UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 0-17151
PAINE WEBBER/CMJ PROPERTIES LP
(Exact name of registrant as specified in its charter)
Delaware 04-2780288
(State of organization) (I.R.S. Employer
Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. Not applicable.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- --------- -------------------
Prospectus of registrant dated Part IV
May 25, 1983, as supplemented
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
1996 FORM 10-K
TABLE OF CONTENTS
Part I Page
Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
Item 5 Market for the Partnership's Limited Partnership
Interests and Related Security Holder Matters II-1
Item 6 Selected Financial Data II-1
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations II-2
Item 8 Financial Statements and Supplementary Data II-6
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-6
Part III
Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-3
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures IV-2
Index to Exhibits IV-3
Financial Statements and Supplementary Data F-1 to F-75
<PAGE>
PART I
Item 1. Business
Paine Webber/CMJ Properties, LP (the "Partnership") is a limited
partnership formed in December 1982 under the Uniform Limited Partnership Act of
the State of Delaware for the purpose of investing in a portfolio of local
limited partnerships owning apartment projects which receive governmental
assistance in the form of low interest rate mortgages and rent subsidies. The
Partnership sold $8,745,000 in Limited Partnership units (8,745 units at $1,000
per unit) from May 1983 to April 1984, pursuant to a Registration Statement
filed on Form S-11 under the Securities Act of 1933 (Registration No. 2-81003).
In addition, the Initial Limited Partner contributed $1,000 for one unit (a
"Unit") of Limited Partnership Interest. Limited Partners will not be required
to make any additional capital contributions.
As of December 31, 1996, the Partnership owned, through local limited
partnerships, interests in six apartment properties as set forth in the
following table:
Percent
Name of Local Interest in
Limited Partnership Date of Local Limited
Name of Property Acquisition Partnership
Location Size of Interest (1) (2)
- ------------------------------ ---- ----------- -------------
Fawcett's Pond
Apartments Company
Village at Fawcett's Pond 100 6/30/83 95%
Hyannis, Massachusetts units
Quaker Meadows
Apartments Company
Quaker Court and The Meadows 104 6/30/83 95%
Lynn, Massachusetts units
South Laurel Apartments
Limited Partnership
Villages at Montpelier 520 6/30/83 85%
Laurel, Maryland units
Marvin Gardens Associates
Marvin Gardens 37 7/29/83 95%
Cotati, California units
Colonial Farms Ltd.
Colonial Farms 100 7/29/83 95%
Modesto, California units
Holbrook Apartments Company
Ramblewood Apartments 170 8/30/83 85%
Holbrook, Massachusetts units
(1) The Partnership owns limited partnership interests in the local limited
partnerships owning the apartment properties and improvements.
(2) See Notes to the Financial Statements filed with this Annual Report for
current outstanding mortgage balances and a description of the long-term
mortgage indebtedness collateralized by the operating property investments
of the local limited partnerships and for a description of the local
limited partnership agreements through which the Partnership has acquired
these real estate investments.
The Partnership's original investment objectives were to invest the net
cash proceeds from the offering of limited partnership units in rental apartment
properties receiving various forms of federal, state or local assistance with
the goals of providing:
(1) tax losses from deductions generated by investments;
(2) capital preservation;
(3) potential capital appreciation; and
(4) potential future cash distributions from operations (on a limited basis),
or from the sale or refinancing of the projects owned by the local limited
partnerships, or from the sale of interests in the local limited
partnerships.
The Partnership has generated tax losses since inception. However, the
benefits of such losses to investors have been significantly reduced by changes
in federal income tax law subsequent to the organization of the Partnership. The
Partnership continues to retain an ownership interest in all six of its original
operating investment properties. As of December 31, 1996, all of the properties
are generating sufficient cash flow from operations to cover their operating
expenses and debt service payments, and the majority of the properties are
generating excess cash flow, a portion of which is being distributed to the
Partnership on an annual basis in accordance with the respective regulatory and
limited partnership agreements. Given the improvements in cash flow and the
strong operating performances of the investment properties in recent years,
management had instituted a program of regular quarterly distributions in 1994
at an annual rate of 2% on original invested capital. As discussed further in
Item 7, during 1996 distributions to the Partnership from the local limited
partnerships declined, causing management to suspend distributions effective for
the fourth quarter of 1996 until further notice. Distributions paid to the
Limited and General Partners totalled $177,000 during 1996. In the future, to
the extent there is distributable cash flow from the properties after the
payment of Partnership management fees and operating expenses, the Partnership
will make annual distribution payments each November. Given the current
operating performance of the properties, it is likely that if a distribution is
paid in November 1997, it would be made at an annual rate of 1% on invested
capital.
The Partnership's success in meeting its capital appreciation objective
will depend upon the proceeds received from the final sales of its investments.
The amount of such proceeds will ultimately depend upon the value of the
underlying investment properties at the time of their final disposition, which
cannot presently be determined. Because of the government restrictions on rental
revenues and the related capital expenditure reserve requirements and cash flow
distribution limitations, there is a limited number of potential buyers in the
market for government subsidized, low-income housing properties such as the
Partnership has invested in. Furthermore, the current uncertainty regarding
potential future reductions in the level of federal government assistance for
these programs may further restrict the properties' marketability. Accordingly,
management does not expect the General Partners of the local limited
partnerships, which receive management fee revenues from the properties, to
attempt to sell any of the properties in the near term. As discussed further in
Item 7, as a limited partner in the local limited partnerships, the
Partnership's ability to influence major business decisions, including any
decision to sell the properties, is restricted under the terms of the
agreements.
All of the properties owned by the local limited partnerships in which the
Partnership invested are located in real estate markets in which they face
competition for the revenues they generate. The Partnership's apartment
complexes, which are all government-assisted, low-income housing facilities,
compete with several projects of similar type generally on the basis of price,
location and amenities. The tenants at the Partnership's apartment properties
are not as likely to be candidates for single-family home ownership as tenants
of non-subsidized properties would be. Therefore, competition from the single
family home market is not a significant factor.
The Partnership is engaged solely in the business of real estate
investment, therefore, presentation of information about industry segments is
not applicable. The Partnership has no real estate investments located outside
the United States.
The Partnership has no employees; it has, however, entered into an Advisory
Contract with PaineWebber Properties Incorporated (the "Adviser"), which is
responsible for the day-to-day operations of the Partnership. The Adviser is a
wholly-owned subsidiary of PaineWebber Incorporated (PWI), a wholly-owned
subsidiary of PaineWebber Group, Inc. ("PaineWebber").
The Managing General Partner of the Partnership is PW Shelter Fund, Inc.
(the "Managing General Partner"), a wholly-owned subsidiary of PaineWebber.
Subject to the Managing General Partner's overall authority, the business of the
Partnership is managed by the Adviser. The associate general partner is
Properties Associates (the "Associate General Partner"), a Massachusetts general
partnership, certain general partners of which are also officers of the Adviser
and the Managing General Partner.
The terms of transactions between the Partnership and affiliates of the
Managing General Partner of the Partnership are set forth in Items 11 and 13
below to which reference is hereby made for a description of such terms and
transactions.
Item 2. Properties
The Partnership has acquired interests in six operating properties through
investments in local limited partnerships. The local limited partnerships and
related properties are referred to under Item 1 above to which reference is made
for the description, name, location, and ownership interest in each property.
<PAGE>
Occupancy figures for each quarter during 1996, along with an average for
the year, are presented below for each property:
Percent Occupied At
-------------------------------------------
1996
3/31/96 6/30/96 9/30/96 12/31/96 Average
------- ------- ------- -------- -------
Village at Fawcett's Pond
Apartments 100% 99% 100% 100% 100%
Quaker Court and The Meadows 99% 99% 99% 98% 99%
Villages at Montpelier Apartments 94% 94% 95% 96% 95%
Marvin Gardens Apartments 98% 100% 100% 100% 100%
Colonial Farms Apartments 98% 99% 99% 100% 99%
Ramblewood Apartments 100% 99% 100% 99% 100%
Item 3. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied partnership investors. In March 1995, after the actions were
consolidated under the title In re PaineWebber Limited Partnership Litigation,
the plaintiffs amended their complaint to assert claims against a variety of
other defendants, including PaineWebber Shelter Fund, Inc. and Properties
Associates ("PA") which are the General Partners of the Partnership and
affiliates of PaineWebber. On May 30, 1995, the court certified class action
treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in PaineWebber/CMJ Properties,
LP, PaineWebber, Paine Webber Shelter Fund, Inc. and PA (1) failed to provide
adequate disclosure of the risks involved; (2) made false and misleading
representations about the safety of the investments and the Partnership's
anticipated performance; and (3) marketed the Partnership to investors for whom
such investments were not suitable. The plaintiffs, who purported to be suing on
behalf of all persons who invested in PaineWebber/CMJ Properties, LP, also
alleged that following the sale of the partnership interests, PaineWebber, Paine
Webber Shelter Fund, Inc. and PA misrepresented financial information about the
Partnerships value and performance. The amended complaint alleged that
PaineWebber, Paine Webber Shelter Fund, Inc. and PA violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding, PaineWebber irrevocably deposited $125 million into an escrow
fund under the supervision of the United States District Court for the Southern
District of New York to be used to resolve the litigation in accordance with a
definitive settlement agreement and plan of allocation. On July 17, 1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which provided for the complete resolution of the class action litigation,
including releases in favor of the Partnership and the General Partners, and the
allocation of the $125 million settlement fund among investors in the various
partnerships at issue in the case. As part of the settlement, PaineWebber also
agreed to provide class members with certain financial guarantees relating to
some of the partnerships. The details of the settlement are described in a
notice mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December 1996,
and in March 1997 the court issued a final approval of the settlement.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including those
offered by the Partnership. The complaint alleged, among other things, that
PaineWebber and its related entities committed fraud and misrepresentation and
breached fiduciary duties allegedly owed to the plaintiffs by selling or
promoting limited partnership investments that were unsuitable for the
plaintiffs and by overstating the benefits, understating the risks and failing
to state material facts concerning the investments. The complaint sought
compensatory damages of $15 million plus punitive damages against PaineWebber.
Mediation with respect to the Abbate action was held in December 1996. As a
<PAGE>
result of such mediation, a settlement between PaineWebber and the
plaintiffs was reached which provides for the complete resolution of such
action. Final releases and dismissals with regard to this action are expected
to be received in April 1997.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber affiliates could be entitled to
indemnification for expenses and liabilities in connection with the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
the amounts it is required to pay in connection with the settlement of the New
York Limited Partnership Actions. At the present time, the General Partners
cannot estimate the impact, if any, of any other potential indemnification
claims on the Partnership's financial statements, taken as a whole. Accordingly,
no provision for any liability which could result from the eventual outcome of
these matters has been made in the accompanying financial statements of the
Partnership.
The Partnership and the local limited partnerships are not subject to any
other material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
At December 31, 1996 there were 901 record holders of Units in the
Partnership. There is no public market for the Units, and it is not anticipated
that a public market for Units will develop. The Managing General Partner will
not redeem or repurchase Units.
Reference is made to Item 6 below for a discussion of the amount of cash
distributions made to the Limited Partners during 1996.
Item 6. Selected Financial Data
Paine Webber/CMJ Properties, LP
(In thousands, except per Unit data)
Years Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 98 $ 244 $ 179 $ 293 $ 208
Expenses $ 280 $ 288 $ 268 $ 289 $ 285
Partnership's share
of local limited
partnerships' income $ 157 $ 174 $ 186 $ 203 $ 162
Net income (loss) $ (25) $ 130 $ 97 $ 207 $ 85
Cash distributions per
Limited
Partnership Unit $ 20.00 $20.00 $10.00 - -
Net income (loss) per
Limited
Partnership Unit $ (2.82) $14.75 $11.01 $23.45 $ 9.63
Total assets $ 415 $ 486 $ 525 $ 729 $ 519
(a) The above selected financial data should be read in conjunction with
the financial statements and related notes appearing elsewhere in this
Annual Report.
(b) The above per Limited Partnership Unit information is based upon the
8,746 Limited Partnership Units outstanding during each year.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership offered limited partnership interests to the public from
May 1983 to April 1984 pursuant to a Registration Statement filed under the
Securities Act of 1933. The Partnership received gross proceeds of $8,746,000,
and after deducting selling expenses and offering costs, the Partnership
invested approximately $6,960,000 in six local limited partnerships owning
housing projects that receive various forms of federal, state or local
assistance and that may be classified as "low-income housing" under the Internal
Revenue Code. The Partnership does not have any commitments for additional
capital expenditures or investments. The Partnership continues to retain an
ownership interest in all six of its original operating investment properties.
As of December 31, 1996, all of the properties are generating sufficient cash
flow from operations to cover their operating expenses and debt service
payments, and the majority of the properties are generating excess cash flow, a
portion of which is being distributed to the Partnership on an annual basis in
accordance with the respective regulatory and limited partnership agreements.
Given the improvements in cash flow and the strong operating performances of the
investment properties in recent years, in 1994 management had instituted a
program which provided for the payment of regular quarterly distributions at an
annual rate of 2% on original invested capital. As discussed further below,
during 1996 distributions to the Partnership from the local limited partnerships
declined, causing management to suspend distributions effective for the fourth
quarter of 1996 until further notice. In the future, to the extent there is
distributable cash flow from the properties after the payment of Partnership
management fees and operating expenses, the Partnership will make annual
distribution payments each November. Management of the Partnership is currently
in the process of reviewing the properties in detail with the affiliate of the
operating general partners which manages the day-to-day operations of the
investment properties to assess each property's potential operating performance
over the next two years. Nonetheless, given the current environment of rising
property operating and capital improvement costs, and the strict restrictions on
available cash flow from the properties, it is likely that if a distribution is
paid in November 1997, it would only be made at an annual rate of 1% on invested
capital.
The Partnership received distributions totalling $310,000 in 1996 from four
of the six local limited partnership investments. In 1995, the Partnership had
received distributions from all six investments which totalled $435,000. The
distributions received in 1996 represented the available cash flow for
distribution as of December 31, 1995, as determined by the general partners of
the local limited partnerships in accordance with the partnership, financing and
regulatory agreements. No distributions were received in 1996 from the Villages
at Montpelier and Marvin Gardens limited partnerships. At the Villages at
Montpelier limited partnership, which distributed $63,000 to the Partnership in
1995, the local general partner decided to withhold excess cash flow to pay
clean-up costs resulting from a leak in the property's underground oil tanks.
During the current year, the underground tanks were drained, cleaned and filled
under the supervision of the Maryland Department of Environmental Protection
which was satisfied with the remediation work. At the Marvin Gardens limited
partnership, which distributed $27,000 to the Partnership in 1995, the local
general partner decided to reserve additional funds for capital improvements in
the current year. Distributions from the Quaker Meadows, Colonial Farms and
Holbrook partnerships also declined slightly in the current year primarily due
to increased expenditures in 1995 for repairs and maintenance and capital
improvements.
Average occupancy levels at all six properties in which the Partnership has
invested remained in the mid-to-high 90% range for the year ended December 31,
1996. Cash flow from the properties in which the Partnership has invested is
restricted by the Department of Housing and Urban Development ("HUD") and other
applicable state housing agencies, which set rental rates for low-income units
and require significant cash reserves to be established for future capital
improvements. In addition, a substantial amount of the revenues generated by
these properties comes from rental subsidy payments made by federal or state
housing agencies. These features, which are characteristic of all subsidized
low-income housing properties, significantly limit the pool of potential buyers
for these real estate assets. Furthermore, the current uncertainty regarding
potential future reductions in the level of federal government assistance for
these programs may further restrict the properties' marketability. Accordingly,
management does not expect the general partners of the local limited
partnerships, which receive management fee revenues from the properties, to
attempt to sell any of the properties in the near term. As a limited partner of
the local limited partnerships, the Partnership does not control property
disposition decisions. The partnership agreements state that the limited partner
may cause the sale of the assets of the local limited partnerships subsequent to
June 30, 1995, but not earlier than one year after it has given written notice
to the operating general partner of its intent to cause such sale, and only if,
during such one year period, the operating general partner does not cause the
sale of such assets. If the operating general partner has not caused the assets
of the partnership to be sold within such one year period the limited partner
may cause such sale, but only after it has offered to sell such assets to the
operating general partner, and either the operating general partner does not
accept such offer within 90 days of receiving it, or the operating general
partner does not complete the sale in accordance with such offer after accepting
the terms.
All six of the Partnership's operating investment properties receive rental
subsidy payments from the federal government under Section 8 of the National
Housing Act. With the exception of The Villages at Montpelier Apartments, which
has only 20% of its units restricted for low-income housing, the subsidy
agreements covering the operating investment properties do not expire for
another 4-to-6 years. The subsidy agreement covering the 20% portion of The
Villages at Montpelier Apartments is scheduled to expire in July 1997. The
agreement does not provide for any renewal options, and the general partner of
the local limited partnership which owns The Villages at Montpelier Apartments
does not have any current plans to apply for an extension of this subsidy
agreement. Accordingly, during the second half of 1997 the subsidized units at
the property are expected to be converted to market rent units. There is likely
to be at least a temporary decline in occupancy as these units are re-leased.
Based on current market conditions, management believes that the units currently
designated as low-income units could be re-leased at market rates which would
keep the total revenues of the local limited partnership relatively unchanged
from the current subsidized level. In addition, if the market for conventional
multi-family apartment properties remains strong in 1997, the expiration of the
rental subsidy agreement at The Villages at Montpelier Apartments and the
conversion of the property to 100% market-rate apartments could enhance the
property's marketability for a potential sale by increasing the pool of
interested buyers. However, there are no assurances that such market conditions
will remain strong over this period. If conditions were to deteriorate, The
Villages at Montpelier Apartments could experience extended declines in
occupancy and revenues upon the expiration of the subsidy agreement. For the
five properties which contain 100% low-income housing units, the government
subsidy payments range from 75% to 82% of the total revenues of the related
local limited partnerships. At the present time, certain legislative initiatives
and governmental budget negotiations could result in a reduction in funds
available for the various HUD-administered housing programs and new limitations
on subsidized rent levels. Such changes could adversely impact the net operating
income generated by the local limited partnerships. In light of the uncertainty
regarding the near term prospects for government assisted, low-income housing
and the restrictions on the Partnership's ability to cause a sale of the
operating properties, management does not have any plans, at the present time,
to initiate the sale process under the terms of the agreements described above.
A decision as to whether to take such actions to initiate the sale process with
respect to any or all of the operating investment properties in the future will
be based upon a number of factors including the availability of a pool of
qualified buyers, an evaluation of the future of the relevant subsidy programs,
the availability of financing and an assessment of local market conditions. If,
as expected, the regulatory agreement on The Villages at Montpelier Apartments
expires in 1997, the decision of whether to initiate a sale process for that
property would be based on a more traditional analysis of existing market
conditions and future appreciation potential.
At December 31, 1996, the Partnership had available cash and cash
equivalents of approximately $323,000, which it intends to use for its working
capital requirements and for distributions to partners. The source of future
liquidity and distributions to the partners is expected to be from cash
generated from the operations of the Partnership's real estate investments and
from the proceeds received from the sale or refinancing of the properties owned
by the local limited partnerships. Such sources of liquidity are expected to be
sufficient to meet the Partnership's needs on both a short-term and long-term
basis.
Results of Operations
- --------------------
1996 Compared to 1995
- ---------------------
For the year ended December 31, 1996, the Partnership reported a net loss
of $25,000, as compared to net income of $130,000 for 1995. This unfavorable
change in the Partnership's net operating results of $155,000 is attributable to
a $138,000 increase in the Partnership's operating loss and a $17,000 decline in
the Partnership's share of local limited partnerships' income.
In accordance with the equity method of accounting for limited partnership
interests, the Partnership does not record losses from investment properties
when losses exceed the Partnership's equity method basis in these properties,
and future income is recognized only when it exceeds the previously unrecorded
losses. Five of the Partnership's six investments had an equity method basis of
zero as of December 31, 1996 and 1995. The Holbrook Apartments Company
(Ramblewood Apartments) was the only remaining investment with a positive equity
method carrying value as of December 31, 1996 and 1995. The Partnership's share
of income from the Ramblewood Apartments for 1996 and 1995 totalled $141,000 and
$174,000, respectively. This unfavorable change in the net operating results of
the Ramblewood partnership resulted mainly from an increase in property
operating expenses. Property operating expenses increased as a result of
sidewalk repairs, exterior painting, and the replacement of playground equipment
which occurred in the current year. During 1996, cumulative income allocations
to the Partnership from the Fawcett's Pond investment exceeded previously
unrecorded losses. As a result, the Partnership recognized a portion of the 1996
income allocation from the Fawcett's Pond partnership ($16,000) in its share of
local limited partnerships' income in the current year, which partially offset
the decline in income. Distributions from the Fawcett's Pond partnership were
recorded as reductions to the investment carrying value to the extent of the
current year income recognition which reduced the carrying value of the
investment to zero as of December 31, 1996. Overall, the combined net operating
results of the six local limited partnerships improved from a net loss of $6,000
in 1995 to net income of $17,000 in 1996. This favorable change resulted from an
increase in combined revenues of $67,000 which exceeded the increase in combined
expenses of $44,000.
The Partnership's operating loss increased due to a $146,000 decrease in
total revenues which was partially offset by an $8,000 decrease in Partnership
general and administrative expenses. The major portion of the decrease in total
revenues is attributable to a $137,000 decline in other income from local
limited partnerships. As discussed further in Note 2 to the financial
statements, distributions from the local limited partnerships are recorded as
other income for those investments for which the Partnership's equity method
carrying value has been reduced to zero. With the exception of Fawcett's Pond,
distributions from which remained unchanged, distributions from the five local
limited partnerships with carrying values of zero declined by varying amounts in
1996 generally due to rising operating expenses and increases in capital
expenditures. In addition, as discussed further above, a portion of the
distributions received from the Fawcett's Pond partnership in 1996 were recorded
as reductions to the investment's carrying value. Also contributing to the
decrease in total revenues was a $9,000 decline in interest income on invested
cash reserves. The decline in general and administrative expenses was mainly due
to decreases in certain required professional services.
1995 Compared to 1994
- ---------------------
The Partnership recorded net income of $130,000 for the year ended December
31, 1995, as compared to net income of $97,000 for 1994. The increase in net
income of $33,000 was mainly the result of an increase in other income from
local limited partnerships of $64,000. As noted above, distributions from the
local limited partnerships are recorded as income for those investments for
which the Partnership's equity method carrying value has been reduced to zero.
Distributions totalling $221,000 from five partnerships were recorded as other
income in the year ended December 31, 1995, as compared to $157,000 from the
same five partnerships for 1994. The favorable change in other income from local
limited partnerships was partially offset by an increase of $20,000 in the
Partnership's general and administrative expenses in 1995.
In accordance with the equity method of accounting for limited partnership
interests, the Partnership does not recognize losses from investment properties
when losses exceed the Partnership's equity method basis in these properties.
Five of the Partnership's six investments had an equity method basis of zero as
of December 31, 1995 and 1994. Distributions from the Holbrook Apartments
Company (Ramblewood Apartments), the only remaining investment which still has a
positive equity method carrying value, are recorded as reductions of the
investment carrying value and totalled $214,000 and $250,000 for 1995 and 1994,
respectively. Distributions from the other five limited partnerships increased
by $64,000 in 1995, as reflected in the change in other income. This increase
resulted primarily from an increase of $47,000 in distributions from The
Villages at Montpelier Apartments, which, as noted above, is the only one of the
Partnership's properties which is not 100% low-income housing. The distributions
received in 1995 reflected the available cash flow from 1994 operations.
The Partnership's recorded share of local limited partnerships' income in
1995 consisted of income of $174,000 from the Ramblewood Apartments limited
partnership, as compared to income of $186,000 from the same partnership in
1994. Net income was down slightly at Ramblewood, mainly due to increases in
salaries expense and real estate taxes. Overall, an increase in combined
property operating expenses of $282,000 for the six local limited partnerships
exceeded the increase in combined revenues of $75,000. Occupancy levels remained
high throughout 1995 with average occupancy above 95% at all properties.
Revenues were up at all properties except at The Villages at Montpelier
Apartments. At The Villages at Montpelier Apartments, revenues decreased
slightly during 1995 due to a temporary decline in occupancy experienced in the
third quarter. Occupancy at The Villages at Montpelier Apartments averaged 95%
for 1995, but dropped to 91% in August 1995 as a result of management's efforts
to increase rental rates for the market-rate units. Management stepped up its
marketing efforts in conjunction with the rate increases. After the initial
decline in occupancy, the marketing efforts generated positive results as the
occupancy level recovered and the number of prospective tenants visiting the
property increased. Expenses in general were up at all of the local limited
partnerships with repairs and maintenance expenses running higher in 1995 at
these properties due to a combination of their ages, applicable regulatory
requirements and management's operating philosophy. Such expenses do, however,
fluctuate from year to year.
1994 Compared to 1993
- ---------------------
For the year ended December 31, 1994, the Partnership recorded net income
of $97,000, as compared to net income of $207,000 for the prior year. The
decrease in net income was the result of a decrease in other income from local
limited partnerships and a decrease in the Partnership's share of local limited
partnerships' income. These unfavorable changes in net income were offset, in
part, by a decrease in general and administrative expenses of $21,000 for 1994.
Five of the six investments had an equity method basis of zero as of
December 31, 1994 and 1993. Other income from local limited partnerships
reflects cash distributions received from investments which have an equity
method basis of zero. Distributions from the Holbrook Apartments Company
(Ramblewood Apartments), the only remaining investment which had a positive
equity method carrying value, are recorded as reductions of the investment
carrying value and totalled $250,000 and $204,000 for 1994 and 1993,
respectively. Distributions from the other five limited partnerships declined by
$123,000 in 1994, as reflected in the change in other income. This decrease
resulted primarily from a decline in distributions from the Fawcett's Pond
limited partnership of $54,000 and a drop in distributions from The Villages at
Montpelier Apartments of $76,000. The distributions received in 1994 reflect the
available cash flow from 1993 operations. The decline in distributions from
these two properties primarily related to certain extraordinary maintenance
projects completed in 1993. The Partnership's recorded share of local limited
partnerships' income in 1994 consisted of income of $186,000 from the Ramblewood
Apartments limited partnership. In the prior year, income of $206,000 from the
operations of the Ramblewood Apartments was recorded in addition to a loss of
$3,000 from the Colonial Farms limited partnership. The carrying value of the
Partnership's investment in Colonial Farms was reduced to zero during 1993. The
decrease in income from the Ramblewood Apartments in 1994 is mainly the result
of higher management fees and real estate tax expenses.
In the aggregate, rental revenues increased at five of the six investment
properties during 1994. The combined total rental revenues increased by
$218,000, with the largest increase occurring at The Villages at Montpelier
Apartments. Occupancy levels remained stable throughout 1994 at the Fawcett's
Pond, Marvin Gardens, Quaker Court and Meadows and Ramblewood properties. At
Colonial Farms, revenues decreased slightly during 1994 due to a temporary
decline in occupancy experienced in the second and third quarters. Occupancy at
Colonial Farms averaged 99% for 1993. Average occupancy for 1994 declined to
96%, although the property had rebounded to 98% as of December 31, 1994. The
increase in revenues at The Villages at Montpelier Apartments was primarily
attributable to the increase in the average occupancy of the property, from 89%
for 1993 to 93% for 1994. In addition, management was able to reduce the level
of concessions used to attract tenants throughout 1994. In addition to the
improvement in revenues, the combined total expenses of the six operating
properties decreased by $201,000 in 1994, primarily due to a decrease in repairs
and maintenance expenses at certain of the properties. Several non recurring
maintenance projects were completed at the properties during 1993.
Inflation
- ---------
The Partnership completed its thirteenth full year of operations in 1996.
To date, the effects of inflation and changes in prices on the Partnership's
operating results have not been significant. In the future, with regard to the
local limited partnerships, contract rental rates under "Section 8" agreements
may be increased at the discretion of the Department of Housing and Urban
Development in response to inflationary pressures to cover increases in
operating expenses due to inflation.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are included under Item 14
of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
<PAGE>
PART III
Item 10. Directors and Principal Executive Officers of the Partnership
The Managing General Partner of the Partnership is PW Shelter Fund, Inc., a
Delaware corporation which is a wholly-owned subsidiary of PaineWebber. The
Associate General Partner of the Partnership is Properties Associates, a
Massachusetts general partnership, certain general partners of which are also
officers of the Adviser and the Managing General Partner. The Managing General
Partner has overall authority and responsibility for the Partnership's
operation, however, the day-to-day business of the Partnership is managed by the
Adviser pursuant to an advisory contract.
(a) and (b) The names and ages of the directors and principal executive
officers of the Managing General Partner of the Partnership are as follows:
Date
Elected
Name Office Age to Office
---- ------ --- ---------
Bruce J. Rubin President and Director 37 8/22/96
Terrence E. Fancher Director 43 10/10/96
Walter V. Arnold Senior Vice President
and Chief Financial Officer 49 10/29/85
James A. Snyder Senior Vice President 51 7/6/92
David F. Brooks First Vice President and
Assistant Treasurer 54 12/10/82 *
Timothy J. Medlock Vice President and Treasurer 35 6/1/88
Thomas W. Boland Vice President 34 12/1/91
* The date of incorporation of the Managing General Partner
(c) There are no other significant employees in addition to the directors
and executive officers mentioned above.
(d) There is no family relationship among any of the foregoing directors
and/or executive officers of the Managing General Partner of the Partnership.
All of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.
(e) All of the directors and officers of the Managing General Partner hold
similar positions in affiliates of the Managing General Partner, which are the
corporate general partners of other real estate limited partnerships sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The business experience of each of the directors and principal executive
officers of the Managing General Partner is as follows:
Bruce J. Rubin is President and Director of the Managing General Partner.
Mr. Rubin was named President and Chief Executive Officer of PWPI in August
1996. Mr. Rubin joined PaineWebber Real Estate Investment Banking in November
1995 as a Senior Vice President. Prior to joining PaineWebber, Mr. Rubin was
employed by Kidder, Peabody and served as President for KP Realty Advisers, Inc.
Prior to his association with Kidder, Mr. Rubin was a Senior Vice President and
Director of Direct Investments at Smith Barney Shearson. Prior thereto, Mr.
Rubin was a First Vice President and a real estate workout specialist at
Shearson Lehman Brothers. Prior to joining Shearson Lehman Brothers in 1989, Mr.
Rubin practiced law in the Real Estate Group at Willkie Farr & Gallagher. Mr.
Rubin is a graduate of Stanford University and Stanford Law School.
<PAGE>
Terrence E. Fancher was appointed a Director of the Managing General
Partner in October 1996. Mr. Fancher is the Managing Director in charge of
PaineWebber's Real Estate Investment Banking Group. He joined PaineWebber as a
result of the firm's acquisition of Kidder, Peabody. Mr. Fancher is responsible
for the origination and execution of all of PaineWebber's REIT transactions,
advisory assignments for real estate clients and certain of the firm's real
estate debt and principal activities. He joined Kidder, Peabody in 1985 and,
beginning in 1989, was one of the senior executives responsible for building
Kidder, Peabody's real estate department. Mr. Fancher previously worked for a
major law firm in New York City. He has a J.D. from Harvard Law School, an
M.B.A. from Harvard Graduate School of Business Administration and an A.B. from
Harvard College.
Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the Managing General Partner and Senior Vice President and Chief Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the acquisition of Rotan Mosle, Inc. where he had been First Vice
President and Controller since 1978, and where he continued until joining the
Adviser. Mr. Arnold is a Certified Public Accountant licensed in the state of
Texas.
James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser. Mr. Snyder re-joined the Adviser in
July 1992 having served previously as an officer of PWPI from July 1980 to
August 1987. From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust Corporation where he served as the Vice President of Asset Sales prior to
re-joining PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989, Mr. Snyder was Executive Vice President and Chief Financial
Officer of Southeast Regional Management Inc., a real estate development
company.
David F. Brooks is a First Vice President and Assistant Treasurer of the
Managing General Partner and a First Vice President and an Assistant Treasurer
of the Adviser. Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant Treasurer of Property Capital Advisors, Inc. and
also, from March 1974 to February 1980, the Assistant Treasurer of Capital for
Real Estate, which provided real estate investment, asset management and
consulting services.
Timothy J. Medlock is a Vice President and Treasurer of the Managing
General Partner and Vice President and Treasurer of the Adviser which he joined
in 1986. From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated with Deloitte Haskins & Sells. Mr. Medlock graduated from Colgate
University in 1983 and received his Masters in Accounting from New York
University in 1985.
Thomas W. Boland is a Vice President of the Managing General Partner and a
Vice President and Manager of Financial Reporting of the Adviser which he joined
in 1988. From 1984 to 1987 Mr. Boland was associated with Arthur Young &
Company. Mr. Boland is a Certified Public Accountant licensed in the state of
Massachusetts. He holds a B.S. in Accounting from Merrimack College and an
M.B.A. from Boston University.
(f) None of the directors and officers were involved in legal proceedings
which are material to an evaluation of her or his ability or integrity as a
director or officer.
(g) Compliance With Exchange Act Filing Requirements: The Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial holders are required by SEC regulations to furnish the Partnership
with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Partnership believes that, during the year ended December 31, 1996, all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the Partnership's Managing General Partner
receive no current or proposed remuneration from the Partnership.
The Partnership is required to pay certain fees to the Adviser, and the
General Partners are entitled to receive a share of cash distributions and a
share of profits or losses. These items are described under Item 13.
The Partnership paid distributions to the Unitholders on a quarterly basis
at a rate of 2% per annum on original invested capital from August 15, 1994 for
the quarter ended June 30, 1994 to November 15, 1996 for the quarter ended
September 30, 1996. The Partnerships quarterly distributions were suspended
effective for the quarter ended December 31, 1996 due to an unexpected decline
in the cash flow distributions from the local limited partnerships in which the
Partnership has invested. In addition, the Partnership's Units of Limited
Partnership Interest are not actively traded on any organized exchange, and no
efficient secondary market exists. Accordingly, no accurate price information is
available for these Units. Therefore, a presentation of historical Unitholder
total returns would not be meaningful.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership issuing Units of limited
partnership interest, not voting securities. All the outstanding stock of the
Managing General Partner, PW Shelter Fund, Inc. is owned by PaineWebber.
Properties Associates, the Associate General Partner, is a Massachusetts general
partnership, general partners of which are also officers of the Adviser and the
Managing General Partner. Properties Associates is also the Initial Limited
Partner of the Partnership and owns one Unit of limited partnership interest. No
limited partner is known by the Partnership to own beneficially more than 5% of
the outstanding interests of the Partnership.
(b) Neither officers and directors of the Managing General Partner nor the
general partners of the Associate General Partner, individually, own any Units
of limited partnership interest of the Partnership. No officer or director of
the Managing General Partner, nor any general partner of the Associate General
Partner, possesses a right to acquire beneficial ownership of Units of limited
partnership interest of the Partnership.
(c) There exists no arrangement, known to the Partnership, the operation of
which may at a subsequent date result in a change in control of the Partnership.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership are PW Shelter Fund, Inc. (the
"Managing General Partner"), a wholly-owned subsidiary of PaineWebber Group,
Inc. ("PaineWebber") and Properties Associates (the "Associate General
Partner"), a Massachusetts general partnership, certain general partners of
which are also officers of the Managing General Partner and PaineWebber
Properties Incorporated (the "Adviser"). Subject to the Managing General
Partner's overall authority, the business of the Partnership is managed by the
Adviser pursuant to an advisory contract. The Adviser is a wholly-owned
subsidiary of PaineWebber Incorporated ("PWI"), a wholly-owned subsidiary of
PaineWebber. The General Partners, the Adviser and PWI receive fees and
compensation, determined on an agreed-upon basis, in consideration of various
services performed in connection with the sale of the Units, the management of
the Partnership and the acquisition, management, financing and disposition of
Partnership investments. In addition, the Managing General Partner and the
Adviser are reimbursed for their out-of-pocket expenses relating to the offering
of Units, the administration of the Partnership and the acquisition and
operation of the Partnership's real property investments.
Distributable cash, as defined, if any, for each fiscal year shall be
distributed annually in the ratio of 99% to the Limited Partners and 1% to the
General Partners. All sale or refinancing proceeds will be distributed in
varying proportions to the Limited and General Partners, as specified in the
Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or tax
loss of the Partnership will be allocated 99% to the Limited Partners and 1% to
the General Partners. Taxable income or tax loss arising from a sale or
refinancing of investment properties will be allocated to the Limited Partners
and the General Partners in proportion to the amounts of sale or refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or refinancing. If
there are no sale or refinancing proceeds, taxable income or tax loss from a
sale or refinancing will be allocated 99% to the Limited Partners and 1% to the
General Partners. Allocations of the Partnership's operations between the
General Partner and the Limited Partners for financial accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities, to administer the day-to-day operations of the Partnership and
to report periodically the performance of the Partnership to the Managing
General Partner. The Adviser earns a basic management fee of .5% of invested
assets for these services. Invested assets is the sum of the amount invested by
the Partnership in each local limited partnership plus a proportionate interest
in the mortgage debt initially incurred by the local limited partnerships. The
Adviser earned management fees of $199,000 for the year ended December 31, 1996.
Accounts payable - affiliates at December 31, 1996 consists of management fees
of $132,000 payable to the Adviser.
In connection with the sale of each property, the Adviser may receive a
disposition fee in an amount equal to 1% based on the selling price of the
property, subordinated to the payment of certain amounts to the Limited
Partners.
An affiliate of the Managing General Partner performs certain accounting,
tax preparation, securities law compliance and investor communications and
relations services for the Partnership. The total costs incurred by this
affiliate in providing such services are allocated among several entities
including the Partnership. Included in general and administrative expenses for
the year ended December 31, 1996 is $32,000, representing reimbursements to this
affiliate for providing such services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a subsidiary of Mitchell Hutchins Asset Management, Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned fees
of $2,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended December 31, 1996. Fees charged
by Mitchell Hutchins are based on a percentage of invested cash reserves which
varies based on the total amount of invested cash which Mitchell Hutchins
manages on behalf of PWPI.
See Note 3 to the accompanying financial statements of the Partnership for
a further discussion of certain relationships and related party transactions.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements at page F-1.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page IV-3 are filed as part of this report.
(b) No reports on Form 8-K were filed during the last quarter of 1996.
(c) Exhibits
See (a) (3) above.
(d) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements at page F-1.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PAINE WEBBER/CMJ PROPERTIES, LP
LIMITED PARTNERSHIP
By: PW Shelter Fund, Inc.
Managing General Partner
By: /s/ Bruce J. Rubin
------------------
Bruce J. Rubin
President
and Chief Executive Officer
By: /s/ Walter V. Arnold
--------------------
Walter V. Arnold
Senior Vice President and
Chief Financial Officer
By: /s/ Thomas W. Boland
--------------------
Thomas W. Boland
Vice President
Dated: April 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the dates indicated.
By: /s/ Bruce J. Rubin Date: April 11, 1997
------------------- --------------
Bruce J. Rubin
Director
By: /s/ Terrence E. Fancher Date: April 11, 1997
----------------------- --------------
Terrence E. Fancher
Director
<PAGE>
<TABLE>
ANNUAL REPORT ON FORM 10-K
Item 14(a)(3)
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO EXHIBITS
<CAPTION>
Page Number in the Report
Exhibit No. Description of Document Or Other Reference
- ----------- ----------------------- ---------------------------
<S> <C> <C>
(3) and (4) Prospectus of the Partnership Filed with the Commission pursuant to
dated May 25, 1983, as Rule 424(c) and incorporated herein by
supplemented, with particular reference.
reference to the Restated
Certificate and Agreement of
Limited Partnership
(10) Material contracts previously Filed with the Commission pursuant to
filed as exhibits to registration Section 13 or 15(d) of the Securities Act
statements and amendments thereto of 1934 and incorporated herein by
of the registrant together with all reference.
such contracts filed as exhibits of
previously filed Forms 8-K and Forms
10-K are hereby incorporated herein
by reference.
(13) Annual Reports to Limited Partners No Annual Report for the year ended
December 31, 1996 has been sent to the
Limited Partners. An Annual Report will
be sent to the Limited Partners subsequent
to this filing.
(22) List of subsidiaries Included in Item 1 of Part 1 of this Report
Page I-1, to which reference is hereby made.
(27) Financial Data Schedule Filed as the last page of EDGAR submission
following the Financial Statements required
by Item 14.
</TABLE>
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS
Reference
---------
Paine Webber/CMJ Properties, LP
Independent Auditors' Report F-4
Balance sheets at December 31, 1996 and 1995 F-5
Statements of operations for the years ended December
31, 1996, 1995 and 1994 F-6
Statements of changes in partners' capital (deficit) for the
years ended December 31, 1996, 1995 and 1994 F-7
Statement of cash flows for the years ended December 31, 1996,
1995 and 1994 F-8
Notes to financial statements F-9
Fawcett's Pond Apartments Company
Independent Auditors' Report F-21
Balance sheets at December 31, 1996 and 1995 F-22
Statements of operations for the years ended December 31,
1996, 1995 and 1994 F-23
Statements of partners' deficit for the years ended
December 31, 1996, 1995 and 1994 F-24
Statements of cash flows for the years ended December 31,
1996, 1995 and 1994 F-25
Notes to financial statements F-27
Quaker Meadows Apartments Company
Independent Auditors' Report F-30
Balance sheets at December 31, 1996 and 1995 F-31
Statements of operations for the years ended December 31, 1996,
1995 and 1994 F-32
Statements of partners' deficit for the years ended December
31, 1996, 1995 and 1994 F-33
Statements of cash flows for the years ended December 31, 1996,
1995 and 1994 F-34
Notes to financial statements F-36
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS - continued
Reference
---------
South Laurel Apartments Limited Partnership
Independent Auditors' Report F-39
Balance sheets at December 31, 1996 and 1995 F-40
Statements of operations for the years ended December 31, 1996,
1995 and 1994 F-41
Statements of partners' deficit for the years ended December
31, 1996, 1995 and 1994 F-42
Statements of cash flows for the years ended December 31, 1996,
1995 and 1994 F-43
Notes to financial statements F-45
Marvin Gardens Associates
Independent Auditors' Report F-49
Balance sheets at December 31, 1996 and 1995 F-50
Statements of operations for the years ended December 31, 1996,
1995 and 1994 F-51
Statements of partners' deficit for the years ended December 31,
1996, 1995 and 1994 F-52
Statements of cash flows for the years ended December 31, 1996,
1995 and 1994 F-53
Notes to financial statements F-55
Colonial Farms, Ltd.
Independent Auditors' Report F-58
Balance sheets at December 31, 1996 and 1995 F-59
Statements of operations for the years ended December 31, 1996,
1995 and 1994 F-60
Statements of partners' deficit for the years ended December 31,
1996, 1995 and 1994 F-61
Statements of cash flows for the years ended December 31, 1996,
1995 and 1994 F-62
Notes to financial statements F-64
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS - continued
Reference
---------
Holbrook Apartments Company
Independent Auditors' Report F-67
Balance sheets at December 31, 1996 and 1995 F-68
Statements of operations for the years ended December 31,
1996, 1995 and 1994 F-69
Statements of partners' deficit for the years ended December
31, 1996, 1995 and 1994 F-70
Statements of cash flows for the years ended December 31, 1996,
1995 and 1994 F-71
Notes to financial statements F-73
All schedules have been omitted since the required information is not
applicable, or because the information required is included in the financial
statements, including the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners of
Paine Webber/CMJ Properties, LP
We have audited the accompanying balance sheets of Paine Webber/CMJ
Properties, LP (a Limited Partnership) as of December 31, 1996 and 1995, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paine Webber/CMJ Properties,
LP at December 31, 1996 and 1995, and the results of its operations, changes in
partners' capital (deficit), and its cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Reznick Fedder & Silverman
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
March 20, 1997
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS
December 31, 1996 and 1995
(In thousands, except per Unit amounts)
ASSETS
1996 1995
---- ----
Investments in local limited partnerships, at equity $ 92 $ 161
Cash and cash equivalents 323 325
-------- -------
$ 415 $ 486
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Accrued expenses $ 21 $ 22
Accounts payable - affiliates 132 -
-------- --------
153 22
Partners' capital:
General Partners:
Capital contributions 1 1
Cumulative net losses (70) (70)
Cumulative distributions (5) (3)
Limited Partners ($1,000 per Unit;
15,000 Units authorized;
8,746 Units issued and outstanding):
Capital contributions, net of offering costs 7,679 7,679
Cumulative net losses (6,906) (6,881)
Cumulative distributions (437) (262)
-------- -------
Total partners' capital 262 464
-------- -------
$ 415 $ 486
======== =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except per Unit amounts)
1996 1995 1994
---- ---- ----
Revenues:
Interest income $ 14 $ 23 $ 22
Other income from local limited
partnerships 84 221 157
------ ------ -------
98 244 179
Expenses:
Management fees 199 199 199
General and administrative 81 89 69
------ ------ -------
280 288 268
------ ------ -------
Operating loss (182) (44) (89)
Partnership's share of local limited
partnerships' income 157 174 186
------ ------ -------
Net income (loss) $ (25) $ 130 $ 97
====== ====== =======
Net income (loss) per Limited
Partnership Unit $(2.82) $14.75 $ 11.01
====== ====== =======
Cash distributions per Limited
Partnership Unit $20.00 $20.00 $ 10.00
====== ====== =======
The above net income (loss) and cash distributions per Limited Partnership
Unit are based upon the 8,746 Limited Partnership Units outstanding during each
year.
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
General Limited
Partners Partners Totals
-------- -------- ------
Balance at December 31, 1993 $ (71) $ 573 $ 502
Cash distributions (1) (87) (88)
Net income 1 96 97
------ ------ ------
Balance at December 31, 1994 (71) 582 511
Cash distributions (2) (175) (177)
Net income 1 129 130
------ ------ ------
Balance at December 31, 1995 (72) 536 464
Cash distributions (2) (175) (177)
Net loss - (25) (25)
------ ------ ------
Balance at December 31, 1996 $ (74) $ 336 $ 262
====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (25) $ 130 $ 97
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Other income from local limited
partnerships (84) (221) (157)
Partnership's share of local limited
partnerships' income (157) (174) (186)
Changes in assets and liabilities:
Accrued expenses (1) 8 (8)
Accounts payable - affiliates 132 - (204)
----- ----- ------
Total adjustments (110) (387) (555)
----- ----- ------
Net cash used in operating activities (135) (257) (458)
----- ----- ------
Cash flows from investing activities:
Distributions from local limited
partnerships 310 435 407
----- ----- ------
Net cash provided by investing
activities 310 435 407
----- ----- ------
Cash flows from financing activities:
Distributions to partners (177) (177) (88)
------ ----- ------
Net cash used in financing activities (177) (177) (88)
----- ----- ------
Net (decrease) increase in cash and
cash equivalents (2) 1 (139)
Cash and cash equivalents, beginning of year 325 324 463
------ ----- ------
Cash and cash equivalents, end of year $ 323 $ 325 $ 324
====== ===== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Organization and Nature of Operations
Paine Webber/CMJ Properties, LP (the "Partnership") is a limited
partnership organized pursuant to the laws of the State of Delaware in
December 1982 for the purpose of investing in a portfolio of interests in
local limited partnerships owning apartment projects which receive
governmental assistance in the form of low rate mortgages and rent
subsidies. All of the properties owned by the local limited partnerships
were developed by Corcoran, Mullins, Jennison, Inc. ("CMJ") or its
affiliates. The initial capital was $2,000, representing capital
contributions of $1,000 by the General Partners and $1,000 for one unit (a
"Unit") by the Initial Limited Partner. The Partnership authorized the
issuance of a maximum of 15,000 Partnership Units of which 8,745 were
subscribed and issued between May 25, 1983 and April 30, 1984.
The Partnership originally invested the net proceeds of the public
offering, through local limited partnerships, in six apartment projects
which receive governmental assistance in the form of low interest rate
mortgages and rent subsidies. The Partnership's original investment
objectives were to invest the net cash proceeds from the offering of
limited partnership units in rental apartment properties receiving various
forms of federal, state or local assistance with the goals of providing:
(1) tax losses from deductions generated by investments; (2) capital
preservation; (3) potential capital appreciation; and (4) potential future
cash distributions from operations (on a limited basis), or from the sale
or refinancing of the projects owned by the local limited partnerships, or
from the sale of interests in the local limited partnerships.
The Partnership has generated tax losses since inception. However, the
benefits of such losses to investors have been significantly reduced by
changes in federal income tax law subsequent to the organization of the
Partnership. The Partnership continues to retain an ownership interest in
all six of its original operating investment properties. As of December 31,
1996, all of the properties are generating sufficient cash flow from
operations to cover their operating expenses and debt service payments, and
the majority of the properties are generating excess cash flow, a portion
of which is being distributed to the Partnership on an annual basis in
accordance with the respective regulatory and limited partnership
agreements. Given the improvements in cash flow and the strong operating
performances of the investment properties in recent years, management had
instituted a program of regular quarterly distributions in 1994 at an
annual rate of 2% on original invested capital. Effective for the fourth
quarter of 1996, due to an unexpected decline in the level of cash flow
distributions from the local limited partnerships, distributions to the
partners were suspended until further notice. In the future, to the extent
there is distributable cash flow from the properties after the payment of
Partnership management fees and operating expenses, the Partnership will
make annual distribution payments each November.
The Partnership's success in meeting its capital appreciation objective
will depend upon the proceeds received from the final sales of its
investments. The amount of such proceeds will ultimately depend upon the
value of the underlying investment properties at the time of their final
disposition, which cannot presently be determined. Because of the
government restrictions on rental revenues and the related capital
expenditure reserve requirements and cash flow distribution limitations,
there is a limited number of potential buyers in the market for government
subsidized, low-income housing properties such as the Partnership has
invested in. Furthermore, the current uncertainty regarding potential
future reductions in the level of federal government assistance for these
programs may further restrict the properties' marketability. Accordingly,
management does not expect the General Partners of the local limited
partnerships, which receive management fee revenues from the properties, to
attempt to sell any of the properties in the near term. As discussed
further in Note 4, as a limited partner in the local limited partnerships,
the Partnership's ability to influence major business decisions, including
any decision to sell the properties, is restricted under the terms of the
agreements.
<PAGE>
2. Use of Estimates and Summary of Significant Accounting Policies
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of December 31, 1996 and 1995 and
revenues and expenses for each of the three years in the period ended
December 31, 1996. Actual results could differ from the estimates and
assumptions used.
The accompanying financial statements include the Partnership's
investments in six local limited partnerships which own operating
properties. The Partnership accounts for its investments in local limited
partnerships using the equity method. Under the equity method, the
investment is carried at cost adjusted for the Partnership's share of the
local limited partnerships' earnings and losses and distributions. In
accordance with the equity method of accounting for limited partnership
interests, the Partnership does not record losses for those limited
partnership investments whose equity method basis has been reduced to zero,
recognizing future income from these entities only when it exceeds the
previously unrecorded losses. Distributions received from investments in
limited partnerships whose basis has been reduced to zero are recorded as
other income in the Partnership's statement of operations. See Note 4 for a
description of the local limited partnerships.
For purposes of reporting cash flows, cash and cash equivalents include
all highly liquid investments with original maturities of 90 days or less
when acquired. The Partnership's cash reserves are invested in financial
instruments which potentially subject the Partnership to concentrations of
credit risk. The Partnership currently invests primarily in
investment-grade rated commercial paper with overnight maturities.
Management believes that no significant concentration of credit risk exists
with respect to these cash investments as of December 31, 1996. The
carrying amount of cash and cash equivalents approximates their fair value
as of December 31, 1996 due to the short-term maturities of these
instruments.
No provision for income taxes has been made, as the liability for such
taxes is that of the partners rather than the Partnership. The cumulative
difference between the book basis and tax basis of the Partnership's
investment in local limited partnerships is approximately $17,374,000 due
to the losses on investments recognized on the tax basis in excess of the
book basis.
3. The Partnership Agreement and Related Party Transactions
The General Partners of the Partnership are PW Shelter Fund, Inc. (the
"Managing General Partner"), a wholly-owned subsidiary of PaineWebber
Group, Inc. ("PaineWebber") and Properties Associates (the "Associate
General Partner"), a Massachusetts general partnership, certain general
partners of which are also officers of the Managing General Partner and
PaineWebber Properties Incorporated (the "Adviser"). Subject to the
Managing General Partner's overall authority, the business of the
Partnership is managed by the Adviser pursuant to an advisory contract. The
Adviser is a wholly-owned subsidiary of PaineWebber Incorporated ("PWI"), a
wholly-owned subsidiary of PaineWebber. The General Partners, the Adviser
and PWI receive fees and compensation, determined on an agreed-upon basis,
in consideration of various services performed in connection with the sale
of the Units, the management of the Partnership and the acquisition,
management, financing and disposition of Partnership investments.
Distributable cash, as defined, if any, for each fiscal year shall be
distributed annually in the ratio of 99% to the Limited Partners and 1% to
the General Partners. All sale or refinancing proceeds will be distributed
in varying proportions to the Limited and General Partners, as specified in
the Partnership Agreement.
Pursuant to the terms of the Partnership Agreement, taxable income or
tax loss of the Partnership will be allocated 99% to the Limited Partners
and 1% to the General Partners. Taxable income or tax loss arising from a
sale or refinancing of investment properties will be allocated to the
Limited Partners and the General Partners in proportion to the amounts of
sale or refinancing proceeds to which they are entitled; provided that the
General Partners shall be allocated at least 1% of taxable income arising
from a sale or refinancing. If there are no sale or refinancing proceeds,
taxable income or tax loss from a sale or refinancing will be allocated 99%
to the Limited Partners and 1% to the General Partners. Allocations of the
Partnership's operations between the General Partner and the Limited
Partners for financial accounting purposes have been made in conformity
with the allocations of taxable income or tax loss.
Under the advisory contract, the Adviser has specific management
responsibilities, to administer the day-to-day operations of the
Partnership and to report periodically the performance of the Partnership
to the Managing General Partner. The Adviser earns a basic management fee
of .5% of invested assets for these services. Invested assets is the sum of
the amount invested by the Partnership in each local limited partnership
plus a proportionate interest in the mortgage debt initially incurred by
the local limited partnerships. The Adviser earned management fees of
$199,000 for each of the three years in the period ended December 31, 1996.
Accounts payable - affiliates at December 31, 1996 consists of management
fees of $132,000 payable to the Adviser.
In connection with the sale of each property, the Adviser may receive a
disposition fee in an amount equal to 1% based on the selling price of the
property, subordinated to the payment of certain amounts to the Limited
Partners.
Included in general and administrative expenses for the years ended
December 31, 1996, 1995 and 1994 is $32,000, $32,000 and $38,000,
respectively, representing reimbursements to an affiliate of the Managing
General Partner for providing certain financial, accounting and investor
communication services to the Partnership.
The Partnership uses the services of Mitchell Hutchins Institutional
Investors, Inc. ("Mitchell Hutchins"), an affiliate of the Managing General
Partner, for the managing of cash assets. Mitchell Hutchins is a subsidiary
of Mitchell Hutchins Asset Management, Inc., an independently operated
subsidiary of PaineWebber. Mitchell Hutchins earned fees of $2,000, $2,000
and $1,000 (included in general and administrative expenses) for managing
the Partnership's cash assets during 1996, 1995 and 1994, respectively.
4. Local Limited Partnerships
The Partnership has investments in six local limited partnerships. These
local limited partnerships are accounted for on the equity method in the
Partnership's financial statements. Condensed combined financial statements
of these local limited partnerships follow:
<PAGE>
Condensed Combined Balance Sheets
December 31, 1996 and 1995
(In thousands)
Assets
1996 1995
---- ----
Current assets $ 1,877 $ 1,685
Restricted deposits and funded reserves 2,060 1,965
Operating investment property, net 25,621 26,565
Other assets 1,046 1,088
--------- --------
$ 30,604 $31,303
======== =======
Liabilities and Capital
Current liabilities and tenant security deposits $ 1,461 $ 1,303
Due to general partner 2,508 2,509
Long-term mortgage debt, less current portion 32,847 33,368
Partnership's share of combined
partners' deficit accounts (3,104) (2,826)
Local partners' shares of combined
partners' deficit accounts (3,108) (3,051)
-------- -------
$ 30,604 $31,303
======== =======
Condensed Combined Summary of Operations
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
1996 1995 1994
---- ---- ----
Rental revenues, including
government subsidies $ 9,975 $ 9,891 $ 9,851
Other income 86 103 68
-------- ------- -------
10,061 9,994 9,919
Property operating expenses 5,733 5,701 5,419
Interest expense and mortgage
insurance 2,964 3,005 3,042
Depreciation and amortization 1,347 1,294 1,246
--------- ------- --------
10,044 10,000 9,707
-------- ------- --------
Net income (loss) $ 17 $ (6) $ 212
======== ======= ========
Net income (loss):
Partnership's share of
operations $ 32 $ (15) $ 183
Local partners' share of
operations (15) 9 29
-------- ------- --------
$ 17 $ (6) $ 212
======== ======= ========
<PAGE>
Reconciliation of Partnership's share of operations
(In thousands)
1996 1995 1994
---- ---- ----
Partnership's share of
operations, as shown above $ 32 $ (15) $ 183
Losses in excess of basis not
recognized by Partnership 278 234 108
Income offset with prior year
unrecognized losses (153) (45) (105)
------- ------ -------
Partnership's share of local
limited partnerships' income $ 157 $ 174 $ 186
======= ====== =======
Reconciliation of Partnership's Investments
(In thousands)
1996 1995
---- ----
Partnership's share of combined partners'
deficit accounts, as shown above $(3,104) $(2,826)
Accumulated losses in excess of basis
not recognized by Partnership 2,103 1,978
Cumulative distributions in excess
of investment basis 1,078 994
Excess basis in local limited partnerships 15 15
------- -------
Investments in local limited
partnerships, at equity $ 92 $ 161
======= =======
"Investments in local limited partnerships, at equity" is the Partnership's
net investment in the local limited partnerships. These local limited
partnerships are subject to partnership agreements which determine the
distribution of available funds, the disposition of the limited
partnership's assets and the rights of the partners, regardless of the
Partnership's percentage ownership interest in the local limited
partnership. As a limited partner of the local limited partnerships, the
Partnership does not control property disposition decisions. The
partnership agreements state that the limited partner may cause the sale of
the assets of the local limited partnerships subsequent to June 30, 1995,
but not earlier than one year after it has given written notice to the
operating general partner of its intent to cause such sale, and only if,
during such one year period, the operating general partner does not cause
the sale of such assets. If the operating general partner has not caused
the assets of the partnership to be sold within such one year period the
limited partner may cause such sale, but only after it has offered to sell
such assets to the operating general partner, and either the operating
general partner does not accept such offer within 90 days of receiving it,
or the operating general partner does not complete the sale in accordance
with such offer after accepting the terms.
<PAGE>
"Investments in local limited partnerships, at equity" on the balance
sheets is comprised of the following local limited partnership investments,
at the balances indicated (in thousands):
1996 1995
---- ----
Fawcett's Pond Apartments Company $ - $ -
Quaker Meadows Apartments Company - -
South Laurel Apartments Limited Partnership - -
Marvin Gardens Associates - -
Colonial Farms Ltd. - -
Holbrook Apartments Company 92 161
------ ------
Investments in local limited
partnerships, at equity $ 92 $ 161
====== ======
The Partnership received cash distributions from the limited partnerships
as set forth below (in thousands):
1996 1995 1994
---- ---- ----
Fawcett's Pond Apartments Company $ 24 $ 24 $ 24
Quaker Meadows Apartments Company 50 66 59
South Laurel Apartments Limited
Partnership - 63 16
Marvin Gardens Associates - 27 12
Colonial Farms Ltd. 27 40 46
Holbrook Apartments Company 209 215 250
----- ----- ------
$ 310 $ 435 $ 407
===== ===== ======
The investments in Quaker Meadows Apartments Company, South Laurel
Apartments Limited Partnership, Marvin Gardens Associates and Colonial
Farms Ltd. at December 31, 1996 do not reflect accumulated losses therefrom
of $1,175,000, $670,000, $157,000 and $101,000, respectively, because the
equity method carrying values of such investments have been reduced to
zero. Future income from these entities will not be recorded until it
exceeds the previously unrecognized accumulated losses.
A description of the local limited partnership properties and the terms
of the local limited partnership agreements is summarized below:
a) Village at Fawcett's Pond - Hyannis, Massachusetts
--------------------------------------------------
On June 30, 1983, the Partnership acquired a 95% limited partnership
interest in Fawcett's Pond Apartments Company, an existing Massachusetts
limited partnership ("Fawcett's Pond"), that owns and operates a 100-unit
housing project in Hyannis, Massachusetts. The Federal Housing
Administration (FHA) contracted with the limited partnership under Section
8 of Title II of the Housing and Community Development Act of 1974 to make
housing assistance payments to the limited partnership on behalf of
qualified tenants. The agreement expires August 19, 2002. Total rent
subsidies received by the limited partnership during 1996, 1995 and 1994
were $756,000, $768,000 and $769,000, respectively. Such amounts comprised
approximately 77%, 79% and 81%, respectively, of the limited partnership's
total revenues for such years.
The aggregate investment by the Partnership for the 95% interest was
$879,606, comprised of cash and notes payable to the seller (including an
acquisition fee of $63,025 payable to the Adviser of the Partnership). The
Partnership's interest is held subject to a permanent nonrecourse mortgage
loan due April 1, 2024 from the Government National Mortgage Association
(GNMA) with an outstanding balance at December 31, 1996 of approximately
$4,282,000, payable in monthly installments of $30,746 including principal
and interest at 7.5%.
The partnership agreement generally provides that the Partnership will
receive 95% of annual distributable cash flow payable annually and that the
local partners will be entitled to receive 5% of annual distributable cash
flow. Cash distributions are limited by agreements between the limited
partnership and HUD to the extent of surplus cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributed in that year.
Generally, the first $1,105,725 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership. The
remaining proceeds will be distributed to the local general partners and
the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners. The management
fee is 5% of gross receipts. An incentive management fee will also be paid
on an annual basis in the event that the property's cash flow exceeds
certain target amounts. Incentive management fees of $6,000 were paid to an
affiliate of the local general partners for each of the three years in the
period ended December 31, 1996.
b) Quaker Court and The Meadows - Lynn, Massachusetts
--------------------------------------------------
On June 30, 1983, the Partnership acquired a 95% limited partnership
interest in Quaker Meadows Apartments Company, an existing Massachusetts
limited partnership ("Quaker Meadows"), that owns and operates two
apartment complexes in Lynn, Massachusetts. There are a total of 104
apartment units in the two complexes. FHA contracted with the limited
partnership under Section 8 of Title II of the Housing and Community
Development Act of 1974 to make housing assistance payments to the limited
partnership on behalf of qualified tenants. The agreement expires in May
2002 and has two five-year renewal options. Total rent subsidies received
by the limited partnership during 1996, 1995 and 1994 were $1,320,000,
$1,335,000 and $1,321,000, respectively. Such amounts comprised
approximately 82% of the limited partnership's total revenues in each of
such years.
The aggregate investment by the Partnership for the 95% interest was
$1,378,906 (including an acquisition fee of $104,525 paid to the Adviser of
the Partnership). The Partnership's interest is held subject to a permanent
nonrecourse mortgage loan payable to the Massachusetts Housing Finance
Agency (MHFA). The mortgage loan is due September 1, 2013 with an
outstanding balance at December 31, 1996 of approximately $5,202,000,
payable in monthly installments of $62,930 including principal and interest
at 12.5%.
The restated partnership agreement generally provides that the
Partnership will receive 95% of annual distributable cash flow payable
annually and that the local partners will be entitled to receive 5% of
annual distributable cash flow. Cash distributions are limited by
agreements between the limited partnership, HUD and MHFA to the extent of
surplus cash, as defined.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributed in that year.
Generally, the first $1,739,424 of proceeds from the sale or refinancing
of the investment properties will be distributed to the Partnership.
Remaining proceeds will be distributed to the local venture partners and
the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners. The management
fee is 4% of gross receipts. An incentive management fee will also be paid
on an annual basis in the event that the property's cash flow exceeds
certain target amounts. Incentive management fees of $29,000, $45,000 and
$38,000 were paid to an affiliate of the local general partners for the
years ended December 31, 1996, 1995 and 1994, respectively.
c) Villages at Montpelier - Laurel, Maryland
-----------------------------------------
On June 30, 1983, the Partnership acquired an 85% limited partnership
interest in South Laurel Apartments Limited Partnership, an existing
Maryland limited partnership ("South Laurel"), that owns and operates a
520-unit housing project in Laurel, Maryland. FHA contracted with the
limited partnership under Section 8 of Title II of the Housing and
Community Development Act of 1974 to make housing assistance payments to
the limited partnership on behalf of qualified tenants for 20% of the
rental units. The agreement expires July 31, 1997, and the general partner
of the local limited partnership does not have any current plans to apply
for an extension of this subsidy agreement. Based on current market
conditions, management believes that the units currently designated as
low-income units could be re-leased at market rates which would keep the
total revenues of the local limited partnership relatively unchanged from
the current subsidized level. In addition, if the market for conventional
multi-family apartment properties remains strong in 1997, the expiration of
the rental subsidy agreement at The Villages at Montpelier Apartments and
the conversion of the property to 100% market-rate apartments could enhance
the property's marketability for a potential sale by increasing the pool of
interested buyers. However, there are no assurances that such market
conditions will remain strong over this period. If conditions were to
deteriorate, The Villages at Montpelier Apartments could experience
extended declines in occupancy and revenues upon the expiration of the
subsidy agreement. Total rent subsidies received by the limited partnership
during 1996, 1995 and 1994 were $686,000, $677,000 and $694,000,
respectively. Such amounts comprised approximately 17% of the limited
partnership's total revenues for each of such years.
<PAGE>
The aggregate investment by the Partnership for the 85% interest was
$2,446,135 (including an acquisition fee of $186,725 paid to the Adviser of
the Partnership). The Partnership's interest is held subject to a permanent
nonrecourse mortgage loan due December 1, 2023 with an outstanding balance
at December 31, 1996 of approximately $11,987,000, payable to GNMA in
monthly installments of $86,395 including principal and interest at 7.5%.
The restated partnership agreement generally provides that the
Partnership will receive 85% of annual distributable cash flow payable
annually and that the local partners will be entitled to receive 15% of
annual distributable cash flow. Cash distributions are limited by
agreements between the limited partnership and HUD to the extent of surplus
cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributable in that year.
Generally, the first $3,107,104 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership.
Remaining proceeds will be distributed to the local venture partners and
the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners. The management
fee is 5.25% of gross receipts. An incentive management fee will also be
paid on an annual basis in the event that the property's cash flow exceeds
certain target amounts. Incentive management fees of $1,000 were paid to an
affiliate of the local general partners for 1995. No incentive management
fees were earned for the year ended December 31, 1996 and 1994.
d) Marvin Gardens Apartments, Cotati, California
---------------------------------------------
On July 29, 1983, the Partnership acquired a 95% limited partnership
interest in Marvin Gardens Associates, an existing California limited
partnership that owns a 37-unit apartment complex project in Cotati,
California. The apartment complex operates under Section 8 of the National
Housing Act and, therefore, receives monthly rental subsidies from the
Federal Department of Housing and Urban Development (HUD). The agreement
expires in July 2003 and has two five-year renewal options. Total rent
subsidies received by the limited partnership during 1996, 1995 and 1994
were $324,000, $337,000 and $332,000, respectively. Such amounts comprise
approximately 77%, 81% and 82%, respectively, of the limited partnership's
total revenues for such years.
The aggregate investment by the Partnership for the 95% interest was
$379,581 (including an acquisition fee of $27,800 paid to the Adviser of
the Partnership). The Partnership's interest was acquired subject to a
permanent nonrecourse mortgage loan due June 1, 2013 with an outstanding
balance at December 31, 1996 of approximately $1,661,000, payable to the
California Housing Finance Agency (CHFA) in monthly installments of
$15,138, including principal and interest at 8.15%.
The restated partnership agreement generally provides that the
Partnership will receive 95% of annual distributable cash flow payable
annually and that the local partners will be entitled to receive 5% of
annual distributable cash flow. Cash distributions are limited by
agreements between the limited partnership and CHFA to $20,151 per year to
the extent of surplus cash and stated equity, as defined by CHFA.
Undistributed amounts are cumulative and may be distributed in subsequent
years if future operations provide surplus cash in excess of current
requirements.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributed in that year.
Generally, the first $462,336 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership.
Remaining proceeds will be distributed to the local venture partners and
the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners who in turn hired
an unaffiliated management agent to provide management services on their
behalf. An incentive management fee will also be paid on an annual basis in
the event that the property's cash flow exceeds certain target amounts.
Incentive management fees of $12,000 and $2,000 were paid to an affiliate
of the local general partners for the years ended December 31, 1995 and
1994, respectively. No incentive management fees were earned for the year
ended December 31, 1996.
<PAGE>
e) Colonial Farms - Modesto, California
------------------------------------
On July 29, 1983, the Partnership acquired a 95% limited partnership
interest in Colonial Farms Ltd. an existing California limited partnership
that owns a 100-unit apartment project in Modesto, California. The
apartment complex operates under Section 8 of the National Housing Act and,
therefore, receives monthly rental subsidies from the Federal Department of
Housing and Urban Development (HUD). The agreement expires in July 2002 and
has two five-year renewal options. Total rent subsidies received by the
limited partnership during 1996, 1995 and 1994 were $613,000, $586,000 and
$556,000, respectively. Such amounts comprised approximately 76%, 74% and
72%, respectively, of the limited partnership's total revenues for such
years.
The aggregate investment by the Partnership for the 95% interest was
$623,351 (including an acquisition fee of $48,125 paid to the Adviser to
the Partnership). The Partnership's interest is held subject to a permanent
nonrecourse mortgage loan due June 1, 2013 with an outstanding balance at
December 31, 1996 of approximately $2,790,000, payable to CHFA in monthly
installments of $27,411, including principal and interest at 9.15%
The restated partnership agreement generally provides that the
Partnership will receive 95% of annual distributable cash flow payable
annually and that the local partners will be entitled to receive 5% of
annual distributable cash flow. Cash distributions are limited by
agreements between the limited partnership and CHFA to $35,299 per year to
the extent of surplus cash and stated equity, as defined by CHFA.
Undistributed amounts are cumulative and may be distributed in subsequent
years if future operations provide surplus cash in excess of current
requirements.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributed in that year.
Generally, the first $800,928 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership.
Remaining proceeds will be distributed to the local venture partners and
the Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners who in turn hired
an unaffiliated management agent to provide management services on their
behalf. An incentive management fee will also be paid to the affiliate of
the local general partners on an annual basis in the event that the
property's cash flow exceeds certain target amounts. Incentive management
fees of $7,000, $16,000 and $20,000 were paid to an affiliate of the local
general partners for the years ended December 31, 1996, 1995 and 1994,
respectively.
f) Ramblewood Apartments - Holbrook, Massachusetts
------------------------------------------------
On August 30, 1983, the Partnership acquired an 85% limited partnership
interest in Holbrook Apartments Company, an existing Massachusetts limited
partnership that owns and operates a 170-unit housing project in Holbrook,
Massachusetts. FHA contracted with the limited partnership under Section 8
of Title II of the Housing and Community Development Act of 1974 to make
housing assistance payments to the limited partnership on behalf of
qualified tenants. The agreement expires July 1, 2001. Total rent subsidies
received by the limited partnership during 1996, 1995 and 1994 were
$1,577,000, $1,587,000 and $1,577,000, respectively. Such amounts comprised
approximately 75%, 75% and 76% respectively, of the limited partnership's
total revenues for such years.
The aggregate investment by the Partnership for the 85% interest was
$1,250,583, (including an acquisition fee of $94,500 paid to the Adviser of
the Partnership). The Partnership's interest was acquired subject to a
nonrecourse first mortgage loan due February 1, 2023 with an outstanding
balance at December 31, 1996 of approximately $7,447,000, payable to GNMA
in monthly installments of $54,207 including principal and interest at
7.5%.
The restated partnership agreement generally provides that the
Partnership will receive 85% of annual distributable cash flow payable
annually and that the local partners will be entitled to receive 15% of
annual distributable cash flow. Cash distributions are limited by
agreements between the limited partnership and HUD to the extent of surplus
cash, as defined by HUD.
The agreement also provides that taxable income and tax loss in each
year will be allocated, generally, in the same proportion as cash flow is
distributed in that year.
<PAGE>
Generally, the first $1,571,956 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership.
Remaining proceeds will be distributed to the local partners and the
Partnership in accordance with the local limited partnership agreement.
The local limited partnership entered into a property management
contract with an affiliate of the local general partners. The management
fee is 4.75% of gross receipts. An incentive management fee will also be
paid on an annual basis in the event that the property's cash flow exceeds
certain target amounts. Incentive management fees of $134,000, $138,000 and
$166,000 were paid to an affiliate of the local general partners for the
years ended December 31, 1996, 1995 and 1994, respectively.
5. Legal Proceedings
-----------------
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District
Court for the Southern District of New York concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership
investments, including those offered by the Partnership. The lawsuits were
brought against PaineWebber Incorporated and Paine Webber Group Inc.
(together "PaineWebber"), among others, by allegedly dissatisfied
partnership investors. In March 1995, after the actions were consolidated
under the title In re PaineWebber Limited Partnership Litigation, the
plaintiffs amended their complaint to assert claims against a variety of
other defendants, including PaineWebber Shelter Fund, Inc. and Properties
Associates ("PA") which are the General Partners of the Partnership and
affiliates of PaineWebber. On May 30, 1995, the court certified class
action treatment of the claims asserted in the litigation.
The amended complaint in the New York Limited Partnership Actions
alleged that, in connection with the sale of interests in PaineWebber/CMJ
Properties, LP, PaineWebber, Paine Webber Shelter Fund, Inc. and PA (1)
failed to provide adequate disclosure of the risks involved; (2) made
false and misleading representations about the safety of the investments
and the Partnership's anticipated performance; and (3) marketed the
Partnership to investors for whom such investments were not suitable. The
plaintiffs, who purported to be suing on behalf of all persons who
invested in PaineWebber/CMJ Properties, LP, also alleged that following
the sale of the partnership interests, PaineWebber, Paine Webber Shelter
Fund, Inc. and PA misrepresented financial information about the
Partnerships value and performance. The amended complaint alleged that
PaineWebber, Paine Webber Shelter Fund, Inc. and PA violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal
securities laws. The plaintiffs sought unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well
as disgorgement of all fees and other income derived by PaineWebber from
the limited partnerships. In addition, the plaintiffs also sought treble
damages under RICO.
In January 1996, PaineWebber signed a memorandum of understanding with
the plaintiffs in the New York Limited Partnership Actions outlining the
terms under which the parties have agreed to settle the case. Pursuant to
that memorandum of understanding, PaineWebber irrevocably deposited $125
million into an escrow fund under the supervision of the United States
District Court for the Southern District of New York to be used to resolve
the litigation in accordance with a definitive settlement agreement and
plan of allocation. On July 17, 1996, PaineWebber and the class plaintiffs
submitted a definitive settlement agreement which provided for the complete
resolution of the class action litigation, including releases in favor of
the Partnership and the General Partners, and the allocation of the $125
million settlement fund among investors in the various partnerships at
issue in the case. As part of the settlement, PaineWebber also agreed to
provide class members with certain financial guarantees relating to some of
the partnerships. The details of the settlement are described in a notice
mailed directly to class members at the direction of the court. A final
hearing on the fairness of the proposed settlement was held in December
1996, and in March 1997 the court issued a final approval of the
settlement.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiffs' purchases of various limited partnership interests, including
those offered by the Partnership. The complaint alleged, among other
things, that PaineWebber and its related entities committed fraud and
misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that
were unsuitable for the plaintiffs and by overstating the benefits,
understating the risks and failing to state material facts concerning the
investments. The complaint sought compensatory damages of $15 million plus
punitive damages against PaineWebber. Mediation with respect to the Abbate
<PAGE>
action was held in December 1996. As a result of such mediation, a
settlement between PaineWebber and the plaintiffs was reached which
provides for the complete resolution of such action. Final releases and
dismissals with regard to this action are expected to be received in April
1997.
Under certain limited circumstances, pursuant to the Partnership
Agreement and other contractual obligations, PaineWebber affiliates could
be entitled to indemnification for expenses and liabilities in connection
with the litigation described above. However, PaineWebber has agreed not to
seek indemnification for the amounts it is required to pay in connection
with the settlement of the New York Limited Partnership Actions. At the
present time, the General Partners cannot estimate the impact, if any, of
any other potential indemnification claims on the Partnership's financial
statements, taken as a whole. Accordingly, no provision for any liability
which could result from the eventual outcome of these matters has been made
in the accompanying financial statements.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Fawcett's Pond Apartments Company
We have audited the accompanying balance sheets of Fawcett's Pond
Apartments Company as of December 31, 1996 and 1995, and the related statements
of operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fawcett's Pond Apartments
Company as of December 31, 1996 and 1995, and the results of its operations,
changes in partners' deficit and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
Fawcett's Pond Apartments Company
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 323,202 $ 239,549
Accounts receivable 1,617 1,218
Prepaid expenses 13,556 14,016
----------- -----------
Total current assets 338,375 254,783
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants' security deposits 25,439 24,400
Mortgage escrow deposits 35,682 34,824
Reserve for replacements 251,321 222,853
----------- -----------
312,442 282,077
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $2,037,707 and $1,892,521 3,454,822 3,556,441
DEFERRED FINANCING COSTS, net of accumulated
amortization of $113,948 and $105,784 222,807 230,969
----------- -----------
Total assets $ 4,328,446 $ 4,324,270
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 49,479 $ 45,914
Accounts payable and accrued expenses 22,673 22,046
Accrued interest payable 26,762 27,049
Rent deferred credits 807 583
----------- -----------
Total current liabilities 99,721 95,592
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 4,232,494 4,281,973
Due to general partner 277,400 277,400
Tenants' security deposits 20,680 21,170
----------- -----------
Total liabilities 4,630,295 4,676,135
PARTNERS' DEFICIT (301,849) (351,865)
----------- -----------
Total liabilities and
partners' deficit $ 4,328,446 $ 4,324,270
=========== ===========
See notes to financial statements
<PAGE>
Fawcett's Pond Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $942,059 $940,355 $935,002
Vacancies - - (1,128)
Financial revenue 19,420 16,052 6,579
Other income 16,066 16,371 15,236
-------- -------- --------
Total revenue 977,545 972,778 955,689
Expenses
Operating expenses
Marketing 1,090 804 801
Administration 55,198 53,043 52,130
Utilities 33,018 35,578 27,940
Management fee 47,114 46,933 46,686
Maintenance and repairs 79,914 129,259 90,131
Salaries 85,196 73,337 72,087
Payroll taxes 7,252 - -
Insurance 22,073 21,667 21,674
Real estate taxes 66,913 65,567 61,375
-------- ---------- --------
Total operating expenses 397,768 426,188 372,824
Nonoperating expenses
Interest 322,748 326,076 329,165
Mortgage insurance premium 21,515 21,737 21,943
Depreciation and amortization 153,348 144,403 142,344
Incentive management fee 6,303 6,303 6,303
Miscellaneous financial expenses 633 632 615
-------- ---------- --------
Total nonoperating expenses 504,547 499,151 500,370
-------- ---------- --------
Total expenses 902,315 925,339 873,194
-------- ---------- --------
EXCESS OF REVENUE OVER EXPENSES $ 75,230 $ 47,439 $ 82,495
======== ========== ========
See notes to financial statements
<PAGE>
Fawcett's Pond Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partner Total
------- ------- -----
Partners' deficit, December 31, 1993 $(78,428) $(352,943) $(431,371)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 4,125 78,370 82,495
-------- --------- ---------
Partners' deficit, December 31, 1994 (75,564) (298,526) (374,090)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 2,372 45,067 47,439
-------- --------- ---------
Partners' deficit, December 31, 1995 (74,453) (277,412) (351,865)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 3,762 71,468 75,230
-------- --------- ---------
Partners' deficit, December 31, 1996 $(71,952) $(229,897) $(301,849)
======== ========= =========
Profit and loss sharing percentage 5% 95% 100%
= == ===
See notes to financial statements
<PAGE>
Fawcett's Pond Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $ 942,011 $ 938,666 $ 933,799
Interest received 12,900 9,468 2,599
Other income received 15,939 15,625 15,089
Administrative expenses paid (88,517) (83,865) (46,686)
Management fees paid (47,114) (46,933) (83,189)
Utilities paid (32,268) (35,266) (27,959)
Maintenance and repairs expenses paid (133,004) (160,520) (123,364)
Real estate taxes paid (66,913) (65,567) (61,375)
Payroll taxes paid (7,252) (7,107) (7,812)
Property insurance paid (9,614) (10,191) (9,909)
Other taxes and insurance paid (12,074) (11,664) (11,161)
Interest paid on mortgage (323,035) (326,342) (329,413)
Mortgage insurance paid (21,440) (21,667) (21,877)
Miscellaneous financial expenses paid (633) (632) (615)
Increase (decrease) in mortgage escrow
deposits (858) 378 (3,704)
Mortgagor entity expenses paid (6,303) (6,303) (6,303)
Net security deposits paid (1,529) (138) (899)
--------- --------- ---------
Net cash provided by operating
activities 220,296 187,942 217,221
Cash flows from investing activities
Additions to property and equipment (43,567) (41,945) (101,603)
Deposits to reserve for replacements (21,948) (21,948) (22,440)
--------- --------- ---------
Net cash used in investing activities (65,515) (63,893) (124,043)
Cash flows from financing activities
Repayment of mortgage payable (45,914) (42,607) (39,538)
Distributions (25,214) (25,214) (25,214)
--------- --------- ---------
Net cash used in financing activities (71,128) (67,821) (64,752)
--------- --------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 83,653 56,228 28,426
Cash and cash equivalents, beginning 239,549 183,321 154,895
--------- --------- ---------
Cash and cash equivalents, ending $ 323,202 $ 239,549 $ 183,321
========= ========= =========
See notes to financial statements
<PAGE>
Fawcett's Pond Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess of revenue
over expenses to net cash provided
by operating activities
Excess of revenue over expenses $75,230 $47,439 $ 82,495
Adjustments to reconcile excess of
revenue over expenses to net cash
provided by operating activities
Depreciation 145,186 136,241 134,182
Amortization 8,162 8,162 8,162
Interest earned on reserve for
replacements (6,520) (6,584) (3,980)
Changes in assets and liabilities
Increase in accounts receivable (399) (746) (76)
(Increase) decrease in mortgage escrow
deposits (858) 378 (3,704)
Increase in tenants' security
deposits - net (1,529) (138) (899)
Decrease (increase) in prepaid expenses 460 (118) 670
Increase in accounts payable and accrued
expenses 627 5,263 758
Decrease in accrued interest payable (287) (266) (248)
Decrease (increase) in rent-deferred
credits 224 (1,689) (139)
-------- ------- --------
Net cash provided by operating
activities $220,296 $187,942 $ 217,221
======== ======== =========
See notes to financial statements
<PAGE>
Fawcett's Pond Apartments Company
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the
State of Massachusetts on June 30, 1983, for the purpose of constructing and
operating a rental housing project under Section 221(d)(4) of the National
Housing Act. The project consists of 100 units located in Hyannis,
Massachusetts and is currently operating under the name of Fawcett's Pond
Apartments. All leases between the Partnership and the tenants of the
property are operating leases.
Cash distributions are limited by agreements between the Partnership and HUD
to the extent of surplus cash as defined by HUD.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash and repurchase agreements with
maturities of three months or less when acquired, stated at cost, which
approximates market.
Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives by use of the straight-line method for
financial reporting purposes. For income tax purposes, accelerated lives and
methods are used.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANT SECURITY DEPOSITS
At December 31, 1996 and 1995, the Partnership maintained tenant security
deposits of $7,822 and $4,843, respectively, in an interest-bearing escrow
bank account. At December 31, 1996, tenant security deposits included $17,617
in a U.S. Treasury Bill at a 5.275% interest rate which matures May 31, 1997.
At December 31, 1995, tenant security deposits included $19,557 in a U.S.
Treasury Bill at a 5.483% interest rate which matured on June 1, 1995. The
investment in a U.S. Treasury Bill is held to maturity and is carried at cost
which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the Government
National Mortgage Association (GNMA) which is insured by the Federal Housing
Administration (FHA) and is collateralized by a deed of trust on the rental
property. The mortgage, which is due April 1, 2024, is payable in equal
monthly installments of principal and interest totalling $30,746 and bears
interest at a rate of 7.5%. Interest incurred during December 31, 1996, 1995
and 1994 amounted to $322,748, $326,076 and $329,165, respectively.
Under agreements with the mortgage lender and FHA, the Partnership is
required to make monthly escrow deposits for taxes, insurance and replacement
of project assets, and is subject to restrictions as to operating policies,
rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate maturities of the mortgage payable for the five years following
December 31, 1996 are as follows:
December 31
-----------
1997 $49,479
1998 $53,320
1999 $57,459
2000 $61,920
2001 $66,727
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the
Housing and Community Development Act of 1974, to make housing assistance
payments to the Partnership on behalf of qualified tenants for all units. The
agreement expires August 19, 2002. Total housing assistance payments received
during 1996, 1995 and 1994 were $755,658, $768,409 and $769,446,
respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Due to General Partners
-----------------------
At December 31, 1996 and 1995, due to general partner consisted of unpaid
developer advances of $277,400. These advances are non-interest bearing and
payable from proceeds upon sale or refinancing of the project after certain
priority payments, as defined in the Partnership agreement.
Management Fees
---------------
Management fees of 5% of gross receipts are paid to CMJ Management Company,
Inc., an affiliate of the general partner, for its services as managing agent
to the project pursuant to a management agreement approved by HUD. Such fees
amounted to $47,114, $46,933 and $46,686 for the years ended December 31,
1996, 1995 and 1994, respectively. In addition, CMJ Management Company
received incentive management fees of $6,303 for each of the years ended
December 31, 1996, 1995 and 1994.
Reimbursed Costs
----------------
CMJ Management Company, Inc., an affiliate of the general partner, makes
monthly expenditures (primarily payroll, central office accounting services,
direct marketing and insurance costs) on behalf of the Partnership which are
reimbursed the following month.
NOTE F - TAX BASIS INCOME
The reconciliation of the excess of revenue over expenses reported in the
accompanying statements of operations with the income (loss) reported on the
Federal income tax basis follows:
1996 1995 1994
---- ---- ----
Excess of revenue over expenses per
statements of operations $75,230 $ 47,439 $82,495
Additional depreciation and
amortization on tax basis (65,916) (75,550) (63,352)
Increase (decrease) in deferred
rental income 224 (1,689) (139)
------- -------- -------
Income (loss) for Federal income
tax purposes $ 9,538 $(29,800) $19,004
======= ======== =======
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in one bank, which consists of an
operating account and security deposits held in trust. The operating account
is comprised of an overnight repurchase agreement backed by government
securities and a checking account. The security deposits held in trust are
comprised of a United States Treasury Bill and a savings account. Account
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000 by the bank. The Partnership also has a reserve for replacements and
escrow funds totalling $287,003 at December 31, 1996, on deposit with Reilly
Mortgage Group, Inc.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Quaker Meadows Apartments Company
We have audited the accompanying balance sheets of Quaker Meadows
Apartments Company as of December 31, 1996 and 1995, and the related statements
of operations, partners' deficit, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quaker Meadows Apartments
Company as of December 31, 1996 and 1995, and the results of its operations,
changes in partners' deficit and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
Quaker Meadows Apartments Company
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 263,637 $ 154,566
Accounts receivable 2,572 2,772
Other receivables 15,092 16,114
Prepaid expenses 9,785 10,394
----------- -----------
Total current assets 291,086 183,846
RESTRICTED DEPOSITS AND FUNDED RESERVES
Mortgage escrow deposits 12,774 16,938
Reserve for replacements 297,906 265,353
Tenants' security deposits 18,787 20,009
----------- -----------
329,467 302,300
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $3,787,391 and $3,526,272 3,979,215 4,208,046
DEFERRED FINANCING COSTS, net of accumulated
amortization of $58,461 and $54,396 71,690 75,755
----------- -----------
Total assets $ 4,671,458 $ 4,769,947
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 106,768 $ 94,935
Accounts payable and accrued expenses 55,280 42,822
Accrued interest payable 60,082 60,082
Rent deferred credits 3,787 2,519
----------- -----------
Total current liabilities 225,917 200,358
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 5,094,845 5,201,613
Due to general partner 1,072,952 1,072,952
Tenants' security deposits 16,617 15,892
----------- -----------
Total liabilities 6,410,331 6,490,815
PARTNERS' DEFICIT (1,738,873) (1,720,868)
----------- -----------
Total liabilities and partners' deficit $ 4,671,458 $ 4,769,947
=========== ===========
See notes to financial statements
<PAGE>
Quaker Meadows Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $1,592,837 $1,596,066 $1,589,728
Vacancies (6,464) (5,331) (350)
Other income 26,537 27,834 13,819
----------- ---------- ----------
Total revenue 1,612,910 1,618,569 1,603,197
Expenses
Operating expenses
Administration 106,695 122,910 128,528
Management fees to affiliate 63,511 63,546 63,567
Utilities 125,632 125,584 122,063
Maintenance and repairs 252,230 310,136 282,689
Insurance 15,286 15,416 16,208
Real estate taxes 43,376 65,161 65,218
----------- ---------- ----------
Total operating expenses 606,730 702,753 678,273
Nonoperating expenses
Interest 660,698 671,237 680,607
Depreciation and amortization 265,184 261,148 258,164
Incentive management fee to
affiliate 29,375 45,390 38,239
Social services expenses 16,387 23,062 20,081
Total nonoperating expenses 971,644 1,000,837 997,091
----------- ---------- ----------
Total expenses 1,578,374 1,703,590 1,675,364
----------- ---------- ----------
EXCESS (DEFICIENCY) OF
REVENUE OVER EXPENSES $ 34,536 $ (85,021) $ (72,167)
=========== ========== ==========
See notes to financial statements
<PAGE>
Quaker Meadows Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partner Total
------- ------- -----
Partners' deficit, December 31, 1993 $(317,147) $(1,114,500) $(1,431,647)
Distributions (3,107) (59,036) (62,143)
Excess of expenses over revenue (3,608) (68,559) (72,167)
--------- ----------- -----------
Partners' deficit, December 31, 1994 (323,862) (1,242,095) (1,565,957)
Distributions (3,494) (66,396) (69,890)
Excess of expenses over revenue (4,251) (80,770) (85,021)
--------- ----------- -----------
Partners' deficit, December 31, 1995 (331,607) (1,389,261) (1,720,868)
Distributions (2,627) (49,914) (52,541)
Excess of revenue over expenses 1,727 32,809 34,536
--------- ----------- -----------
Partners' deficit, December 31, 1996 $(332,507) $(1,406,366) $(1,738,873)
========= =========== ===========
Profit and loss sharing percentage 5% 95% 100%
= == ===
See notes to financial statements
<PAGE>
Quaker Meadows Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $1,591,659 $1,572,590 $1,588,714
Interest received 27,672 22,043 13,212
Other income received - 10,547 2,233
Administrative expenses paid (123,082) (122,910) (137,263)
Management fees paid (68,922) (63,546) (63,567)
Utilities paid (123,121) (119,506) (122,063)
Maintenance and repair expenses paid (240,803) (315,873) (312,077)
Real estate taxes paid (43,376) (65,161) (65,218)
Property insurance paid (14,677) (16,081) (15,834)
Interest paid on mortgage (660,698) (670,747) (680,102)
Incentive fees paid (29,375) (68,452) (58,320)
Decrease in mortgage escrow deposits 4,164 (547) (5,463)
Net security deposits received (paid) 1,947 (1,148) (863)
---------- ---------- ----------
Net cash provided by operating
activities 321,388 161,209 143,389
Cash flows from investing activities
Acquisition of land, building and
equipment (32,288) (23,969) (13,751)
Increase in reserve for replacements (32,553) (26,193) (26,565)
---------- ---------- ----------
Net cash used in investing activities (64,841) (50,162) (40,316)
Cash flows from financing activities
Repayment of mortgage payable (94,935) (84,413) (75,058)
Distributions (52,541) (69,890) (62,143)
---------- ---------- ----------
Net cash used in financing
activities (147,476) (154,303) (137,201)
---------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 109,071 (43,256) (34,128)
Cash and cash equivalents, beginning 154,566 197,822 231,950
---------- ---------- -----------
Cash and cash equivalents, ending $ 263,637 $ 154,566 $ 197,822
========== ========== ===========
See notes to financial statements
<PAGE>
Quaker Meadows Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess (deficiency) of
revenue over expenses to net cash
provided by operating activities
Excess (deficiency) of revenue over
expenses $ 34,536 $(85,021) $(72,167)
Adjustments to reconcile excess (deficiency)
of revenue over expenses to net cash
provided by operating activities
Depreciation and amortization 265,184 261,148 258,164
Changes in assets and liabilities
(Decrease) increase in accounts
receivable 1,222 (10,806) 1,073
Decrease (increase) in mortgage
escrow deposits 4,164 (547) (5,463)
Decrease (increase) in tenants'
security deposits - net 1,947 (1,148) (864)
Decrease (increase) in prepaid expenses 609 (175) 879
Increase (decrease) in accounts payable
and accrued expenses 12,458 341 (38,122)
Increase (decrease) in rent
deferred credits 1,268 (2,583) (111)
-------- --------- ---------
Net cash provided by operating
activities $321,388 $161,209 $143,389
======== ======== ========
See notes to financial statements
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the
State of Massachusetts on February 1, 1982, for the purpose of constructing
and operating a rental housing project under Massachusetts Housing Finance
Agency's (MHFA) housing program. The project consists of 104 units located in
Lynn, Massachusetts and is currently operating under the name of Quaker
Meadows Apartments. All leases between the Partnership and tenants of the
property are operating leases.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of all highly liquid debt instruments with
maturities of three months or less when acquired, stated at cost which
approximates fair value.
Property and Equipment
----------------------
Property and equipment are carried at cost. The Partnership provides for
depreciation by use of the straight-line method over estimated useful lives
of the assets as follows: buildings, 30 years, and equipment, 3-8 years.
Deferred Financing Costs
------------------------
Deferred financing costs, which consist principally of financing fees are
amortized by the straight-line method over the life of the related debt.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS
At December 31, 1996 and 1995, the Partnership maintained tenants' security
deposits of $18,787 and $20,009, respectively, in an interest-bearing escrow
bank account and U.S. Treasury bills, with a maturity of six months or less
when acquired, stated at cost, which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the Massachusetts
Housing Finance Agency (MHFA), due September 1, 2013 and payable in equal
monthly installments of $62,930 (principal and interest) at an interest rate
of 12.5%. The terms of the permanent mortgage also require monthly escrow
deposits for real estate taxes and a replacement reserve.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
<PAGE>
Aggregate maturities of the mortgage payable for the five years following
December 31, 1996 are as follows:
December 31,
------------
1997 $106,768
1998 $119,880
1999 $135,044
2000 $151,877
2001 $170,808
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
The Federal Housing Administration (FHA) has contracted with the Partnership
under Section 8 of Title II of the Housing and Community Development Act of
1974, to make housing assistance payments to the Partnership on behalf of
qualified tenants. The agreement expires May 2002 and has two five-year
renewal options. Total housing assistance payments received during 1996, 1995
and 1994 were $1,319,893, $1,335,437 and $1,321,357, respectively.
NOTE E - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAX BASIS INCOME
(LOSS)
The reconciliation of the income (loss) reported in the accompanying
statement of operations with the income (loss) reported on the Federal income
tax basis follows:
1996 1995 1994
---- ---- ----
Net income (loss) per statement of
operations $34,536 $(85,021) $(72,167)
Decrease (increase) in depreciation 22,002 8,071 (18,503)
Increase (decrease) in deferred
rental income 1,268 (2,583) (111)
------- -------- --------
Income (loss) for Federal income tax
purposes $57,806 $(79,533) $(90,781)
======= ======== ========
NOTE F - RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, due to the general partner consists of
development advances totaling $1,072,952. These advances are non-interest
bearing and payable from proceeds upon the sale or refinancing of the project
as defined in the Partnership agreement.
Management fees of 4% of gross receipts are paid to CMJ Management Company,
Inc., an affiliate of the general partner, for its services as management
agent to the project, pursuant to a management agreement approved by MHFA.
Such fees amounted to $63,511, $63,546 and $63,567 for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, CMJ Management
Company, Inc., received incentive management fees of $29,375, $45,390 and
$38,239 for the years ended December 31, 1996, 1995 and 1994 respectively.
CMJ Management Company, Inc., an affiliate of the general partner, makes
monthly expenditures (primarily payroll, central office accounting, direct
marketing and insurance costs) on behalf of the Partnership which are
reimbursed the following month.
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances with one bank, which consists of
an overnight repurchase agreement backed by government securities and an
operating checking account. Account balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 by the bank. The Partnership
also has a reserve for replacements and escrow funds totaling $310,680 on
deposit with the Massachusetts Housing Finance Agency.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
South Laurel Apartments Limited Partnership
We have audited the accompanying balance sheets of South Laurel Apartments
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of South Laurel Apartments
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations, changes in partners' deficit and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
South Laurel Apartments Limited Partnership
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 155,483 $ 282,541
Accounts receivable 64,339 98,186
Other receivables 9,324 63,452
Prepaid expenses 158,653 171,166
---------- ----------
Total current assets 387,799 615,345
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants' security deposits 107,903 110,774
Mortgage escrow deposits 183,239 159,086
Reserve for replacement 144,890 124,923
---------- ----------
436,032 394,783
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $6,404,117 and $5,949,207 8,876,209 9,189,556
DEFERRED FINANCING COSTS, net of accumulated
amortization of $173,434 and $161,272 337,292 349,454
---------- -----------
Total assets $10,037,332 $10,549,138
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 142,542 $ 132,273
Accounts payable and accrued expenses 139,704 151,002
Accrued interest payable 74,919 75,746
Rent deferred credits 23,237 56,668
Deferred income - laundry 40,000 45,000
----------- ----------
Total current liabilities 420,402 460,689
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 11,844,519 11,987,062
Due to general partner 645,989 645,989
Tenants' security deposits 104,816 106,558
----------- ----------
Total liabilities 13,015,726 13,200,298
PARTNERS' DEFICIT (2,978,394) (2,651,160)
----------- ----------
Total liabilities and partners' deficit $10,037,332 $10,549,138
=========== ===========
See notes to financial statements
<PAGE>
South Laurel Apartments Limited Partnership
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $4,246,199 $4,188,172 $4,230,214
Vacancies (223,408) (210,793) (233,900)
Financial revenue 16,422 27,955 15,885
Other income 98,411 87,625 81,660
---------- ---------- ----------
Total revenue 4,137,624 4,092,959 4,093,859
Expenses
Operating expenses
Marketing 73,482 118,426 99,484
Administration 433,194 368,243 434,060
Utilities 505,851 556,935 553,622
Management fee 213,145 215,298 211,572
Maintenance and repairs 764,198 647,209 588,592
Salaries 691,124 545,833 498,319
Insurance 89,852 68,236 85,604
Real estate taxes 259,349 264,590 257,736
---------- ---------- ----------
Total operating expenses 3,030,195 2,784,770 2,728,989
Nonoperating expenses
Interest 903,638 913,226 922,124
Mortgage insurance premium 60,243 60,882 61,475
Depreciation and amortization 467,072 445,511 413,901
Incentive management fee - 806 -
Miscellaneous financial expenses 3,710 4,142 3,801
---------- ---------- ----------
Total nonoperating expenses 1,434,663 1,424,567 1,401,301
---------- ---------- ----------
Total expenses 4,464,858 4,209,337 4,130,290
---------- ---------- ----------
EXCESS OF EXPENSES OVER REVENUE $ (327,234) $ (116,378) $ (36,431)
========== ========== ==========
See notes to financial statements
<PAGE>
<TABLE>
South Laurel Apartments Limited Partnership
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
Special Class A Class B
General Limited Limited Limited
Partners Partners Partner Partners Total
-------- -------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Partners' deficit,
December 31, 1993 $(101,051) $(1,255,340) $ (567,607) $ (481,383) $ (2,405,381)
Distributions (188) (751) (15,960) (1,877) (18,776)
Excess of expenses
over revenue (364) (1,457) (30,967) (3,643) (36,431)
-------- ----------- ---------- ------------ ------------
Partners' deficit,
December 31, 1994 (101,603) (1,257,548) (614,534) (486,903) (2,460,588)
Distributions (742) (2,967) (63,065) (7,420) (74,194)
Excess of expenses
over revenue (1,164) (4,655) (98,921) (11,638) (116,378)
--------- ----------- ----------- ------------ -------------
Partners' deficit,
December 31, 1995 (103,509) (1,265,170) (776,520) (505,961) (2,651,160)
Excess of expenses
over revenue (3,272) (13,089) (278,150) (32,723) (327,234)
---------- ----------- ----------- ------------ -------------
Partners' deficit,
December 31, 1996 $(106,781) $(1,278,259) $ (1,054,670) $ (538,684) $ (2,978,394)
========= =========== ============ ============= ==============
Profit and loss
sharing percentage 1% 4% 85% 10% 100%
= = == == ===
</TABLE>
See notes to financial statements
<PAGE>
South Laurel Apartments Limited Partnership
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $4,023,207 $3,970,997 $3,985,744
Interest received 13,441 21,737 15,694
Other income received 94,716 82,130 82,103
Administrative expenses paid (624,524) (616,037) (642,875)
Management fees paid (213,145) (215,298) (224,966)
Utilities paid (516,504) (543,544) (583,140)
Maintenance and repairs expenses paid (1,286,408) (1,026,412) (893,727)
Real estate taxes paid (252,822) (265,876) (253,363)
Payroll taxes paid (45,010) (45,663) (50,570)
Property insurance paid (47,772) (46,696) (24,158)
Other taxes and insurance paid (42,796) (36,565) (55,401)
Mortgage insurance paid (60,243) (1,465) (60,682)
Interest paid on mortgage (904,465) (913,993) (922,836)
Miscellaneous financial expenses paid (3,710) (4,142) (3,801)
Decrease (increase) in mortgage escrow
deposits (24,153) 11,980 (59,029)
Mortgagor entity expenses paid - (806) -
Net security deposits received 1,129 10,659 52,083
---------- ---------- ----------
Net cash provided by operating
activities 110,941 381,006 361,076
Cash flows from investing activities
Additions to property and equipment (141,563) (270,501) (155,382)
Deposits to reserve for replacements (52,520) (52,520) (120,744)
Withdrawals from reserve for
replacements 88,357 91,859 153,186
---------- ---------- ----------
Net cash used in investing activities (105,726) (231,162) (122,940)
Cash flows from financing activities
Mortgage principal payments (132,273) (122,744) (113,902)
Distributions to partners - (74,194) (18,776)
---------- ---------- ----------
Net cash used in financing activities (132,273) (196,938) (132,678)
---------- ---------- ----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (127,058) (47,094) 105,458
Cash and cash equivalents, beginning 282,541 329,635 224,177
---------- ---------- ----------
Cash and cash equivalents, ending $ 155,483 $ 282,541 $ 329,635
========== ========== ==========
See notes to financial statements
<PAGE>
South Laurel Apartments Limited Partnership
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess of expenses
over revenue to net cash provided by
operating activities
Excess of expenses over revenue $(327,234) $(116,378) $(36,431)
Adjustments to reconcile excess of
expenses over revenue to net cash
provided by operating activities
Depreciation 454,910 433,349 401,739
Amortization 12,162 12,162 12,162
Interest earned on reserve for
replacements (2,981) (6,218) (191)
Changes in assets and liabilities
Decrease (increase) in tenant
accounts receivable 33,847 (30,976) 17,829
Decrease (increase) in accounts
receivable - other 1,305 (495) 5,443
Decrease in prepaid expenses 12,513 43,106 7,129
(Increase) decrease in mortgage escrow
deposits (24,153) 10,659 (59,029)
(Decrease) increase in accounts payable
and accrued expenses (11,299) 4,990 (5,547)
Decrease in accrued interest payable (827) (767) (712)
Tenants' security deposits received
(paid) - net 1,129 11,980 52,083
(Decrease) increase in rent -
deferred credits (33,431) 24,594 (28,399)
Decrease in deferred laundry income (5,000) (5,000) (5,000)
--------- --------- --------
Net cash provided by operating
activities $ 110,941 $ 381,006 $361,076
========= ========= ========
See notes to financial statements
<PAGE>
South Laurel Apartments Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the
State of Maryland on June 30, 1983, for the purpose of constructing and
operating a rental housing project under Section 221(d)(4) of the National
Housing Act. The project consists of 520 units located in Laurel, Maryland
and is currently operating under the name of Villages at Montpelier. All
leases between the Partnership and the tenants of the property are operating
leases.
Cash distributions are limited by agreements between the Partnership and HUD
to the extent of surplus cash as defined by HUD.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash and repurchase agreements with a
bank with maturities of three months or less when acquired, stated at cost,
which approximates market.
Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives by use of the straight-line method for
financial reporting purposes. For income tax purposes, accelerated lives and
methods are used.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS
At December 31, 1996 and 1995, the Partnership maintained tenant security
deposits of $8,901 and $11,906, respectively, in an interest-bearing escrow
bank account. At December 31, 1996, tenant security deposits included $99,002
in a U.S. Treasury Bill at a 4.605% interest rate which matures March 21,
1996. At December 31, 1995, tenant security deposits included $98,868 in a
U.S. Treasury Bill at a 5.5% interest rate which matured on March 21, 1996.
The investments in U.S. Treasury Bills are held to maturity and are carried
at cost which approximates market.
NOTE C - MORTGAGE PAYABLE
The mortgage is insured by the Federal Housing Administration (FHA) and
collateralized by a deed of trust on the rental property. The mortgage, which
is due December 1, 2023, is payable in equal monthly installments of
principal and interest totalling $86,395 and bears interest at a rate of
7.5%. Interest incurred during 1996, 1995 and 1994 amounted to $903,638,
$913,226 and $922,124, respectively.
Under agreements with the mortgage lender and FHA, the Partnership is
required to make monthly escrow deposits for taxes, insurance and replacement
of partnership assets, and is subject to restrictions as to operating
policies, rental charges, operating expenditures and distributions to
partners.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate maturities of the mortgage payable for the five years following
December 31, 1996 are as follows:
December 31,
------------
1997 $142,542
1998 $153,608
1999 $165,533
2000 $178,384
2001 $192,232
NOTE D - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the
Housing and Community Development Act of 1974, to make housing assistance
payments to the Partnership on behalf of qualified tenants for 20% of the
rental units. The agreement expires July 31, 1997. Total housing assistance
payments received during 1996, 1995 and 1994 were $686,293, $677,108 and
$694,002, respectively.
NOTE E - RELATED PARTY TRANSACTIONS
Due to General Partner
----------------------
At December 31, 1996 and 1995, due to general partner consists of unpaid
development advances of $645,989. These advances are non-interest bearing and
payable from proceeds upon sale or refinancing of the project after certain
priority payments as defined in the Partnership agreement.
Management Fees
---------------
Management fees of 5.25% of gross receipts are paid to CMJ Management
Company, Inc., an affiliate of the general partner, for its services as
management agent to the project pursuant to a management agreement approved
by HUD. Such fees amounted to $213,145, $215,298, and $211,572 for the years
ended December 31, 1996, 1995 and 1994, respectively. In addition, CMJ
Management Company, Inc., received incentive management fees of $-0-, $808
and $ - 0 - for the years ended December 31, 1996, 1995 and 1994,
respectively.
Reimbursed Costs
----------------
CMJ Management Company, Inc., an affiliate of the general partner, makes
monthly expenditures (primarily payroll, central office accounting, direct
marketing and insurance costs) on behalf of the Partnership which are
reimbursed the following month.
<PAGE>
NOTE F - TAX BASIS LOSS
The reconciliation of the excess of expenses over revenue reported in the
accompanying statement of operations with the loss reported on a Federal
income tax basis follows:
1996 1995 1994
---- ---- ----
Excess of expenses over
revenue per statements
of operations $ (327,234) $ (116,378) $ (36,431)
(Decrease) increase in
deferred rental income
and laundry income (138,431) 19,593 (33,399)
Additional depreciation
and amortization (186,827) (181,224) (172,836)
----------- ---------- ----------
Loss for Federal income
tax purposes $ (652,492) $ (278,009) $(242,666)
=========== ========== =========
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in two banks. The operating
account consists of an overnight repurchase agreement backed by government
securities and a checking account. The tenant security deposit accounts are
held in trust and consist of a checking account and a United States Treasury
Bill. The balances are insured up to $100,000 by each bank. The Partnership
also has $328,129 of money market funds held in escrow by Reilly Mortgage
Group, Inc., carried at cost, which approximates fair value.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Marvin Gardens Associates
We have audited the accompanying balance sheets of Marvin Gardens
Associates as of December 31, 1996 and 1995, and the related statements of
operations, partners' deficit, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Marvin Gardens Associates as
of December 31, 1996 and 1995, and the results of its operations, changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
Marvin Gardens Associates
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash $ 21,173 $ 15,301
Accounts receivable 1,020 837
Accounts receivable - tenant subsidy - 3,221
Prepaid expenses 6,532 6,643
----------- ----------
Total current assets 28,725 26,002
RESTRICTED FUNDS
Tenants' security deposits 9,682 9,241
Real estate tax impound fund 6,290 6,128
Replacement reserve fund 138,463 116,539
Insurance impound fund 5,771 4,190
Interest income receivable - impounds 1,206 1,198
----------- ----------
161,412 137,296
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $1,038,242 and $964,277 1,376,899 1,443,439
DEFERRED FINANCING COSTS, net of accumulated
amortization of $19,572 and $18,199 26,797 28,170
----------- ----------
Total assets $ 1,593,833 $1,634,907
=========== ==========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Current maturities of mortgage payable $ 50,299 $ 46,375
Accounts payable 15,506 14,539
Accrued expenses 3,947 4,241
Deferred rental income 264 2,055
----------- ----------
Total current liabilities 70,016 67,210
Mortgage payable, less current maturities 1,610,628 1,660,927
Due to general partner 194,019 194,019
Tenants' security deposits 7,105 6,960
----------- ----------
Total liabilities 1,881,768 1,929,116
PARTNERS' DEFICIT (287,935) (294,209)
----------- -----------
Total liabilities and partners' deficit $ 1,593,833 $1,634,907
=========== ==========
See notes to financial statements
<PAGE>
Marvin Gardens Associates
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $410,364 $409,395 $399,915
Vacancies (1,639) (1,533) (2,258)
Financial revenue 6,815 7,817 5,989
Other income 4,321 3,174 3,430
-------- -------- --------
Total revenue 419,861 418,853 407,076
Expenses
Operating expenses
Administration 17,356 15,866 17,876
Utilities 23,833 27,992 22,262
Management fee 17,533 17,052 15,852
Maintenance and repairs 51,999 73,953 58,546
Salaries 59,441 57,141 55,854
Insurance 8,378 7,839 7,361
Real estate taxes 22,271 21,824 21,152
-------- -------- --------
Total operating expenses 200,811 221,667 198,903
Nonoperating expenses
Interest 137,438 141,056 144,392
Depreciation and amortization 75,338 74,377 70,272
Incentive management fee - 12,090 1,970
-------- -------- --------
Total nonoperating expenses 212,776 227,523 216,634
-------- -------- --------
Total expenses 413,587 449,190 415,537
-------- -------- --------
EXCESS (DEFICIENCY) OF REVENUE
OVER EXPENSES $ 6,274 $(30,337) $ (8,461)
======== ======== ========
See notes to financial statements
<PAGE>
<TABLE>
Marvin Gardens Associates
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
Special
General Limited Limited
Partner Partner Partner Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $(8,067) $(66,389) $(139,712) $(214,168)
Distributions (130) (521) (12,379) (13,030)
Excess of expenses over revenue (85) (338) (8,038) (8,461)
-------- -------- --------- ---------
Balance, December 31, 1994 (8,282) (67,248) (160,129) (235,659)
Distributions (282) (1,129) (26,802) (28,213)
Excess of expenses over revenue (303) (1,214) (28,820) (30,337)
--------- -------- --------- ---------
Balance, December 31, 1995 (8,867) (69,591) (215,751) (294,209)
Excess of revenue over expenses 63 251 5,960 6,274
--------- --------- --------- ---------
Balance, December 31, 1996 $ (8,804) $ (69,340) $(209,791) $(287,935)
======== ========= ========= =========
Profit and loss sharing percentage 1% 4% 95% 100%
= = == ===
</TABLE>
See notes to financial statements
<PAGE>
Marvin Gardens Associates
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $409,972 $409,707 $393,918
Interest received 1,011 1,797 1,884
Other income received 4,321 3,074 3,430
Administrative expenses paid (17,356) (15,866) (17,876)
Management fees paid (17,533) (16,952) (15,852)
Utilities paid (23,833) (26,892) (22,262)
Salaries and wages paid (46,384) (43,690) (42,383)
Maintenance and repairs expenses paid (51,326) (74,165) (71,309)
Real estate taxes paid (22,271) (21,824) (21,152)
Payroll taxes paid (13,057) (13,281) (13,471)
Property and other insurance paid (8,267) (8,436) (7,433)
Interest paid on mortgage (137,438) (141,056) (144,392)
(Increase) decrease in real estate tax
impound fund (162) 191 (35)
Incentive management fee paid - (12,090) (1,970)
Increase in insurance impound fund (1,581) (288) (196)
Net security deposits paid (296) (189) (1)
-------- -------- --------
Net cash provided by operating
activities 75,800 40,040 40,900
Cash flows from investing activities
Additions to property and equipment (7,425) (32,836) (9,776)
Deposits to reserve for replacements (16,128) (16,064) (15,700)
Withdrawals from reserve for
replacements - 29,398 37,473
--------- -------- --------
Net cash (used in) provided by
investing activities (23,553) (19,502) 11,997
Cash flows from financing activities
Repayment of mortgage payable (46,375) (42,757) (39,422)
Distributions - (28,213) (13,030)
---------- --------- --------
Net cash used in financing
activities (46,375) (70,970) (52,452)
---------- --------- --------
NET INCREASE (DECREASE) IN CASH 5,872 (50,432) 445
Cash and cash equivalents, beginning 15,301 65,733 65,288
---------- ---------- --------
Cash and cash equivalents, ending $ 21,173 $ 15,301 $ 65,733
========== ========= ========
See notes to financial statements
<PAGE>
Marvin Gardens Associates
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess (deficiency
of revenue over expenses to net cash
provided by operating activities
Excess (deficiency) of revenue over
expenses $ 6,274 $(30,337) $ (8,461)
Adjustments to reconcile excess
(deficiency) of revenue over expenses
to net cash provided by operating
activities
Depreciation 73,965 73,037 68,932
Amortization of deferred financing
costs 1,373 1,340 1,340
Interest earned on reserve for
replacements (5,796) (6,020) (5,457)
Changes in assets and liabilities
Decrease (increase) in accounts
receivable - tenant subsidy 3,221 (185) (3,036)
Increase in accounts receivable (183) (25) (676)
(Increase) decrease in interest
income receivable -impounds (8) (100) 1,352
Decrease (increase) in prepaid
expenses 111 (597) (72)
(Increase) decrease in real estate tax
impound fund (162) 191 (35)
Increase in insurance impound fund (1,581) (288) (196)
Increase (decrease) in accounts
payable - trade 967 803 (12,793)
(Decrease) increase in accrued
expenses (294) 355 30
(Increase) decrease in deferred
rent credits (1,791) 2,055 (27)
Net security deposits paid (296) (189) (1)
-------- -------- --------
Net cash provided by operating
activities $ 75,800 $ 40,040 $ 40,900
======= ======== ========
See notes to financial statements
<PAGE>
Marvin Gardens Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Marvin Gardens Associates (the Partnership) is a California Limited
Partnership which commenced operations in February 1983. The Partnership owns
and operates a 37-unit rental housing project (the Project). The Project
operates under Section 8 of the National Housing Act and, therefore, receives
monthly rental subsidies from the U.S. Department of Housing and Urban
Development (HUD). The agreement expires in July 2003 and has two five year
renewal options. For the years ended December 31, 1996, 1995 and 1994, rental
subsidies for the Project totaled $324,129, $337,072 and $332,339,
respectively. All leases between the Partnership and the tenants of the
property are operating leases.
Cash distributions are limited by agreements between the Partnership and the
California Housing Finance Agency (CHFA) to $20,151 per year to the extent of
surplus cash and stated equity, as defined by CHFA. Undistributed amounts are
cumulative and may be distributed in subsequent years if future operations
provide surplus cash in excess of current requirements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
----------------------
Property and equipment are carried at cost. The Partnership provides for
depreciation by use of the straight-line method over estimated useful lives
as follows: buildings, 30 years and equipment, 3-8 years.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized by the straight-line method over the
life of the related debt.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND
At December 31, 1996 and 1995, the Partnership maintained tenants' security
deposit fund balances of $9,682 and $9,241, respectively, in an interest
bearing bank account and a certificate of deposit.
<PAGE>
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a mortgage from the CHFA which is due on June
1, 2013 and is collateralized by a deed of trust on the rental property and
the CHFA has been granted a security interest in rental subsidies. The terms
of the mortgage require monthly principal and interest payments of $15,138
and bear interest at the rate of 8.15%. Interest charged to operations during
1996, 1995 and 1994 amounted to $137,438, $141,056 and $144,392,
respectively. Terms of the mortgage agreement also require monthly escrow
deposits to be made to fund real estate tax, insurance, and a replacement
reserve account.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate maturities of the mortgage payable for the five years following
December 31, 1996 are as follows:
December 31,
------------
1997 $50,299
1998 $54,555
1999 $59,171
2000 $64,178
2001 $69,908
NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME TO TAX BASIS INCOME
The reconciliation of the excess (deficiency) of revenue over expenses
reported in the accompanying statements of operations with the loss
reportable on a Federal income tax basis for the years ended December 31,
1996, 1995 and 1994 follows:
1996 1995 1994
---- ---- ----
Excess (deficiency) of
revenue over expenses per
statements of operations $ 6,274 $ (30,337) $ (8,461)
Additional depreciation
for tax purposes (13,924) (12,556) (12,630)
Deferred rental income
adjustments (1,790) 2,055 (27)
--------- --------- ---------
Loss for Federal income tax
purposes $ (9,440) $ (40,838) $ (21,118)
======== ========= =========
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, due to developer/general partner consisted of
development advances of $194,019. These advances are non-interest bearing and
payable from proceeds upon sale or refinancing of the Project after certain
priority payments as defined in the Partnership agreement.
The Partnership has a contractual management agreement with CMJ Management
Company, Inc., an affiliate of the general partner, to provide property
management services for the Project. CMJ Management Company, Inc. has hired
an unaffiliated management agent to provide those services on its behalf.
Total management fees paid for each of the years ended December 31, 1996,
1995 and 1994 were $17,533, $17,052 and $15,852, respectively. Effective
September 1994, CMJ Management Company, Inc. receives 30% of the monthly fee
which totaled $5,112 for the year ended December 31, 1996. In addition, for
the year ended December 31, 1995, incentive fees paid to CMJ Management
Company, Inc. totalled $12,090, based on the prior years surplus cash, as
defined. During 1996, no incentive fees were paid.
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership's real estate tax impound fund, replacement reserve fund, and
insurance impound fund totalling $150,524 as of December 31, 1996 are on
deposit with CHFA.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Colonial Farms, Ltd.
We have audited the accompanying balance sheets of Colonial Farms, Ltd. as
of December 31, 1996 and 1995, and the related statements of operations,
partners' deficit, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Colonial Farms, Ltd. as of
December 31, 1996 and 1995, and the results of its operations, changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
Colonial Farms, Ltd.
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 136,724 $ 60,141
Rents receivable 4,624 5,961
Prepaid expenses 9,446 8,789
---------- ---------
Total current assets 150,794 74,891
RESTRICTED FUNDS
Tenants' security deposits 22,193 22,533
Real estate tax impound fund 12,435 14,518
Replacement reserve fund 227,316 232,164
Insurance impound fund 9,510 7,023
Reserve fund for operations 41,139 40,781
Interest income receivable - impounds 2,349 2,431
---------- ---------
314,942 319,450
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $1,812,966 and $1,690,985 2,269,317 2,365,370
DEFERRED FINANCING COSTS, net of accumulated
amortization of $33,586 and $31,309 42,181 44,458
---------- ---------
Total assets $2,777,234 $2,804,169
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Current maturities of mortgage payable $ 76,827 $ 70,134
Accounts payable 31,634 22,109
Accrued expenses 33,494 33,736
Deferred rental income 372 369
---------- ----------
Total current liabilities 142,327 126,348
Mortgage payable, less current maturities 2,713,101 2,789,928
Due to general partner 318,115 318,115
Tenants' security deposits 17,238 17,337
---------- ---------
Total liabilities 3,190,781 3,251,728
PARTNERS' DEFICIT (413,547) (447,559)
---------- ---------
Total liabilities and partners' deficit $2,777,234 $2,804,169
========== ==========
See notes to financial statements
<PAGE>
Colonial Farms, Ltd.
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $ 786,180 $ 785,378 $ 776,784
Vacancies (9,462) (24,535) (26,649)
Financial revenue 15,910 16,256 12,817
Other income 19,315 10,237 7,132
--------- --------- ---------
Total revenue 811,943 787,336 770,084
Expenses
Operating expenses
Administration 29,578 22,779 19,504
Utilities 32,942 31,659 30,713
Management fee 38,060 39,600 38,435
Maintenance and repairs 129,475 144,185 139,278
Salaries 73,791 65,249 55,219
Insurance 12,794 12,074 12,067
Real estate taxes 40,322 39,762 39,272
--------- --------- ---------
Total operating expenses 356,962 355,308 334,488
Nonoperating expenses
Interest 258,803 264,913 270,491
Depreciation and amortization 124,258 119,893 117,523
Incentive management fee 7,060 16,435 20,109
Earned surplus reimbursement 2,610 63,571 -
--------- --------- ---------
Total nonoperating expenses 392,731 464,812 408,123
Total expenses 749,693 820,120 742,611
--------- --------- ---------
EXCESS (DEFICIENCY) OF REVENUE
OVER (EXPENSES) OVER EXPENSES $ 62,250 $(32,784) $ 27,473
========= ======== ==========
See notes to financial statements
<PAGE>
Colonial Farms, Ltd.
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Special
General Limited Limited
Partner Partner Partner Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ (21,805) $ (92,332) $(237,997) $(352,134)
Distributions (956) (1,435) (45,422) (47,813)
Excess of revenue over expenses 550 824 26,099 27,473
--------- --------- --------- ---------
Balance, December 31, 1994 (22,211) (92,943) (257,320) (372,474)
Distributions (846) (1,269) (40,186) (42,301)
Excess of expenses over revenue (656) (983) (31,145) (32,784)
--------- --------- --------- ---------
Balance, December 31, 1995 (23,713) (95,195) (328,651) (447,559)
Distributions (565) (846) (26,827) (28,238)
Excess of revenue over expenses 1,245 1,868 59,137 62,250
--------- --------- --------- ---------
Balance, December 31, 1996 $ (23,033) $ (94,173) $(296,341) $(413,547)
========= ========= ========= =========
Profit and loss sharing percentage 2% 3% 95% 100%
== == === ====
</TABLE>
See notes to financial statements
<PAGE>
Colonial Farms, Ltd.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $778,056 $751,795 $750,466
Interest received 5,311 5,901 5,528
Other income received 19,315 10,237 7,132
Residual receipts reimbursement paid (2,610) (63,571) -
Administrative expenses paid (29,578) (22,779) (19,504)
Management fees paid (38,060) (39,500) (38,435)
Utilities paid (32,942) (33,372) (30,713)
Salaries and wages paid (64,278) (56,258) (47,327)
Maintenance and repairs expenses paid (120,190) (141,608) (155,907)
Real estate taxes paid (40,322) (39,762) (39,272)
Payroll taxes paid (9,513) (8,116) (7,892)
Property and other insurance paid (13,451) (12,658) (11,971)
Interest paid on mortgage (258,803) (264,913) (270,491)
Incentive management fee paid (7,060) (16,435) (20,109)
(Increase) decrease in reserve fund
for operations (358) 2,697 (1,816)
(Decrease) increase in real estate tax
impound fund 2,083 (1,007) (1,289)
(Increase) in insurance impound fund (2,487) (1,852) (26)
Net security deposits received (paid) 241 (407) 107
-------- -------- --------
Net cash provided by operating
activities 185,354 68,392 118,481
Cash flows from investing activities
Purchases of equipment (25,928) (37,922) -
Deposits to reserve for replacements (22,404) (22,384) (22,139)
Withdrawals from reserve for
replacements 37,933 13,139 46,506
--------- --------- --------
Net cash (used in) provided by
investing activities (10,399) (47,167) 24,367
Cash flows from financing activities
Repayment of mortgage payable (70,134) (64,024) (58,446)
Distributions (28,238) (42,301) (47,813)
--------- --------- --------
Net cash used in financing
activities (98,372) (106,325) (106,259)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 76,583 (85,100) 36,589
Cash and cash equivalents, beginning 60,141 145,241 108,652
---------- --------- ---------
Cash and cash equivalents, ending $ 136,724 $ 60,141 $ 145,241
========== ========== =========
See notes to financial statements
<PAGE>
Colonial Farms, Ltd.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess (deficiency)
of revenue over expenses to net cash
provided by operating activities
Excess (deficiency) of revenue over
expenses $62,250 $(32,784) $27,473
Adjustments to reconcile excess
(deficiency) of revenue over
expenses to net cash provided by
operating activities
Depreciation 121,981 117,616 115,246
Amortization of deferred financial
costs 2,277 2,277 2,277
Interest earned on reserve for
replacements (10,681) (10,189) (9,847)
Changes in assets and liabilities
Decrease (increase) in tenant
accounts receivable 1,337 (2,275) 504
(Increase) decrease in prepaid
expenses (657) (584) 96
Decrease (increase) in interest income
receivable - impounds 82 (166) 2,558
Net tenants' security deposits
received (paid) 241 (407) 107
Increase in real estate tax impound
fund 2,083 (1,007) (1,289)
(Increase) in insurance impound fund (2,487) (1,852) (26)
(Decrease) increase in reserve fund
for operations (358) 2,697 (1,816)
Increase in accounts payable 9,525 (5,615) (16,712)
(Decrease) increase in accrued
expenses (242) 406 83
Increase (decrease) in rent deferred
credits 3 275 (173)
------- ------- -------
Net cash provided by operating
activities $185,354 $ 68,392 $118,481
======== ========= ========
See notes to financial statements
<PAGE>
Colonial Farms, Ltd.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Colonial Farms, Ltd. (the Partnership) is a California Limited Partnership
which commenced operations in February 1983. The Partnership owns and
operates a 100-unit residential project (the Project) located in Modesto,
California. The Project operates under Section 8 of the National Housing Act
and, therefore, receives monthly rental subsidies from the U.S. Department of
Housing and Urban Development (HUD). The agreement expires June 2002 and has
two five-year renewal options. For the years ended December 31, 1996, 1995
and 1994, rental subsidies for the project totaled $613,093, $586,267 and
$555,597, respectively. All leases between the Partnership and the tenants of
the property are operating leases.
Cash distributions are limited by agreements between the Partnership and the
California Housing Finance Agency (CHFA) to $35,299 per year to the extent of
surplus cash and stated equity, as defined by CHFA. Undistributed amounts are
cumulative and may be distributed in subsequent years if future operations
provide surplus cash in excess of current requirements.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include cash, money market accounts and U.S.
Treasury bills, with a maturity of three months or less when acquired, stated
at cost, which approximates market.
Property and Equipment
----------------------
Property and equipment are carried at cost. The Partnership provides for
depreciation by using the straight-line method over estimated useful lives as
follows: buildings, 30 years and equipment, 8 years.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized by the straight-line method over the
life of the related debt.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
<PAGE>
NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND
At December 31, 1996 and 1995, the Partnership maintained tenants' security
deposit fund balances of $22,193 and $22,533, respectively, in an interest
bearing bank account and a certificate of deposit.
NOTE C - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the CHFA which is
due on June 1, 2013 and is collateralized by a deed of trust on the rental
property and the CHFA has been granted a security interest in rental
subsidies. The terms of the mortgage require annual interest of 9.15% and
monthly principal and interest payments of $27,411. Interest charged to
operations during 1996, 1995 and 1994 amounted to $258,803, $264,913 and
$270,491, respectively. Terms of the loan agreement require that monthly
escrow deposits be made to fund real estate tax, insurance, and replacement
reserve escrow accounts.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate maturities of the mortgage payable for the five years following
December 31, 1996 are as follows:
December 31,
------------
1997 $ 76,827
1998 $ 84,159
1999 $ 92,191
2000 $ 110,990
2001 $ 110,637
NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAX BASIS INCOME
(LOSS)
The reconciliation of the excess (deficiency) of revenue over expenses
reported in the statements of operations with the income (loss) reported on a
Federal income tax return for the years ended December 31, 1996, 1995, and
1994 follows:
1996 1995 1994
---- ---- ----
Excess (deficiency) of revenue
over expenses $ 62,250 $ (32,784) $ 27,473
Additional depreciation for
tax purposes (20,336) (17,603) (18,120)
Deferred rental income
adjustments 3 275 (173)
--------- ---------- --------
Income (loss) for Federal
income tax purposes $ 41,917 $ (50,112) $ 9,180
========= ========= =========
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1995, due to developer/general partner consisted of
development advances of $318,115. These advances are non-interest bearing and
payable from proceeds upon sale or refinancing of the project after certain
priority payments as defined in the Partnership agreement.
The Partnership has a contractual management agreement with CMJ Management
Company, Inc., an affiliate of the general partner, to provide property
management services for the project. CMJ Management Company, Inc. has hired
an unaffiliated management agent to provide these services on its behalf.
Total management fees for the years ended December 31, 1996, 1995 and 1994
were $38,060, $39,600, and $38,435, respectively. CMJ Management Company,
Inc. also is entitled to receive an incentive management fee. For the years
ended December 31, 1996, 1995 and 1994, incentive fees charged for the
project totaled $7,060, $16,435 and $20,109, respectively, in accordance
with the terms of the supplemental management agreement.
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership's real estate tax impound fund, replacement reserve fund,
insurance impound fund, and reserve fund for operations totalling $290,400 as
of December 31, 1996 are on deposit with CHFA.
<PAGE>
The Partnership maintains its cash balances in two banks. The operating
account consists of one checking account and two money repurchase agreements
backed by government securities. The security deposit accounts are held in
trust and consist of a checking account and a certificate of deposit. The
accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of December 31, 1996, the uninsured portion of the operating
security deposit accounts amounted to $76,901.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Holbrook Apartments Company
We have audited the accompanying balance sheets of Holbrook Apartments
Company as of December 31, 1996 and 1995, and the related statements of
operations, partners' deficit and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Holbrook Apartments Company
as of December 31, 1996 and 1995, and the results of its operations, changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/S/ REZNICK, FEDDER & SILVERMAN
-------------------------------
REZNICK, FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 1997
<PAGE>
Holbrook Apartments Company
BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 631,608 $ 486,602
Accounts receivable 2,153 8,240
Other receivables 28,548 16,803
Prepaid expenses 17,641 18,427
Other current assets 475 475
----------- -----------
Total current assets 680,425 30,547
RESTRICTED DEPOSITS AND FUNDED RESERVES
Mortgage escrow deposits 61,069 42,895
Reserve for replacements 444,420 486,650
----------- -----------
505,489 529,545
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $3,905,567 and $3,657,426 5,664,784 5,801,902
DEFERRED FINANCING COSTS, net of accumulated
amortization of $208,617 and $195,076 345,334 358,875
----------- -----------
Total assets $ 7,196,032 $ 7,220,869
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 95,185 $ 88,328
Accounts payable and accrued expenses 179,824 45,749
Accrued interest payable 46,543 47,095
Rent deferred credits 15,274 4,589
----------- -----------
Total current liabilities 336,826 185,761
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 7,351,781 7,446,966
----------- -----------
Total liabilities 7,688,607 7,632,727
PARTNERS' DEFICIT (492,575) (411,858)
----------- -----------
Total liabilities and
partners' deficit $ 7,196,032 $ 7,220,869
=========== ===========
See notes to financial statements
<PAGE>
Holbrook Apartments Company
STATEMENTS OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenue
Rental income $2,068,855 $2,062,798 $2,060,656
Vacancies (1,985) (486) (3,458)
Financial revenue 27,267 34,734 26,487
Other income 7,176 6,381 5,588
---------- ---------- ----------
Total revenue 2,101,313 2,103,427 2,089,273
Expenses
Operating expenses
Marketing 366 208 329
Administration 126,269 120,673 123,390
Utilities 85,403 77,662 111,338
Management fee 99,025 98,221 97,710
Maintenance and repairs 200,197 195,276 192,998
Salaries 182,294 170,174 142,105
Insurance 49,036 40,196 41,951
Real estate taxes 198,470 197,441 139,335
---------- ---------- ----------
Total operating expenses 941,060 899,851 849,156
Nonoperating expenses
Interest 561,600 568,003 573,944
Mortgage insurance premium 37,438 37,865 38,261
Depreciation and amortization 261,682 248,580 243,525
Incentive management fee 133,795 137,695 165,684
---------- ---------- ----------
Total nonoperating expenses 994,515 992,143 1,021,414
---------- ---------- ----------
Total expenses 1,935,575 1,891,994 1,870,570
---------- ---------- ----------
EXCESS OF REVENUE OVER EXPENSES $ 165,738 $ 211,433 $ 218,703
========== ========== ==========
See notes to financial statements
<PAGE>
Holbrook Apartments Company
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partner Total
------- ------- -----
Partners' deficit, December 31, 1993 $(555,612) $260,182 $(295,430)
Distributions (44,139) (250,120) (294,259)
Excess of revenue over expenses 32,805 185,898 218,703
--------- -------- ---------
Partners' deficit, December 31, 1994 (566,946) 195,960 (370,986)
Distributions (37,846) (214,459) (252,305)
Excess of revenue over expenses 31,715 179,718 211,433
--------- -------- ---------
Partners' deficit, December 31, 1995 (573,077) 161,219 (411,858)
Distributions (36,818) (209,637) (246,455)
Excess of revenue over expenses 24,861 140,877 165,738
--------- -------- ---------
Partners' deficit, December 31, 199 $(585,034) $ 92,459 $(492,575)
========= ========= =========
Profit and loss sharing percentage 15% 85% 100%
== == ===
See notes to financial statements
<PAGE>
Holbrook Apartments Company
STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities
Rental income received $2,083,642 $2,059,803 $2,051,763
Interest received 13,786 14,645 13,418
Other income received - 9,418 6,046
Administrative expenses paid (173,537) (166,891) (164,640)
Management fees paid (99,025) (98,221) (97,710)
Utilities paid (88,920) (88,787) (118,133)
Maintenance and repairs expenses paid (197,997) (303,582) (275,034)
Real estate taxes paid (182,616) (197,441) (139,335)
Payroll taxes paid (15,854) (16,316) (16,269)
Property insurance paid (26,982) (18,192) (17,799)
Other taxes and insurance paid (21,339) (22,335) (23,077)
Interest paid on mortgage (562,152) (568,516) (574,419)
Mortgage insurance paid (37,367) (37,797) (38,199)
Decrease (increase) in mortgage
escrow deposits (18,174) 10,330 12,966
Mortgagor entity expenses paid (133,795) (137,695) (165,684)
---------- ----------- ----------
Net cash provided by
operating activities 539,670 438,423 453,894
---------- ----------- ----------
Cash flows from investing activities
Additions to property and equipment (111,023) (86,045) (97,229)
Deposits to reserve for replacements (40,720) (40,680) (40,776)
Withdrawals from reserve for
replacements 91,862 - -
---------- ---------- ----------
Net cash used in investing
activities (59,881) (126,725) (138,005)
---------- ---------- ----------
Cash flows from financing activities
Repayment of mortgage payable (88,328) (81,964) (76,060)
Distributions paid to partners (246,455) (252,305) (294,259)
---------- ---------- -----------
Net cash used in financing
activities (334,783) (334,269) (370,319)
---------- ---------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 145,006 (22,571) (54,430)
Cash and cash equivalents, beginning 486,602 509,173 563,603
----------- ---------- ----------
Cash and cash equivalents, ending $ 631,608 $ 486,602 $ 509,173
=========== ========== ==========
See notes to financial statements
<PAGE>
Holbrook Apartments Company
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of excess of revenue over
expenses to net cash provided by
operating activities
Excess of revenue over expenses $165,738 $211,433 $218,703
Adjustments to reconcile excess of
revenue over expenses to net cash
provided by operating activities
Depreciation 248,141 235,039 229,984
Amortization of deferred financing costs 13,541 13,541 13,541
Interest earned on replacement reserves (8,912) (20,089) (11,805)
Changes in assets and liabilities
Decrease (increase) in tenant
accounts receivable 6,087 (2,200) (194)
Decrease in accounts receivable - HAP - 570 490
Increase in accounts receivable - other (11,745) (7,103) (806)
Decrease (increase) in prepaid expenses 786 (263) 2,742
(Increase) decrease in mortgage escrow
deposits (18,174) 10,330 12,966
Increase (decrease) in accounts payable
and accrued expenses 134,075 (1,443) (5,521)
Decrease in accrued interest payable (552) (513) (475)
Decrease (increase) in rent-deferred
credits 10,685 (879) (5,731)
-------- -------- --------
Net cash provided by operating
activities $539,670 438,423 $453,894
======== ======== ========
See notes to financial statements
<PAGE>
Holbrook Apartments Company
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership was formed as a limited partnership under the laws of the
State of Massachusetts in July 1981, for the purpose of constructing and
operating a rental housing project under Section 221(d)(4) of the National
Housing Act. The Project consists of 170 units located in Holbrook,
Massachusetts and is currently operating under the name of Holbrook
Apartments. All leases between the Partnership and the tenants of the
property are operating leases.
Cash distributions are limited by agreements between the Partnership and HUD
to the extent of surplus cash as defined by HUD.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash and repurchase agreements with a
bank with maturities of three months or less when acquired, stated at cost,
which approximates market.
Reserve for Replacements
------------------------
Reserve for replacements includes investments in money market accounts which
are held to maturity. The investments are carried at cost which approximates
market value.
Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives by use of the straight-line method for
financial reporting purposes. For income tax purposes, accelerated lives and
methods are used.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - MORTGAGE PAYABLE
The mortgage is insured by the Federal Housing Administration (FHA) and
collateralized by a deed of trust on the rental property. The mortgage, which
is due February 1, 2023, is payable in equal monthly installments of
principal and interest totalling $54,207 and bears interest at a rate of
7.5%. Interest incurred during December 31, 1996, 1995 and 1994, amounted to
$561,600, $568,003 and $573,944, respectively.
<PAGE>
Under agreements with the mortgage lender and FHA, the Partnership is
required to make monthly escrow deposits for taxes, insurance and replacement
of project assets, and is subject to restrictions as to operating policies,
rental charges, operating expenditures and distributions to partners.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate annual maturities of the mortgage payable for the five years
following December 31, 1996 are as follows:
December 31,
------------
1997 $ 95,185
1998 $102,574
1999 $110,538
2000 $119,119
2001 $128,366
NOTE C - HOUSING ASSISTANCE PAYMENT AGREEMENT
FHA contracted with the Partnership under Section 8 of Title II of the
Housing and Community Development Act of 1974, to make housing assistance
payments to the Partnership on behalf of qualified tenants. The agreement
expires July 1, 2001. Total housing assistance payments received during 1996,
1995 and 1994 were $1,577,392, $1,587,132 and $1,577,104, respectively.
NOTE D - MANAGEMENT AGREEMENT
Management fees of 4.75% of gross receipts are paid to CMJ Management
Company, Inc., an affiliate of the general partner, for its services as
management agent to the Project pursuant to a management agreement approved
by HUD. Such fees amounted to $99,025, $98,221, and $97,710 for the years
ended 1996, 1995 and 1994, respectively. In addition, CMJ Management Company,
Inc., received incentive management fees of $133,795, $137,695 and $165,684
for the years ended December 31, 1996, 1995 and 1994, respectively.
CMJ Management Company, Inc., an affiliate of the general partner, makes
monthly expenditures (primarily payroll, central office accounting, direct
marketing and insurance costs) on behalf of the Partnership which are
reimbursed the following month.
NOTE E - TAX BASIS INCOME
The reconciliation of the excess of revenue and expenses in the accompanying
statements of operations with the loss reported on a Federal income tax basis
follows:
1996 1995 1994
---- ---- ----
Excess of revenue over
expenses per statement
of operations $ 165,738 $ 211,433 $ 218,703
Additional amortization of
deferred costs 8,393 8,393 8,393
Increase (decrease) in
deferred rental income 10,688 (879) (5,731)
Additional depreciation (32,751) (126,502) (139,140)
----------- --------- ----------
Income for Federal income
tax purposes $ 152,068 $ 92,445 $ 82,225
=========== ========= ==========
NOTE F - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in one bank, which consists of an
overnight repurchase agreement backed by government securities and an
operating checking account. Account balances are insured by the Federal
Deposit Insurance Corporation up to $100,000 by the bank. The Partnership
also has a reserve for replacements and escrows totalling $505,489 at
December 31, 1996, on deposit with WMF/Huntoon, Paige Associates Limited,
including a money market account and U.S. Treasury Bill totalling $444,420.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Partnership's audited financial statements for the twelve months ended
December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 323
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 323
<PP&E> 92
<DEPRECIATION> 0
<TOTAL-ASSETS> 415
<CURRENT-LIABILITIES> 153
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 262
<TOTAL-LIABILITY-AND-EQUITY> 415
<SALES> 0
<TOTAL-REVENUES> 255
<CGS> 0
<TOTAL-COSTS> 280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
