ITEM 1. BUSINESS --------
Century Pacific Housing Fund-I (the Partnership) was formed on October 6, 1986 as a limited partnership under the laws of the State of California to invest in multi-family housing developments. The Partnership's business is to invest primarily in other limited partnerships (Operating Partnerships) that are organized for the purpose of either constructing or acquiring and operating existing affordable multi-family rental apartments that are eligible for the Low-Income Housing Tax Credit, or to a lesser extent, the Rehabilitation Tax Credit, both enacted by the Tax Reform Act of 1986 (sometimes referred to as Credits or Tax Credits). The Partnership invested in 21 properties (the properties). Each of the properties qualifies for the Low-Income Housing Tax Credit, and one property, a historic structure, qualifies for the Rehabilitation Tax Credit. All of these properties receive one or more forms of assistance from federal, state or local governments. A summary of the Partnership's objectives and a summary of the Tax Credits are provided in the Prospectus under "Investment Objectives and Policies" and "Federal Income Tax Aspects" on pages 45 and 79, respectively, and are incorporated herein by reference.
In order to stimulate private investment in low and moderate income housing of the types in which the Partnership has invested, the federal government has provided investors with significant ownership incentives intended to reduce the risks and provide investors/owners with certain tax benefits, limited cash distributions and the possibility of long-term capital gains. The ownership incentives include interest subsidies, rent subsidies, mortgage insurance and other measures. However, there remains significant risks inherent in this type of housing. Long-term investments in real estate limit the ability of the Partnership to vary its portfolio in response to changing economic, financial and investment conditions, and such investments are subject to changes in economic circumstances and housing patterns, rising operating costs and vacancies, rent controls and collection difficulties, costs and availability of energy, as well as other factors which normally affect real estate values. In addition, these properties usually are rent restricted and are subject to government agency programs which may or may not require prior consent to transfer ownership.
The Partnership acquired the properties by investing as the limited partner in Operating Partnerships which own the properties. As a limited partner, the Partnership's liability for obligations of the Operating Partnerships is limited to its investment. The Partnership made capital contributions to the Operating Partnerships in amounts sufficient to pay the Operating Partnerships' expenses and to reimburse the general partners for their costs incurred in forming the Operating Partnerships, if any, and acquiring the properties. For each acquisition, this typically included a cash down payment (in one or more installments), acceptance of the property's mortgage indebtedness, and execution of a Purchase Money Note in favor of the seller of the property. For a summary of the acquisition financing activities for each property, see the financial information contained under Item 2.
ITEM 2. PROPERTIES ----------
As of March 31, 1999, the Partnership had acquired equity interests in the Operating Partnerships set forth in the table below. Each of the properties acquired by the Operating Partnerships receives benefits under government assistance programs. The table set forth below summarizes the properties acquired, and the purchase price, original indebtedness assumed and the government assistance programs benefitting each property. Further information concerning these Properties may be found in Supplement No. 3 to the Prospectus, pages 4 through 66, which information is incorporated herein by reference and is summarized below.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS -----------------
As of June 13, 1999, there were no pending legal proceedings against the Partnership or any Operating Partnership in which it has invested.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------
There were no submissions of matters to a vote of security holders during the year ended March 31, 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS -------------------------------------------------
There is at presently no public market for the Units of limited partnership interests (the Units), and it is unlikely that any public market for the Units will develop. See the Prospectus under "Transferability of Interests" on pages 29 and 72 of the Prospectus, which information is incorporated herein by reference. The number of owners of Units as of June 13, 1999 was approximately 2,093, holding 22,315 units.
As of June 13, 1999, there were no cash distributions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -----------------------
The following summary of selected financial data should be read in conjunction with ITEM 14, herein, which also includes a summary of the Partnership's significant accounting policies.
(b) Reports on Form 8-K
Registrant did file with the Securities and Exchange Commission a Current Report on Form 8-K during the year ending March 31, 1999.
EXHIBIT INDEX
These exhibits are numbered in accordance with the exhibit table of Item 601 of Regulation S-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CENTURY PACIFIC HOUSING FUND - I
By: Irwin Jay Deutch, as Managing General Partner
Date: -------------------------- ---------------------------------------
and
Century Pacific Capital I Corporation, as Corporate General Partner and as Attorney- in-Fact for all Investor Limited Partners
Date: -------------------------- --------------------------------------- By: Irwin Jay Deutch, President
INDEPENDENT AUDITORS' REPORT
Partners Century Pacific Housing Fund - I
We have audited the accompanying balance sheet of Century Pacific Housing Fund - I as of March 31, 1999 and the related statements of operations, 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. The financial statements of Century Pacific Housing Fund-I for the year ended March 31, 1998 were audited by other auditors, whose report dated June 16, 1998, included an explanatory paragraph describing conditions that raised substantial doubt about the Company's ability to continue as a going concern.
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 financial position of Century Pacific Housing Fund - - I as of March 31, 1999 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Notes 2, 3, 4 and 5 to the financial statements, the Partnership has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We have also prepared, from information audited by us, the related financial statement schedules listed in Item 14(b)(2) as of December 31, 1998. In our opinion the financial statement schedules present fairly, in all material respects, the information required to be set forth therein.
St. Louis, Missouri June 13, 1999
REPORT OF INDEPENDENT AUDITORS'
To the Partners of Century Pacific Tax Credit Housing Fund I
We have audited the accompanying balance sheet of Century Pacific Tax Credit Housing Fund-I (the "Partnership"), as of March 31, 1998, and the related statements of operations, changes in partners' equity (deficit) 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. The financial statements of Century Pacific Tax Credit Housing Fund-I for the years ended March 31, 1997 and 1996 were audited by other auditors, whose reports dated June 16, 1997 and June 13, 1996, respectively, included an explanatory paragraph describing conditions that raised substantial doubt about the Partnership's ability to continue as a going concern.
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 financial position of Century Pacific Tax Credit Housing Fund-I as of March 31, 1998, and the results of its operations, changes in partners' equity (deficit), and cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 6 to the financial statements, the Partnership's Operating Partnerships have suffered recurring operating losses, have not provided sufficient cash distributions to fund administrative costs and the Partnership has a net capital deficiency, which raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
To The Partners of Century Pacific Tax Credit Housing Fund-I - ------------------------------------------------------------------------------
We have also audited the related financial statement schedules listed in Item 14(b)(2) as of December 31, 1997. In our opinion, the financial statement schedules present fairly, in all material respects, the information required to be set forth therein.
Atlanta, Georgia June 16, 1998
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Partnership maintains its financial records on the tax basis. Memorandum entries, while not recorded in the records of the Partnership, have been made in order to prepare the financial statements in accordance with generally accepted accounting principles.
On August 7, 1991, management of the Partnership changed from a calendar year end to a fiscal year end of March 31 for financial reporting purposes. Accordingly, the Partnership's quarterly periods end June 30, September 30 and December 31. The Operating Partnerships, for financial reporting purposes, have a calendar year. The Partnership, as well as the Operating Partnerships, have a calendar year for income tax purposes.
ESTIMATES AND ASSUMPTIONS
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.
INVESTMENTS IN OPERATING PARTNERSHIPS
The Partnership uses the equity method to account for its investment in the Operating Partnerships in which it has invested (Note 5). Under the equity method of accounting, the investment is carried at cost and adjusted for the Partnership's share of the Operating Partnerships' results of operations and by cash distributions received. Equity in the loss of each Operating Partnership allocated to the Partnership is not recognized to the extent that the investment balance would become negative. Costs paid by the Partnership for organization of the Operating Partnership as well as direct costs of acquiring properties, including acquisition fees and reimbursable acquisition expenses paid to the general partner, have been capitalized as investments in Operating Partnerships.
INCOME TAXES
No provision has been made for income taxes in the accompanying financial statements since such taxes and/or the recapture of the Low-Income Housing Tax Credit benefits received, if any, are the liability of the individual partners. The Partnership uses the accrual method of accounting for tax purposes.
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- Notes To Financial Statements (Continued)
NET LOSS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net loss per unit of limited partnership interest is calculated based upon the weighted average number of units of limited partnership interest (units) outstanding, which is 22,315 for the years ending March 31, 1999, 1998, and 1997.
2. OPERATIONS
Century Pacific Housing Fund-I, a California limited partnership, (the Partnership), was formed on October 6, 1986 for the purpose of raising capital by offering and selling limited partnership interests and then acquiring limited partnership interests and then acquiring limited partnership interests in 21 limited partnerships (the Operating Partnerships), which acquired and operate 21 multi-family residential apartment properties (the properties).
The general partners of the Partnership are Century Pacific Capital Corporation, a California corporation (CPCC), and Irwin Jay Deutch, an individual (collectively, the general partners). The general partners and affiliates of the general partners (the general partners and affiliates) have interests in the Partnership and receive compensation from the Partnership and the Operating Partnerships (Note 3).
The Properties qualify for the Low-Income Housing Tax Credit established by Section 42 of the Tax Reform Act of 1986 (the Low-Income Housing Tax Credit) and one property qualifies for Historic Rehabilitation Tax Credits (collectively the Tax Credits). These properties are leveraged low-income multi-family residential complexes and receive one or more forms of assistance from federal, state or local government agencies (the Government Agencies).
In July 1987, the Partnership began raising capital from sales of limited partnership interests, at $1,000 per unit, to limited partners. The Partnership authorized the issuance of a maximum of 50,000 partnership units of which 22,315 were subscribed and issued. The limited partnership interest offering closed in April 1988.
The Partnership has acquired limited partnership interests ranging from 97% to 99% in the Operating Partnerships, which have invested in rental property.
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- Notes To Financial Statements (Continued)
3. REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Partnership as a going concern. The Partnership's Operating Partnerships have not achieved the operating results required to provide the Partnership with sufficient cash distributions to fund the Partnership's administrative costs. Additionally, the Partnership has incurred allocated losses from all but one of its Operating Partnerships to the extent of the Partnership's cash contributions. As a result of the foregoing, the Partnership is dependent upon the general partners and affiliates for continued financial support.
The auditors' report on fifteen of the Operating Partnerships' financial statements contained an explanatory paragraph relating to a going concern issue concerning the expiration of the Housing Assistance Payment Contract. These Operating Partnerships have Housing Assistance Payment Contracts with the U.S. Department of Housing and Urban Development (HUD) that are due to expire during 1999. Management has requested one year extensions for the remaining fifteen Operating Partnerships, however, as of June 13, 1999, these extensions have not been granted.
Management maintains that the general partners and affiliates, though not required to do so, will continue to fund operations by deferring payment to related parties of allocated overhead expenses, and by funding any Partnership operating costs. Unpaid allocated overhead expenses will accrue and become payable when the Operating Partnerships generate sufficient cash distributions to the Partnership to cover such expenses. The financial statements do no include any adjustments that might result from the outcome of this uncertainty.
4. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES OF THE GENERAL PARTNERS
The general partners of the Partnership are CPCC and Irwin Jay Deutch. The original limited partner of the Partnership is Westwood Associates which partners are Irwin Jay Deutch and key employees of CPCC. Century Pacific Placement Corporation (CPPC), an affiliate of the general partners, served as the broker-dealer-manager for sales of the limited partnership interests in the Partnership. Century Pacific Realty Corporation (CPRC), an affiliate of CPCC, is a general partner in each of the Operating Partnerships.
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- Notes To Financial Statements (Continued)
The general partners have an aggregate one percent interest in the Partnership, as does the original limited partner. CPRC has a one percent interest in each of the Operating Partnerships, except for one Operating Partnership in which it has a one-half percent interest.
The general partners and affiliates receive compensation and reimbursement of expenses from the Partnership, as set forth in the limited partnership agreement, for their services in managing the Partnership and its business. The general partners and affiliates also receive compensation and reimbursement of expenses from the Operating Partnerships. This compensation and reimbursement includes services provided to the Partnership during its offering stage, acquisition stage, operational stage, and termination of refinancing stage.
The general partners and affiliates earned the following fees for services provided to the Partnership and were entitled to reimbursement for costs incurred by the general partners and affiliates on behalf of the Partnership and the Operating Partnerships for the years ended March 31, 1999, 1998 and 1997 as follows:
At March 31, 1999 and 1998, payable to related parties consists of fees and certain general and administrative costs accrued as payable by the Partnership to the general partners and affiliates relating to the above and prior year's amounts totalling $853,946 and $785,415, respectively. Such fees and allocated costs have been deferred until the Partnership has sufficient cash to pay them.
Receivable from related party of $29,049 and $15,549 at March 31, 1999 and 1998, respectively, represents cash advances to several of the Operating Partnerships, and the payment of state franchise taxes for CPHP III, IV, V, VIII, IX, XVIII, XX, and XXII.
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- Notes To Financial Statements (Continued)
At March 31, 1999 and 1998, CPRC was owed $75,955 and $62,455, respectively, for non-interest bearing, demand cash advances to the Partnership.
The general partners may advance funds to the Partnership to fund operating deficits, but are not obligated to do so. Such advances shall be evidenced by a promissory note of a term no more than 12 months in length and at a rate of interest no lower than the prime rate. All such loans shall be repaid prior to any distributions of net cash flow. At March 31, 1999 and 1998, the Partnership had no outstanding advances due to the general partners.
5. INVESTMENTS IN OPERATING PARTNERSHIPS
At March 31, 1999 and 1998, the Partnership owned limited partnership interests in 21 Operating Partnerships, each of which has invested in a multi-family rental property.
Investments in Operating Partnerships consist of the following:
A summary of the combined balance sheet as of December 31, 1998 and 1997 and statements of operations of the aforementioned Operating Partnerships for the years then ended follows:
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------- Notes To Financial Statements (Continued)
6. COMMITMENTS AND CONTINGENCIES
The rents of the Operating Partnerships, all of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8") are subject to specific laws, regulations, and agreements with federal and state agencies. The subsidy agreements expire at various times during and after the 15-year compliance period of the Operating Partnerships. The United States Department of Housing and Urban Development ("HUD") has issued a notice implementing provisions to renew Section 8 contracts expiring during HUD's fiscal year 1999, where requested by an owner, for an additional one year term at current rent levels. As of June 13, 1999, fifteen of the Operating Partnerships' Section 8 contracts are due to expire during 1999. The Operating Partnerships have not yet received HUD's approval of their extension requests. At the present time, the Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of any or all Operating Partnerships receiving such subsidy or similar subsidies.
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF OPERATING PARTNERSHIPS IN WHICH CPHF-I HAS LIMITED PARTNERSHIP INTERESTS DECEMBER 31, 1998
NOTE 1 - DESCRIPTION OF PROPERTIES - ----------------------------------
The Properties held by the Operating Partnerships in which the Partnership has invested are housing projects, primarily for families and elderly or handicapped individuals of low and moderate income.
NOTE 2 - SCHEDULE OF ENCUMBRANCES - ---------------------------------
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF OPERATING PARTNERSHIPS IN WHICH CPHF-I HAS LIMITED PARTNERSHIP INTERESTS - CONTINUED DECEMBER 31, 1998
NOTE 3 - RECONCILIATION OF REAL ESTATE AND ACCUMULATED DEPRECIATION - -------------------------------------------------------------------
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE OF OPERATING PARTNERSHIPS IN WHICH CPHF-I HAS LIMITED PARTNERSHIP INTERESTS DECEMBER 31, 1998
NOTE 1 - DESCRIPTION -----------
Each Operating Partnership has invested in a Property. The Operating Partnerships assumed mortgage loan obligations from the sellers of the properties, and with the exception of two mortgages, all mortgage loan obligations are insured by the United States Department of Housing and Urban Development. All mortgages are secured by the land and buildings of the properties.
In addition, the Operating Partnerships issued residual notes to the sellers of the properties as partial consideration. The notes bear interest at the minimum long-term federal rate as announced from time-to-time pursuant to Section 1274 of the Internal Revenue Code, provided that such rate shall not be less than 7% nor greater than 15%. The notes are secured by the land and buildings of the properties. The notes are repayable out of future cash available for distribution and unpaid principal and interest are due at maturity.
NOTE 2 - RECONCILIATION OF MORTGAGES AND RESIDUAL NOTES ----------------------------------------------
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COLEMAN MANOR ASSOCIATES LIMITED PARTNERSHIP FINANCIAL STATEMENTS DECEMBER 31, 1998
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S2300-020 INDEPENDENT AUDITORS' REPORT
To The Partners Coleman Manor Associates Limited Partnership
We have audited the accompanying balance sheet of Coleman Manor Associates Limited Partnership, Project No. 052-35464, a limited partnership, as of December 31, 1998 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 Coleman Manor Associates Limited Partnership as of December 31, 1998 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 15 to 17) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
In accordance with Government Auditing Standards, we have also issued a report dated January 26, 1999 on our consideration of Coleman Manor Associates Limited Partnership's internal controls and a report dated January 26, 1999 on its compliance with laws and regulations.
Board of Directors Coleman Manor Associates Limited Partnership Page 2 - ------------------------------------------------------------------------------
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 6, the Partnership's contract with the U.S. Department of Housing and Urban Development (HUD) for housing assistance payments is due to expire in 1999. This matter raises substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
January 26, 1999
CENTURY PACIFIC HOUSING FUND-1 STATEMENT OF PARTNERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998
S1100-010 BEGINNING OF YEAR $ 256,197
3250 NET INCOME/LOSS (143,432) --------------- 3130 END OF YEAR $ 112,765 ===============
- ------------------------------------------------------------------------------- See the accompanying report letter and notes to financial statements. Page 7
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (S3100-010)
The Partnership is organized as a limited partnership formed under the laws of the State of Maryland on May 16, 1988 to acquire an interest in .723 acres of land in Baltimore City, Maryland, and to construct and operate thereon an apartment complex of 50 units under Section 221(d)(3) of the National Housing Act. Such projects are regulated by the U.S. Department of Housing and Urban Development (HUD) as to rent charges and operating methods. The regulatory agreements limit annual distributions of net operating receipts to "surplus cash" available at the end of each year. There was no "surplus cash" as of December 31, 1998.
The following significant accounting policies have been followed in the preparation of the financial statements:
Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.
The Partnership provides an allowance for doubtful accounts equal to the estimated collection losses that will be incurred in collection of all receivables. The estimated losses are based on a review of the current status of the existing receivables. No allowance for doubtful accounts was provided for at December 31, 1998 as none was deemed necessary by management.
Depreciation is provided using primarily the straight-line method over the estimated useful lives of the assets ranging from seven to twenty-seven years.
The replacement reserve can only be used for improvements to buildings upon prior approval of HUD.
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 10
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ Notes To Financial Statements (Continued)
Deferred loan costs consist of fees for obtaining the HUD insured mortgage loan and are being amortized using the straight-line method over the life of the mortgage loan.
The low income credit application fee and the low income credit compliance fee are being amortized over 15 years, the term of the credit compliance period.
Income or loss of the Partnership is allocated 2% to the general partners and 98% to the limited partners. 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 partners on their respective income tax returns.
2. MORTGAGES PAYABLE (S3100-050)
Permanent financing of the project has been provided by three mortgages. The related notes are nonrecourse and are secured by the Partnership's real estate.
The first mortgage is insured by the Federal Housing Administration (FHA) and collateralized by a deed of trust on the rental property. The mortgage bears interest at a rate of 10% and is payable in monthly installments of $12,545 (including principal and interest) through July 2029.
Under agreements with the mortgage lender and FHA, the Partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender.
SUBORDINATED MORTGAGE PAYABLE
The second mortgage, a variable interest loan through Community Development Administration (CDA) of Maryland, is serviced by Bogman, Inc. The note matures on July 1, 2029 and is payable as follows:
1. Beginning August 1, 1990, fifteen annual payments of $8,500 are due, which includes interest at 1% annum.
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 11
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ Notes To Financial Statements (Continued)
2. Beginning August 1, 2005, annual payments are due including interest at 10%, in an amount sufficient to amortize the principal balance over the remaining term of the loan.
SUBORDINATED PURCHASE MONEY MORTGAGE PAYABLE
This mortgage is with the Mayor and City Council of Baltimore and is non-interest bearing. The full balance is due on September 1, 2029.
The scheduled maturities of the mortgages payable at December 31, 1998 are as follows: (S3100-x1x)
3. COMMITMENTS (S3100-X3X) (S3100-240)
The Partnership has entered into regulatory agreements with HUD which regulate, among other things, the rents which may be charged for apartment units in the project, prohibit the sale of the project without HUD consent, limit the annual distribution of cash flow to the partners and otherwise regulate the relationship between the Partnership and HUD.
The Department of Housing and Urban Development, under the U.S. Housing Act of 1937, 42 U.S.C. 1437, and Department of Housing and Urban Development Act, 42 U.S.C. 3531, has contracted with the Partnership to make housing assistance payments to the Partnership on behalf of qualified tenants. The current agreement, dated January 31, 1998, is for a term of 12 months and covers all 50 units at the Project. The current agreement expires December 31, 1999. During 1998, the Partnership received $325,475 in tenant assistance payments under the agreement.
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 12
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ Notes To Financial Statements (Continued)
4. RELATED PARTY TRANSACTIONS (S3100-200)
ASSET AND SUPERVISORY MANAGEMENT FEE (S3100-200)
The Project has a management agreement with Century Pacific Realty Corporation (CPRC), the supervising general partner, which requires a fee of $19,800 annually. The first portion of the fee ($3,000) is to be paid out of operations. The second portion ($5,000) is to be paid out of surplus cash (as defined by HUD). The remaining balance and any unpaid portions of the above may be paid out of capital transactions. As of December 31, 1998, $169,954 of this fee remains unpaid.
INCENTIVE MANAGEMENT FEE (S3100-200)
The Project has an incentive management agreement with the managing general partner. The fee is to be equal to 60% of surplus cash (as defined by HUD) net of the second portion ($5,000) of the asset and supervisory management fee. There were no fees charged nor payments made related to this fee in 1998.
S3100-210 Century Pacific Realty Corporation
S3100-220 $3,000
S3100-210 Mt. Washington Management Group, Inc.
S3100-220 $20,229
MANAGEMENT FEE (S3100-230)
Mt. Washington Management Group, Inc., an affiliate of the general partners, is the exclusive agent for the management of the property. The current management agreement provides for a management fee equal to 6% of gross collections. Total management and bookkeeping fees incurred during 1998 were $20,229 and $6,600, respectively.
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 13
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ Notes To Financial Statements (Continued)
5. LOW-INCOME HOUSING TAX CREDITS (S3100-240)
The Partnership expects to generate an aggregate of $2,545,410 of low-income housing tax credits. Generally, such credits are expected to become available for use by its partners pro rata over a ten-year period beginning in 1989. In order to qualify for these credits, the Property must comply with various federal and state requirements. These requirements, include, but are not limited to, renting to low-income tenants at rental rates, which do not exceed specified percentages of area median gross income for the first 15 years of operation.
6. GOING CONCERN (S3100-240)
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Partnership as a going concern. However, the Partnership's Housing Assistance Payments (HAP) contract with HUD is due to expire in December, 1999 (See Note 3). No extension to the contract has been granted as of January 26, 1999. Management plans to begin negotiations with HUD during 1999 with the intention of obtaining an additional term for the HAP contract. In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Partnership, which in turn is dependent upon the Partnership's ability to renegotiate a new HAP contract with HUD. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 14
CENTURY PACIFIC HOUSING FUND-1 - ------------------------------------------------------------------------------ SUPPORTING DATA REQUIRED BY HUD DECEMBER 31, 1998
REPLACEMENT RESERVE
In accordance with the provisions of the regulatory agreement, restricted cash is held by WMF Huntoon Paige to be used for replacement of property with the approval of HUD as follows:
- ------------------------------------------------------------------------------ See the accompanying report letter. Page 15