
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Name and Amount and Address of Nature of Title of Beneficial Beneficial Percent Class Owner Owner of Class
General Murphey Favre (1) 100% Partner's Properties, Inc. Interest Suite 904 1191 Second Avenue Seattle, WA 98101
(1) The General Partner's interest is owned of record and beneficially by Murphey Favre Properties, Inc. Its capital interest as of December 31, 1997 is ($46,364).
Item 13.
Item 13. Certain Relationships and Related Transactions
The Property Partnerships have entered into certain agreements with the developer or its affiliates under which the developer or its affiliates receive compensation, perform services, or make loans. Note 2 of the Notes to Financial Statements, which are filed in Part IV, Item 14
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a) 1. The following financial statements of Assisted Housing Fund L.P. I and subsidiaries are incorporated by reference in Part II and are attached as pages 1 to 13 of Exhibit 13. Page of Annual Report
Independent Auditor's Report.......................... 1
Balance Sheets as of December 31, 1997 and 1996....... 2
Statements of Operations for each of the years ended December 31, 1997, 1996 and 1995...................... 3
Statements of Partners' Equity (Deficit) for each of the years ended December 31, 1997, 1996 and 1995...... 4
Statements of Cash Flows for each of the years ended December 31, 1997, 1996 and 1995...................... 5
Notes to Financial Statements for each of the years ended December 31, 1997, 1996 and 1995............... 6-13
2. Financial statement schedules Page of Form 10-K
Independent Auditor's Report on Schedules............. 14
Schedule III - Real Estate and Accumulated Depreciation.......................................... 15-17
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because either they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits: All exhibits to this report are listed in the Schedule Index at page 17.
(b) No reports on Form 8K were filed during 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ASSISTED HOUSING FUND L.P. I Registrant
By: Murphey Favre Properties, Inc. Its Managing General Partner
By: Herbert F. Fox /s/ Date: 3/31/98 Herbert F. Fox, Vice President and Principal Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
By: Murphey Favre Properties, Inc.
By: Kerry K. Killinger /s/ Date: 3/31/98 Kerry K. Killinger Its Director
By: David G. Murphy /s/ Date: 3/31/98 David G. Murphy Its Director
INDEPENDENT AUDITOR'S REPORT ON SCHEDULES
General Partner and Limited Partners Assisted Housing Fund L.P. I Seattle, Washington
We have audited the consolidated financial statements of Assisted Housing Fund L.P. I and its subsidiaries, as of and for the years ended December 31, 1997, 1996 and 1995 listed under Item 14(a)1 hereof and have issued our report thereon dated March 26, 1998 (which report is incorporated by reference elsewhere in this Form 10-K). In the course of our audits of such financial statements, we have also audited the schedules listed under Item 14(a)2 for the years ended December 31, 1997, 1996 and 1995. These schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion based on our audits. In our opinion, these schedules present fairly, in all material respects, when read in conjunction with the related financial statements, the information therein set forth.
Blume Loveridge & Co., P.L.L.C. Bellevue, Washington March 26, 1998
ASSISTED HOUSING FUND LP I SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION Year Ended December 31, 1997
ASSISTED HOUSING FUND LP I SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) Year Ended December 31, 1997
ASSISTED HOUSING FUND LP I SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) Year Ended December 31, 1997
Exhibit Incorporated by No. Reference From
3 Certificate of Limited Partnership Exhibit C to Form S-11 Registration Statement No. 91-1391150
13 Annual Report to Security Holders Attached hereto
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT.......................................... 1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets........................................... 2
Consolidated Statements of Operations................................. 3
Consolidated Statements of Partners' Equity (Deficit)................. 4
Consolidated Statements of Cash Flows................................. 5
Notes to Financial Statements.......................................... 6-13
INDEPENDENT AUDITOR'S REPORT
Partners Assisted Housing Fund L.P. I Seattle, Washington
We have audited the accompanying consolidated balance sheets of Assisted Housing Fund L.P. I and its subsidiaries, as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' equity (deficit) and cash flows for the years ended December 31, 1997, 1996 and 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Assisted Housing Fund L.P. I and its subsidiaries, as of December 31, 1997 and 1996, and the results of their operations and cash flows for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles.
Blume Loveridge & Co., P.L.L.C. Bellevue, Washington March 26, 1998
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Continued on page 2A.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
See accompanying notes to financial statements. Page 2A
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
Years Ended December 31, 1997, 1996 and 1995
See accompanying notes to financial statements.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
Continued on page 5A.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED) Increase (Decrease) in Cash
See accompanying notes to financial statements. Page 5A
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES
General Assisted Housing Fund L.P. I (the Partnership) is a limited partnership which was organized November 2, 1987 under the laws of the state of Washington to acquire limited partnership interests in other partnerships (the Property Partnerships), each of which has been organized to develop or purchase a low- or moderate-income apartment project. The Partnership's general partner is Murphey Favre Properties, Inc. (MFP), a wholly-owned subsidiary of WM Financial, Inc., which is a wholly-owned subsidiary of Washington Mutual Bank (WMB), a wholly-owned subsidiary of Washington Mutual, Inc. As of December 31, 1997, 324 limited partners held the 703 units of limited partnership interests outstanding.
The Partnership has invested as a limited partner in eleven Property Partnerships. The developer of each apartment project serves as the general partner (DGP) of the respective Property Partnership.
The properties owned by the Property Partnerships are located in Michigan, Wisconsin, Ohio, West Virginia and Washington. The properties were financed and constructed under Section 515 of the National Housing Act, as amended (administered by the U.S. Department of Agriculture, Rural Housing Service (RHS)). Under this program, the Property Partnerships provide housing to low- and moderate-income tenants. Lower rental charges to tenants are recovered by the Property Partnerships through an interest reduction program which reduces the effective interest rate over the lives of the mortgages to 1 percent and a rental assistance program whereby RHS pays the Property Partnerships for a portion of qualified tenant rents. Construction of the rental properties began between June, 1988 and May, 1990 and rental operations began between April, 1989 and February, 1991.
Additionally, in exchange for an allocation of federal low-income housing tax credits under Section 42 of the Internal Revenue Code, each Property Partnership has entered into an agreement with an agency of the state in which the apartment project is located, whereby the Property Partnership has agreed to maintain all apartment units as both rent restricted and occupied by low-income tenants for a minimum period of 15 years.
During the years ended December 31, 1997, 1996 and 1995, rental revenue from RHS totaled $435,076, $408,796 and $407,684, representing 28.4 percent, 27.2 percent and 27.8 percent of total revenue, respectively.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES - (CONTINUED)
Principles of Consolidation The financial statements include the financial statements of the Partnership and the following eleven Property Partnerships in which it has invested as a limited partner:
Fairview Apartments Company Limited Partnership (Fairview) Ionia Limited Dividend Housing Association Limited Partnership (Ionia) Logan Apartments Company Limited Partnership (Logan) Rolling Brook II Limited Dividend Housing Association Limited Partnership (Rolling Brook) Wexford Manor Limited Dividend Housing Association Limited Partnership (Wexford) Blue Heron Apartment Associates Limited Partnership (Blue Heron) Glenwood Apartment Associates Limited Partnership (Glenwood) Pacific Place Apartment Associates Limited Partnership (Pacific Place) Cove Limited Dividend Housing Association Limited Partnership (Cove) Washington Street Limited Dividend Housing Association Limited Partnership (Washington) Fayette Hills Limited Partnership (Fayette)
The financial statements are presented on a consolidated basis because the Partnership holds approximately 99 percent of the profit and loss interests and approximately 55 percent of the equity interests in each Property Partnership. Through an affiliate, who is a special limited partner in each of the 11 Property Partnerships, the Partnership controls certain fundamental decisions affecting the operation of the Property Partnerships. These fundamental decisions include significant purchases of assets, material borrowings or creation of liens on the underlying properties, entering into material contracts, making tax elections and any act that would cause termination of the Property Partnership. All material interpartnership transactions and balances have been eliminated. For the years ended December 31, 1997, 1996 and 1995, net losses allocable to the minority partners were $26,384, $26,435 and $26,465, respectively.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES - (CONTINUED)
Method of Accounting The accrual method of accounting is used for financial statement purposes.
Cost Overruns The partnership agreements for the Property Partnerships required the DGP's to fund cost overruns on the development of the rental properties. Such cost overruns, totaling $589,462, have been recorded as minority interests in partnerships and have been included in the cost basis of the rental property. All depreciation related thereto has been specially allocated to the respective DGP's.
Depreciation Depreciation is computed for financial statement purposes using the straight-line method over the estimated useful lives of the related assets as follows:
Building shell and components.............. 27.5 years Land improvements...... ..................... 15 years Appliances............................... 7 - 10 years Carpets and draperies.................... 7 - 10 years
Income Taxes No income tax provision has been included in the financial statements since income or loss of a Partnership is required to be reported by the respective partners on their income tax returns.
Cash Equivalents For purposes of the statement of cash flows, all investment instruments purchased with a maturity of three months or less are considered to be cash equivalents. At December 31, 1997 and 1996, there were no cash equivalents.
Amortization Costs aggregating $71,934 incurred in connection with organization of the partnerships have been capitalized and were amortized on a straight-line basis over a five-year period.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND USE OF ESTIMATES - (CONTINUED)
Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumption that affect certain reported amounts and disclosures.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
In connection with the acquisition and development of rental property and the management of both the rental property and the Partnership, the Partnership and Property Partnerships have paid or accrued the following amounts to certain affiliates:
As of December 31, 1997 and 1996, related party payables consisted of the following:
1997 1996 -------- ------
Advances from DGP's $201,784 $201,784 Partnership management fees 326,726 326,726 Partnership services fees 22,500 15,000 Advances from general partner 26,655 11,024 -------- --------
$577,665 $554,534 ======== ========
During 1997 and 1996, the general partner advanced $15,631 and $10,331, respectively, to the Partnership for administrative expenses.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - TRANSACTIONS WITH AFFILIATES - (CONTINUED)
The Partnership maintains deposits in certain of WMB's interest-bearing accounts which aggregated $8,195 and $7,197 at December 31, 1997 and 1996, respectively. Interest earned on such deposits totaled $253, $280, and $505 during the years ended December 31, 1997, 1996 and 1995, respectively.
Terms of the RHS Loan Agreements require each DGP to provide interest-free advances of stipulated amounts as initial operating capital to the Property Partnerships. Due to affiliates includes $152,107 of such advances at December 31, 1997 and 1996. In addition, these balances include DGP advances of $35,468 for land improvements and $14,209 to fund operating deficits. The remainder of the balances include property management fees and reimbursements payable to MFP for partnership services and administration.
Advances from the DGPs may only be repaid from the proceeds of future sales of the respective properties. Property management fees are paid out of rental operations. Partnership fees and services are payable from future sales of the properties, to the extent they are not paid from distributions of rental operation cash (Note 6).
Under the terms of management services agreements, affiliates of the DGP's provide management services for the rental properties and receive compensation for such services in amounts approximating 8.4% of rental receipts.
NOTE 3 - CASH IN RESERVE ACCOUNTS
The Loan Agreements between the Property Partnerships and RHS require the Property Partnerships to deposit $126,889 annually into separate reserve accounts until the reserve accounts reach $1,268,211. Subject to RHS approval, these funds may be used for various purposes, as further described in the Loan Agreements. Nine of the eleven Property Partnerships are in compliance with the minimum funding requirements as set forth by RHS for the year ended December 31, 1997 and ten of the eleven Property Partnerships for the year ended December 31, 1996. The reserve account balances for the Property Partnerships that did not meet the annual funding requirements did, however, exceed the required balances as of December 31, 1997 and 1996, as a result of excess deposits made in prior years. All withdrawals were approved by RHS and used for their intended purposes.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - MORTGAGE NOTES PAYABLE
The mortgage notes are payable to RHS in monthly installments totaling $26,550. In accordance with provisions of Interest Credit Agreements, RHS provides monthly interest credits totaling $69,199 which reduce the interest rates stated in the mortgage notes to effective rates of 1 percent over the lives of the mortgages. Amortization of principal is based on the stated rates of 8.75% to 10.75% under RHS's Predetermined Amortization Schedule System (PASS). The mortgage notes mature May, 2039 through January, 2040. Substantially all of the rental property and equipment is pledged as collateral on the mortgages. No partner is personally liable on the mortgage notes.
The mortgage notes are regulated by the U.S. Government and therefore, have no market price. Accordingly, management has determined that users of the financial statements would derive no benefit from any estimate of fair value and performing such an analysis would not be practicable.
Principal payments on the mortgage notes for the next 5 years are as follows:
Year Amounts
1998 $ 26,844 1999 29,361 2000 32,115 2001 35,113 2002 38,422 2003 and later years 12,213,615 -----------
$12,375,470
NOTE 5 - ASSESSMENT PAYABLE
In September, 1995, the city of Bainbridge Island issued an assessment for Blue Heron's share of street and utility improvements in the amount of $68,569. The assessment is payable in 10 equal annual installments together with interest at the rate of 5.6 percent. At December 31, 1997, the fair value of the assessment approximates the amount recorded in the financial statements.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ASSESSMENT PAYABLE - (CONTINUED)
Principal payments on the assessment for the next 5 years are as follows:
Year Amount
1998 $ 6,857 1999 6,857 2000 6,857 2001 6,857 2002 6,857 2003 and later years 20,570 ------- $54,855
NOTE 6 - RENTAL OPERATION CASH
RHS regulations limit the distribution of rental operation cash to a maximum of $38,090 annually. Any distribution to the Partnership from rental operation cash is to be made in accordance with the respective partnership agreements. Whether or not a Property Partnership makes any limited distribution is based on the results of its own operations and is at the discretion of the DGP.
NOTE 7 - GUARANTEES
Each of the DGP's has made a guarantee to the respective Property Partnership that they will compensate the Partnership in the event the actual low-income housing tax credit is less than 85% to 90% of the available credit. Through December 31, 1997, no payments have been made under these guarantee agreements.
NOTE 8 - CONTINGENCY
The Partnership has ceased accrual of the annual partnership administration fee, payable in part to the general partner. Management has determined that the source of payment, a future sale or refinance of one or more of the Property Partnerships, may not be sufficient to pay fees accrued in excess of the $544,540 payable at December 31, 1996. Management has elected to treat fees for years subsequent to 1996 as a contingent liability. The Partnership is contingently liable for partnership administration fees of $74,517 at December 31, 1997.
ASSISTED HOUSING FUND L.P. I AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to conform with the 1996 and 1997 financial statement presentation. Such reclassification had no effect on net income as previously reported.