UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
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
PAINEWEBBER/CMJ PROPERTIES LP
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(Exact name of registrant as specified in its charter)
Delaware 04-2780288
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
265 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-8118
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of class)
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|
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 |_|.
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
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Prospectus of registrant dated Part IV
May 25, 1983, as supplemented
Current Report on Form 8-K of
registrant dated February 15, 2000 Part IV
<PAGE>
PAINEWEBBER/CMJ PROPERTIES LP
1999 FORM 10-K
TABLE OF CONTENTS
Part I Page
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Item 1 Business I-1
Item 2 Properties I-3
Item 3 Legal Proceedings I-4
Item 4 Submission of Matters to a Vote of Security Holders I-4
Part II
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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 7A Market Risk Disclosures II-7
Item 8 Financial Statements and Supplementary Data II-8
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-8
Part III
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Item 10 Directors and Executive Officers of the Partnership III-1
Item 11 Executive Compensation III-2
Item 12 Security Ownership of Certain Beneficial Owners
and Management III-3
Item 13 Certain Relationships and Related Transactions III-3
Part IV
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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-80
<PAGE>
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Partnership's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference are discussed in Item 7 in the section entitled
"Certain Factors Affecting Future Operating Results" beginning on page II-6 of
this Form 10-K.
PART I
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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 received 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, 1999, the Partnership owned, through local limited
partnerships, interests in six apartment properties as set forth in the
following table:
<TABLE>
<CAPTION>
Percent
Name of Local Interest in
Limited Partnership Date of Local Limited
Name of Property Acquisition Partnership
Location Size of Interest (1) (2)
- -------------------------------- ---- ----------- --------------
<S> <C> <C> <C>
Fawcett's Pond
Apartments Company
Village at Fawcett's Pond 100 6/30/83 95% (3)
Hyannis, Massachusetts units
Quaker Meadows
Apartments Company
Quaker Court and The Meadows 104 6/30/83 95% (3)
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% (3)
Cotati, California units
Colonial Farms Ltd.
Colonial Farms 100 7/29/83 95% (3)
Modesto, California units
Holbrook Apartments Company
Ramblewood Apartments 170 8/30/83 85% (3)
Holbrook, Massachusetts units
</TABLE>
(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
outstanding mortgage balances as of December 31, 1999, 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 acquired
these real estate investments.
(3) Subsequent to year-end, the Partnership sold its interest in the local
limited partnership (see further discussion below).
On February 15, 2000, the Partnership sold its interests in five of the
six real estate limited partnerships that it held: Holbrook Apartments Company,
which owns the Ramblewood Apartments in Holbrook, Massachusetts; Fawcett's Pond
Apartment Company, which owns the Village at Fawcett's Pond Apartments in
Hyannis, Massachusetts; Quaker Meadows Apartment Company, which owns the Quaker
Court Apartments and The Meadows Apartments in Lynn, Massachusetts; Marvin
Gardens Associates, which owns the Marvin Gardens Apartments in Cotati,
California; and Colonial Farms Ltd., which owns the Colonial Farms Apartments in
Modesto, California. The limited partnership interests were sold for total
consideration of $2,750,000 to affiliates of the operating general partners of
the local limited partnerships. The sales closed into escrow on February 15,
2000 pending the receipt of the required regulatory approvals from the various
lenders and state and federal housing agencies that subsidize the related
residential apartment properties. The sale proceeds were to be released to the
Partnership upon the receipt of all of the required regulatory approvals, but in
no event later than March 31, 2000. On March 1, 2000, the affiliated buyers
agreed to the release of the escrowed funds to the Partnership and indemnified
the Partnership for any approvals not yet received. As a result of these
transactions, the Partnership no longer has any interest in these five operating
investment properties. A special distribution of the net proceeds from these
sale transactions will be made to the Limited Partners on or before March 31,
2000.
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. As
of December 31, 1999, the Partnership retained an ownership interest in all six
of its original operating investment properties. As of December 31, 1999, all of
the properties were generating sufficient cash flow from operations to cover
their operating expenses and debt service payments, and all of the properties
were generating excess cash flow, a portion of which was being distributed to
the Partnership on an annual basis in accordance with the respective regulatory
and limited partnership agreements. Due to improvements in cash flow and the
strong operating performances of the investment properties, management had
instituted a program of regular quarterly distributions in 1994 at an annual
rate of 2% on original invested capital. During 1996 distributions to the
Partnership from the local limited partnerships declined, causing management to
suspend distributions effective for the fourth quarter of 1996. Based on
improved cash flow from the properties in 1998, the Partnership made an annual
distribution payment in November 1998 at an annual rate of 2% on original
invested capital. No distribution payments were made in 1999 or 1997.
As discussed further in Item 7, subsequent to the sale of the five local
limited partnership interests described above, the Partnership and the local
general partner of the sixth and final local limited partnership began a joint
marketing effort for the sale of the Villages at Montpelier Apartments. A sale
of the Partnership's final asset, which management currently expects to complete
during the second quarter of calendar year 2000, would be followed by an orderly
liquidation of the Partnership. The Partnership's success in meeting its capital
preservation objective will depend upon the proceeds received from the sale of
this final asset, which cannot presently be determined. Based on management's
estimate of the current fair market value of the Villages at Montpelier
property, it appears unlikely at this time that the Partnership will realize any
potential capital appreciation on its portfolio of investments taken as a whole.
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, all but one of which are government-assisted, low-income housing
facilities, compete with several projects of similar type generally on the basis
of price, location and amenities. The sixth property had been partially
subsidized until July 1997 when the subsidy agreement expired. This property has
transitioned to a 100% market rent facility and now competes with other
non-subsidized properties in its local sub-market. The tenants at the
Partnership's subsidized 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
As of December 31, 1999, the Partnership owned 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.
Occupancy figures for each quarter during 1999, along with an average for
the year, are presented below for each property:
<TABLE>
<CAPTION>
Percent Occupied At
--------------------------------------------
1999
3/31/99 6/30/99 9/30/99 12/31/99 Average
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Village at Fawcett's Pond Apartments 100% 100% 100% 100% 100%
Quaker Court and The Meadows 100% 100% 100% 99% 100%
Villages at Montpelier Apartments 87% 85% 91% 89% 88%
Marvin Gardens Apartments 100% 100% 100% 99% 100%
Colonial Farms Apartments 100% 100% 100% 100% 100%
Ramblewood Apartments 100% 100% 100% 100% 100%
</TABLE>
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
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Item 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
At December 31, 1999 there were 829 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. Upon request, the Managing General
Partner will endeavor to assist a Unitholder desiring to transfer his Units and
may utilize the services of PWI in this regard. The price to be paid for the
Units will be subject to negotiation by the Unitholder. The Managing General
Partner will not redeem or repurchase Units.
No cash distributions were paid to the Limited Partners during 1999.
Item 6. Selected Financial Data
Paine Webber/CMJ Properties, LP
(In thousands, except per Unit data)
Years Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Revenues $ 459 $ 294 $ 147 $ 98 $ 244
Expenses $ 300 $ 365 $ 288 $ 280 $ 288
Partnership's share
of local limited
partnerships' income
(loss) $ (3) $ 209 $ 184 $ 157 $ 174
Net income (loss) $ 156 $ 138 $ 43 $ (25) $ 130
Net income (loss) per
Limited Partnership
Unit $ 17.57 $15.58 $ 4.85 $(2.82) $14.75
Cash distributions per
Limited Partnership
Unit - $20.00 - $20.00 $20.00
Total assets $ 449 $ 383 $ 520 $ 415 $ 486
(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
Information Relating to Forward-Looking Statements
- --------------------------------------------------
The following discussion of financial condition includes forward-looking
statements which reflect management's current views with respect to future
events and financial performance of the Partnership. These forward-looking
statements are subject to certain risks and uncertainties, including those
identified below under the heading "Certain Factors Affecting Future Operating
Results," which could cause actual results to differ materially from historical
results or those anticipated. The words "believe," "expect," "anticipate," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which were made
based on facts and conditions as they existed as of the date of this report. The
Partnership undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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 received various forms of federal, state or local
assistance and that could be classified as "low-income housing" under the
Internal Revenue Code. The Partnership does not have any commitments for
additional capital expenditures or investments. As of December 31, 1999, the
Partnership retained an ownership interest in all six of its original operating
investment properties, all of which were generating sufficient cash flow from
operations to cover their operating expenses and debt service payments. In
addition, all of the properties were generating excess cash flow, a portion of
which was being distributed to the Partnership on an annual basis in accordance
with the respective regulatory and limited partnership agreements. As previously
reported, 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. In October 1998,
the Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the operating general partner to discuss the Partnership's desire to
liquidate its investments in the near term. With regard to the five properties
that were still receiving government subsidies, the associated distributable
cash flow restrictions, substantial capital reserve requirements and regulatory
reporting obligations, which are characteristic of all subsidized low-income
housing properties, significantly limited the pool of potential buyers for these
real estate assets. Furthermore, the uncertainty regarding potential future
reductions in the level of federal government assistance for these programs
further restricted the properties' marketability. Consequently, a negotiated
sale of the Partnership's interests in these properties to the operating general
partners, which receive management fee revenues from the properties through an
affiliated management company, was deemed to be in the best interests of the
Limited Partners.
On February 15, 2000, the Partnership sold its interests in five of the
six real estate limited partnerships that it held: Holbrook Apartments Company,
which owns the Ramblewood Apartments in Holbrook, Massachusetts; Fawcett's Pond
Apartment Company, which owns the Village at Fawcett's Pond Apartments in
Hyannis, Massachusetts; Quaker Meadows Apartment Company, which owns the Quaker
Court Apartments and The Meadows Apartments in Lynn, Massachusetts; Marvin
Gardens Associates, which owns the Marvin Gardens Apartments in Cotati,
California; and Colonial Farms Ltd., which owns the Colonial Farms Apartments in
Modesto, California. The limited partnership interests were sold for total
consideration of $2,750,000 to affiliates of the operating general partners of
the local limited partnerships. The sales closed into escrow on February 15,
2000 pending the receipt of the required regulatory approvals from the various
lenders and state and federal housing agencies that subsidize the related
residential apartment properties. The sale proceeds were to be released to the
Partnership upon the receipt of all of the required regulatory approvals, but in
no event later than March 31, 2000. On March 1, 2000, the affiliated buyers
agreed to the release of the escrowed funds to the Partnership and indemnified
the Partnership for any approvals not yet received. As a result of these
transactions, the Partnership no longer has any interest in these five operating
investment properties. A special distribution of the net proceeds from these
sale transactions will be made to the Limited Partners on or before March 31,
2000.
Notwithstanding the restrictions on the Partnership's ability to cause a
sale of the properties, the Partnership and the operating general partner of the
Villages at Montpelier limited partnership reached an informal agreement during
the third quarter of 1999 to initiate a joint marketing effort for the sale of
the Villages at Montpelier property, which no longer receives any government
subsidies. As discussed previously, the subsidy agreement covering the Villages
at Montpelier Apartments expired in July 1997. In July 1999, marketing proposals
were requested from three real estate brokerage firms with a strong background
in selling apartment properties. In August 1999, after a review of each
company's proposals and their capabilities to sell this property, the
Partnership selected one of the firms and negotiated an agreement with them to
sell the property. Marketing materials were prepared and comprehensive sale
efforts began in early March 2000. A sale of the Partnership's final asset,
which management currently expects to complete during the second quarter of
calendar year 2000, would be followed by an orderly liquidation of the
Partnership. Because a buyer of the Villages at Montpelier property is expected
to assume the existing HUD-insured mortgage loan secured by the property, a sale
transaction will require formal HUD approval, which could take as long as
90-to-120 days after closing to receive. Accordingly, the final distribution of
proceeds from the sale of the Villages at Montpelier property and the formal
liquidation of the Partnership may not be completed until the third quarter of
2000. Notwithstanding management's expectations, there are no assurances that
the disposition of the remaining asset and a liquidation of the Partnership will
be completed within this time frame.
The average occupancy level at the Villages at Montpelier Apartments was
88% for the year ended December 31, 1999, compared to 94% for the prior year. As
previously reported, prior to July 1997, 80% of the apartments at the Villages
at Montpelier were rented at market rates while 20% received government
subsidies under the Section 8 rental assistance program. With the expiration of
the subsidy agreement in July 1997, the property management team began the
process of converting the former subsidized units at the property to market rent
units during the third quarter of 1997. As expected, the conversion resulted in
a decline in occupancy at the property as a number of subsidized tenants vacated
the property and their units were prepared to be re-leased. Subsequent to the
expiration of the Section 8 contract, the average occupancy level at the
property fell to 88% for the third quarter of 1997 but rebounded to 90% for the
fourth quarter of 1997 and stabilized by the first quarter of 1998. Cash flow
from operations at the Villages at Montpelier is comparable to the previously
subsidized level now that the occupancy rate at the property has been
stabilized.
During 1999, the Partnership received distributions totalling $475,000
from all six local limited partnership investments. During 1998 the Partnership
received distributions totalling $460,000 from all six local limited
partnerships. The amounts received in 1999 and 1998 represent the cash flow
available for distribution as of December 31, 1998 and 1997, respectively, as
determined by the general partners of the local limited partnerships in
accordance with the partnership, financing and regulatory agreements. Total
distributions from the Partnership's investments increased in the current year
due to increases in distributions from three of the local limited partnership
investments. Based on the amounts of the 1998 distribution payments from the
local limited partnerships, management believed that there was sufficient cash
flow to make a distribution of operating cash flow to the Limited Partners.
Accordingly, the Partnership made an annual distribution to the Limited Partners
on November 23, 1998 at a rate of 2% on original invested capital. Such
distribution totalled approximately $175,000, or $20 per original $1,000
investment. Since the Partnership expects to be liquidated by the third quarter
of 2000, no distribution of operating cash flow will be made for 1999. The
Partnership's remaining cash reserves, after the payment of all
liquidation-related expenses, will be included in the final liquidating
distribution to the Limited Partners.
At December 31, 1999, the Partnership had available cash and cash
equivalents of approximately $449,000, which it intends to use for its working
capital requirements and distributions to the 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 or from the sale of the Partnership's
interests in 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
1999 Compared to 1998
- ---------------------
For the year ended December 31, 1999, the Partnership reported net income
of $156,000, as compared to net income of $138,000 for 1998. This increase in
the Partnership's net income was attributable to a $170,000 increase in other
income from local limited partnerships and a $65,000 decrease in general and
administrative expenses, which were partially offset by a $212,000 decrease in
the Partnership's share of local limited partnerships' income. As discussed in
the notes to the accompanying financial statements, in accordance with the
equity method of accounting the Partnership records distributions received from
investments in limited partnerships with carrying values of zero as other income
from local limited partnerships. The increase in other income from local limited
partnerships is largely due to a $47,000 increase in distributions from the
Villages at Montpelier investment and an increase of $134,000 in the portion of
the distributions from the Holbrook investment that were classified as other
income after that investment reached a zero carrying value in the current year.
General and administrative expenses decreased in 1999 mainly due to certain
non-recurring professional fees incurred during the prior year for an evaluation
of potential disposition strategies for the Partnership's investments and an
independent third party valuation of the local limited partnership interests.
Under the equity method of accounting for limited partnership interests,
losses in excess of the investment in individual local limited partnerships are
not recognized currently, but rather, are offset against future earnings from
such entities. As a result, the Partnership's share of local limited
partnerships' operations for the current and prior year represent only the
allocable portions of the operations of the Ramblewood and Fawcett's Pond
partnerships. The Partnership's share of operations from Fawcett's Pond changed
from income of $60,000 for 1998 to a loss of $42,000 for 1999. The unfavorable
change in the net operating results of Fawcett's Pond was primarily due to an
increase in real estate taxes and property operating expenses. Property
operating expenses increased mainly due to an increase in repairs and
maintenance expenditures during 1999. The Partnership's share of income from
Ramblewood decreased from $149,000 for 1998 to $39,000 for the current year
primarily due to an increase in repairs and maintenance expenses. Overall, the
combined net operating results of the six local limited partnerships changed
from net income of $65,000 for 1998 to a net loss of $199,000 for the current
year. This unfavorable change of $264,000 resulted from a $12,000 decrease in
rental revenues and a $252,000 increase in total expenses. Combined property
rental revenues decreased primarily due to a decrease in the average occupancy
level at the Villages at Montpelier Apartments. Total expenses increased mainly
due to an increase in repairs and maintenance expenses at five of the six local
limited partnerships.
1998 Compared to 1997
- ---------------------
For the year ended December 31, 1998, the Partnership reported net income
of $138,000, as compared to net income of $43,000 for 1997. This increase in the
Partnership's net income was mainly attributable to a $145,000 increase in other
income from local limited partnerships and a $25,000 increase in the
Partnership's share of local limited partnerships' income, which were partially
offset by a $77,000 increase in general and administrative expenses. As
discussed in the notes to the financial statements, in accordance with the
equity method of accounting the Partnership records distributions received from
investments in limited partnerships with carrying values of zero as other income
from local limited partnerships. The increase in other income from local limited
partnerships was largely due to a $66,000 increase in distributions from the
Villages at Montpelier investment and an increase of $64,000 in the portion of
the distributions from the Holbrook investment being applied to other income
after that investment reached a zero carrying value during 1998.
Under the equity method of accounting for limited partnership interests,
losses in excess of the investment in individual local limited partnerships are
not recognized currently, but rather, are offset against future earnings from
such entities. As a result, the Partnership's share of local limited
partnerships' operations for both 1998 and the prior year represent only the
allocable portions of the operations of the Ramblewood and Fawcett's Pond
partnerships. The Partnership's share of income from Fawcett's Pond increased by
$30,000 for 1998 primarily due to a reduction in mortgage interest expense and
property operating expenses. Mortgage interest expense decreased due to the
reduction in the mortgage principal balance resulting from scheduled principal
repayments. Property operating expenses decreased at Fawcett's Pond due to
additional repairs and maintenance expenditures incurred during 1997. The
Partnership's share of income from Ramblewood decreased by $5,000 for 1998
primarily due to an increase in real estate taxes which was partially offset by
a reduction in repairs and maintenance expenses. Overall, the combined net
operating results of the six local limited partnerships changed from a net loss
of $34,000 for 1997 to net income of $65,000 for 1998. This favorable change of
$99,000 resulted primarily from a $76,000 increase in rental revenues and a
$36,000 decrease in combined interest and mortgage insurance expense. Combined
property rental revenues increased primarily due to an increase in the rental
rates and average occupancy level at the Villages at Montpelier Apartments.
Combined interest and mortgage insurance expense decreased mainly due to the
reduction in the outstanding principal balances of the partnerships' mortgage
loans resulting from the scheduled monthly principal payments.
General and administrative expenses increased in 1998 mainly due to
additional professional fees incurred for an evaluation of potential disposition
strategies for the Partnership's investments and an independent third party
valuation of the local limited partnership interests performed during 1998.
1997 Compared to 1996
- ---------------------
For the year ended December 31, 1997, the Partnership reported net income
of $43,000, as compared to a net loss of $25,000 for 1996. This favorable change
in the Partnership's net operating results was attributable to a $41,000
decrease in the Partnership's operating loss and a $27,000 increase in the
Partnership's share of local limited partnerships' income. The decrease in the
Partnership's operating loss was attributable to an increase in other income
from local limited partnerships of $37,000 and an increase in interest income of
$12,000. An increase in general and administrative expenses of $8,000 partially
offset these favorable changes in operating income.
As discussed further above, the Partnership accounts for its investments
in local limited partnerships using the equity method. In accordance with the
equity method, the Partnership does not record losses for those limited
partnership investments whose equity method basis has been reduced to zero and
recognizes 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
from the local limited partnerships. Other income from the local limited
partnerships in 1997 represents distributions from Quaker Meadows, Colonial
Farms and Marvin Gardens while the 1996 amount represents distributions from
Quaker Meadows, Colonial Farms and Fawcett's Pond. Overall, other income from
local limited partnerships increased by $37,000 due to a $40,000 increase in
distributions from Quaker Meadows, a $4,000 distribution from Marvin Gardens,
which did not make a distribution in 1996, and an $7,000 reduction attributable
to Fawcett's Pond. Although the distribution from the Fawcett's Pond partnership
remained unchanged from 1996 to 1997, other income from local limited
partnerships decreased because the entire distribution from Fawcett's Pond was
recorded as a reduction of the equity method carrying value of the investment in
1997. The increase in interest income resulted from an increase in invested cash
reserves due to the suspension of the Partnership's quarterly distributions
during the fourth quarter of 1996 and an increase in distributions from local
limited partnerships in 1997. The increase in general and administrative
expenses was mainly due to increases in certain required professional services
during 1997.
At December 31, 1997, only two of the six local limited partnerships, The
Holbrook Apartments Company (Ramblewood Apartments) and the Fawcett's Pond
Apartment Company, had positive equity method carrying values. The Partnership's
share of income from the Ramblewood Apartments for 1997 and 1996 totalled
$154,000 and $141,000, respectively, while the Partnership's share of income
from the Fawcett's Pond Apartments for 1997 and 1996 totalled $30,000 and
$16,000, respectively. The favorable change in the Partnership's share of local
limited partnerships' income attributable to the Fawcett's Pond partnership
resulted from a portion of the income from Fawcett's Pond ($55,000) being
allocated to offset previously unrecorded losses in 1996. As a result, only
$16,000 of the $71,000 income allocable to the Partnership in that year was
recognized by the Partnership in its share of local limited partnerships'
income. In 1997, the entire $30,000 of Fawcett's Pond income allocable to the
Partnership was recognized in its share of local limited partnerships' income.
The favorable change in the Partnership's share of income from the Ramblewood
partnership resulted mainly from an increase in total revenues and decreases in
real estate taxes and interest expense which were partially offset by an
increase in incentive management fees and property operating expenses. In the
aggregate, total revenues increased or remained the same at five of the six
local limited partnerships due to stable occupancy levels which averaged in the
99% to 100% range during 1996 and 1997. The Villages at Montpelier Apartments
was the only local limited partnership to experience a notable decline in
occupancy which resulted in a 1% decline in rental revenues for 1997. Average
occupancy at the Villages at Montpelier Apartments declined from 95% in 1996 to
92% for 1997 due to the expiration of the government subsidy agreement in July
1997, as discussed further above. Despite the decline in rental revenues, the
net operating results of the Villages at Montpelier partnership improved by
$192,000 during 1997, mainly due to a $214,000 reduction in property operating
expenses, which was principally due to lower repairs and maintenance costs.
Total expenses at the other five local limited partnerships increased in 1997
mainly due to increases in repairs and maintenance expenses at Colonial Farms,
Fawcett's Pond, Quaker Meadows and Marvin Gardens, a reimbursement of subsidy
payments required at Colonial Farms and an increase in incentive management fees
at Ramblewood and Quaker Meadows.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
The following factors could cause actual results to differ materially from
historical results or those anticipated:
Risks of Government-Assisted Housing Complexes. In certain respects
government-assisted housing complexes differ from conventional housing
complexes. These include (a) greater financing leverage than is usual in
conventional complexes, (b) review of compliance with construction and other
standards and (c) various contingency reserves required in connection with such
government assistance programs. Government-assisted housing is also subject to
special conditions and risks including, but not limited to, (a) general
surveillance by the appropriate governmental assistance agency, which may
include the application of rental and other guidelines affecting tenant
eligibility, operating costs and rental levels, (b) maintenance of a reserve
fund for replacements in an amount paid concurrently with amortization of the
mortgage and in addition to payments of principal and interest, restricted such
that withdrawals from the fund are subject to the prior approval of the
appropriate governmental assistance agency, (c) compliance with the United
States Department of Housing and Urban Development ("HUD") regulations regarding
management of the premises, (d) limitations on salability, as contained in
regulatory agreements with the appropriate governmental assistance agency, (e)
limitations on rent increases, and (f) the uncertain effects of changes in
complex rules and regulations governing such government-assisted programs, or
changes in the manner in which those regulations are interpreted.
Government assistance payments may be reduced in the event that a project
rents less than 100% of its units eligible for rental subsidies to qualified low
income tenants. HUD generally elects to reduce subsidies only in the event that
occupancy levels for qualified tenants drop below 95% for a period of two years.
Finally, HUD commitments are subject to HUD's appropriation of federal funds
sufficient to meet its obligations in any given year. It is possible that
certain legislative initiatives and governmental budget negotiations could
result in a reduction of funds available for the various HUD-administered
housing programs in the future and could also result in new limitations on
subsidized rent levels. This in turn could adversely impact the net operating
income generated by the Partnership's properties.
Real Estate Investment Risks. Real property investments are subject to
varying degrees of risk. Revenues and property values may be adversely affected
by the general economic climate, the local economic climate and local real
estate conditions, including (i) the perceptions of prospective tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide adequate management and maintenance of the property; (iii) the
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise; and (iv) increased operating costs. Real estate values may also be
adversely affected by such factors as applicable laws, including tax laws,
interest rate levels and the availability of financing.
Effect of Uninsured Loss. The local limited partnerships carry
comprehensive liability, fire, flood, extended coverage and rental loss
insurance with respect to their properties with insured limits and policy
specifications that management believes are customary for similar properties.
There are, however, certain types of losses (generally of a catastrophic nature
such as wars, floods or earthquakes) which may be either uninsurable, or, in
management's judgment, not economically insurable. Should an uninsured loss
occur, the Partnership could lose both its invested capital in and anticipated
profits from the affected property.
Possible Environmental Liabilities. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances on, under, in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances.
The Partnership is not aware of any notification by any private party or
governmental authority of any non-compliance, liability or other claim in
connection with environmental conditions at any of its properties that it
believes will involve any expenditure which would be material to the
Partnership, nor is the Partnership aware of any environmental condition with
respect to any of its properties that it believes will involve any such material
expenditure. However, there can be no assurance that any non-compliance,
liability, claim or expenditure will not arise in the future.
Competition. The financial performance of the Partnership's real estate
investments will be impacted by the competition from comparable properties in
their local market areas. Due to the limited availability of low-income housing
programs like the ones that cover five of the Partnership's six investment
properties, the competitive pressures faced by these properties are much less
than for non-subsidized, market rate facilities. Nonetheless, the occupancy
levels achievable at the properties and the rental rates at the non-subsidized
property are largely a function of supply and demand in the markets. In many
markets across the country, development of new multi-family properties has
increased significantly over the past several years. Existing apartment
properties in such markets could be expected to experience increased vacancy
levels, declines in effective rental rates and, in some cases, declines in
estimated market values as a result of the increased competition. There are no
assurances that these competitive pressures will not adversely affect the
operations and/or market values of the Partnership's investment properties in
the future.
Impact of Local Limited Partnership Structure. The ownership of the
Partnership's investments through local limited partnerships could adversely
impact the timing of the Partnership's planned disposition of its remaining
asset and the amount of proceeds received from such a disposition. It is
possible that the general partner of the related local limited partnership could
have economic or business interests which are inconsistent with those of the
Partnership. Given the limited rights which the Partnership has under the terms
of the local limited partnership agreement, any conflict between the partners
could result in delays in completing a sale of the operating property and could
lead to an impairment in the marketability of the property to third parties for
purposes of achieving the highest possible sale price.
Availability of a Pool of Qualified Buyers. The availability of a pool of
qualified and interested buyers for the Partnership's remaining asset is
critical to the Partnership's ability to realize the fair market value of such
property at the time of its final disposition. Demand by buyers of multi-family
apartment properties is affected by many factors, including the size, quality,
age, condition and location of the subject property, potential environmental
liability concerns, the existing debt structure, the liquidity in the debt and
equity markets for asset acquisitions, the general level of market interest
rates and the general and local economic climates.
Inflation
- ---------
The Partnership completed its sixteenth full year of operations in 1999.
To date, the effects of inflation and changes in prices on the Partnership's
operating results have not been significant. Since the Partnership expects to be
liquidated in calendar year 2000, inflation and changes in prices are also not
expected to have a significant impact on the Partnership's future operating
results.
Item 7A. Market Risk Disclosures
As discussed further in the notes to the accompanying financial
statements, the Partnership's financial instruments are limited to cash and cash
equivalents. The cash equivalents are invested exclusively in short-term money
market instruments. The Partnership does not invest in derivative financial
instruments or engage in hedging transactions. In light of these facts,
management does not believe that the Partnership's financial instruments have
any material exposure to market risk factors.
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 40 8/22/96
Terrence E. Fancher Director 46 10/10/96
Walter V. Arnold Senior Vice President
and Chief Financial Officer 52 10/29/85
Thomas W. Boland Vice President and Controller 37 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.
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.
Thomas W. Boland is a Vice President and Controller of the Managing General
Partner and a Vice President and Controller 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, 1999 all filing
requirements applicable to the officers and directors of the Managing General
Partner and ten-percent beneficial holders were complied with.
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 June 30, 1994 to
September 30, 1996. The Partnership's 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. Subsequent distributions, based on management's
assessment of distributable cash, were expected to be made on an annual basis.
No distributions were made during 1999 and 1997, and an annual distribution at a
rate of 2% on original invested capital was made in 1998. 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, 1999.
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, 1999 is $38,000, 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 $1,000 (included in general and administrative expenses) for managing the
Partnership's cash assets during the year ended December 31, 1999. 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 1999.
However, a Current Report on Form 8-K dated February 15, 2000 was filed
by the Partnership subsequent to year-end to report the sale of the
Partnership's interests in five real estate limited partnerships and is
hereby incorporated herein by reference.
(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 and Controller
Dated: March 29, 2000
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: March 29, 2000
------------------- --------------
Bruce J. Rubin
Director
By: /s/ Terrence E. Fancher Date: March 29, 2000
----------------------- --------------
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 reference.
of the registrant together with all
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, 1999
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>
<TABLE>
ANNUAL REPORT ON FORM 10-K
Item 14(a) (1) and (2) and 14(d)
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Reference
---------
<S> <C>
Paine Webber/CMJ Properties, LP
Independent Auditors' Report F-4
Balance sheets at December 31, 1999 and 1998 F-5
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-6
Statements of changes in partners' capital (deficit) for the years ended
December 31, 1999, 1998 and 1997 F-7
Statement of cash flows for the years ended December 31, 1999, 1998 and 1997 F-8
Notes to financial statements F-9
Fawcett's Pond Apartments Company
Independent Auditors' Report F-21
Balance sheets at December 31, 1999 and 1998 F-22
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-23
Statements of partners' deficit for the years ended December 31, 1999,
1998 and 1997 F-24
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-25
Notes to financial statements F-27
Quaker Meadows Apartments Company
Independent Auditors' Report F-31
Balance sheets at December 31, 1999 and 1998 F-32
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-33
Statements of partners' deficit for the years ended December 31, 1999, 1998
and 1997 F-34
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-35
Notes to financial statements F-37
South Laurel Apartments Limited Partnership
Independent Auditors' Report F-41
Balance sheets at December 31, 1999 and 1998 F-42
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-43
Statements of partners' deficit for the years ended December 31, 1999, 1998
and 1997 F-44
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-45
Notes to financial statements F-47
Marvin Gardens Associates
Independent Auditors' Report F-51
Balance sheets at December 31, 1999 and 1998 F-52
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-53
Statements of partners' deficit for the years ended December 31, 1999, 1998
and 1997 F-54
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-55
Notes to financial statements F-57
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
INDEX TO FINANCIAL STATEMENTS - continued
Reference
---------
Colonial Farms, Ltd.
Independent Auditors' Report F-61
Balance sheets at December 31, 1999 and 1998 F-62
Statements of operations for the years ended December 31, 1999, 1998 and
1997 F-63
Statements of partners' deficit for the years ended December 31, 1999, 1998
and 1997 F-64
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-65
Notes to financial statements F-67
Holbrook Apartments Company
Independent Auditors' Report F-71
Balance sheets at December 31, 1999 and 1998 F-72
Statements of operations for the years ended December 31, 1999, 1998 and 1997 F-73
Statements of partners' deficit for the years ended December 31, 1999, 1998
and 1997 F-74
Statements of cash flows for the years ended December 31, 1999, 1998 and 1997 F-75
Notes to financial statements F-77
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.
</TABLE>
<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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, 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, 1999 in conformity with generally accepted
accounting principles.
/s/ Reznick Fedder & Silverman
--------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
March 1, 2000
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except per Unit amounts)
ASSETS
1999 1998
---- ----
Investments in local limited partnerships,
at equity $ - $ 42
Cash and cash equivalents 449 341
-------- --------
$ 449 $ 383
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Accrued expenses and accounts payable $ 27 $ 18
Accounts payable - affiliates - 99
-------- --------
27 117
Partners' capital (deficit):
General Partners:
Capital contributions 1 1
Cumulative net losses (66) (68)
Cumulative distributions (7) (7)
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 (6,573) (6,727)
Cumulative distributions (612) (612)
-------- --------
Total partners' capital 422 266
-------- --------
$ 449 $ 383
======== ========
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, 1999, 1998 and 1997
(In thousands, except per Unit amounts)
1999 1998 1997
---- ---- ----
Revenues:
Interest income $ 23 $ 28 $ 26
Other income from local
limited partnerships 436 266 121
------ ------ ------
459 294 147
Expenses:
Management fees 199 199 199
General and administrative 101 166 89
------ ------ ------
300 365 288
------ ------ ------
Operating income (loss) 159 (71) (141)
Partnership's share of local limited
partnerships' income (loss) (3) 209 184
------ ------ ------
Net income $ 156 $ 138 $ 43
====== ====== ======
Net income per Limited Partnership Unit $17.57 $15.58 $ 4.85
====== ====== ======
Cash distributions per Limited
Partnership Unit $ - $20.00 $ -
====== ====== ======
The above net income and cash distributions per Limited Partnership Unit are
based upon the 8,746 Limited Partnership Units outstanding during each year.
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1999, 1998 and 1997
(In thousands)
General Limited
Partners Partners Totals
-------- -------- ------
Balance at December 31, 1996 $ (74) $ 336 $ 262
Net income 1 42 43
------- ------- -------
Balance at December 31, 1997 (73) 378 305
Cash distributions (2) (175) (177)
Net income 1 137 138
------- ------- -------
Balance at December 31, 1998 (74) 340 266
Net income 2 154 156
------- ------- -------
Balance at December 31, 1999 $ (72) $ 494 $ 422
======= ======= =======
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, 1999, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 156 $ 138 $ 43
Adjustments to reconcile net income
to net cash used in operating activities:
Other income from local limited
partnerships (436) (266) (121)
Partnership's share of local limited
partnerships' income (loss) 3 (209) (184)
Changes in assets and liabilities:
Accrued expenses and accounts payable 9 2 (5)
Accounts payable - affiliates (99) (100) 67
------ ------ ------
Total adjustments (523) (573) (243)
------ ------ ------
Net cash used in operating
activities (367) (435) (200)
------ ------ ------
Cash flows from investing activities:
Distributions from local limited
partnerships 475 460 370
------ ------ ------
Net cash provided by investing
activities 475 460 370
------ ------ ------
Cash flows from financing activities:
Distributions to partners - (177) -
------ ------ ------
Net cash used in financing
activities - (177) -
------ ------ ------
Net increase (decrease) in cash and
cash equivalents 108 (152) 170
Cash and cash equivalents,
beginning of year 341 493 323
------ ------ ------
Cash and cash equivalents, end of year $ 449 $ 341 $ 493
====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
PAINE WEBBER/CMJ PROPERTIES, LP
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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 received 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. As
of December 31, 1999, the Partnership retained an ownership interest in all six
of its original operating investment properties. As of December 31, 1999, all of
the properties were generating sufficient cash flow from operations after
covering their operating expenses and debt service payments, and all of the
properties were generating excess cash flow, a portion of which was being
distributed to the Partnership on an annual basis in accordance with the
respective regulatory and limited partnership agreements. Due to improvements in
cash flow and the strong operating performances of the investment properties,
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. Based on an increase in the level of the cash flow distribution
from the operating investment properties, an annual distribution totalling
approximately $175,000, or $20 per original $1,000 investment, was made to the
Limited Partners in 1998. No distributions were paid in 1999 or 1997.
The Partnership has been pursuing potential disposition strategies for the
six investments in its portfolio. As discussed further in Note 4, during 1998
the Partnership initiated the formal process prescribed in the local limited
partnership agreements for liquidating the Partnership's interests in the local
limited partnerships. On February 15, 2000, the Partnership sold its interests
in five of the six real estate limited partnerships that it held: Holbrook
Apartments Company, which owns the Ramblewood Apartments in Holbrook,
Massachusetts; Fawcett's Pond Apartment Company, which owns the Village at
Fawcett's Pond Apartments in Hyannis, Massachusetts; Quaker Meadows Apartment
Company, which owns the Quaker Court Apartments and The Meadows Apartments in
Lynn, Massachusetts; Marvin Gardens Associates, which owns the Marvin Gardens
Apartments in Cotati, California; and Colonial Farms Ltd., which owns the
Colonial Farms Apartments in Modesto, California. The limited partnership
interests were sold for total consideration of $2,750,000 to affiliates of the
operating general partners of the local limited partnerships. The sales closed
into escrow on February 15, 2000 pending the receipt of the required regulatory
approvals from the various lenders and state and federal housing agencies that
subsidize the related residential apartment properties. The sale proceeds were
to be released to the Partnership upon the receipt of all of the required
regulatory approvals, but in no event later than March 31, 2000. On March 1,
2000, the affiliated buyers agreed to the release of the escrowed funds to the
Partnership and indemnified the Partnership for any approvals not yet received.
A special distribution of the net proceeds from these sale transactions will be
made to the Limited Partners on or before March 31, 2000.
As previously reported, 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. In October 1998, the Partnership gave the written notice described
above to the operating general partner of all six local limited partnerships
after meeting with representatives of the operating general partner to discuss
the Partnership's desire to liquidate its investments in the near term. With
regard to the five properties that were still receiving government subsidies,
the associated distributable cash flow restrictions, substantial capital reserve
requirements and regulatory reporting obligations, which are characteristic of
all subsidized low-income housing properties, significantly limited the pool of
potential buyers for these real estate assets. Furthermore, the uncertainty
regarding potential future reductions in the level of federal government
assistance for these programs further restricted the properties' marketability.
Consequently, a negotiated sale of the Partnership's interests in these
properties to the operating general partners, which receive management fee
revenues from the properties through an affiliated management company, was
deemed to be in the best interests of the Limited Partners.
Notwithstanding the restrictions on the Partnership's ability to cause a
sale of the properties, the Partnership and the operating general partner of the
Villages at Montpelier limited partnership reached an informal agreement during
the third quarter of 1999 to initiate a joint marketing effort for the sale of
the Villages at Montpelier property, which no longer receives any government
subsidies. In July, marketing proposals were requested from three real estate
brokerage firms with a strong background in selling apartment properties. In
August, after a review of each company's proposals and their capabilities to
sell this property, the Partnership selected one of the firms and negotiated an
agreement with them to sell the property. Marketing materials were prepared and
comprehensive sale efforts began in early March 2000. The Partnership's success
in meeting its capital preservation objective will depend upon the proceeds
received from the sale of this final asset, which cannot presently be
determined. Based on management's estimate of the current fair market value of
the Villages at Montpelier property, it appears unlikely at this time that the
Partnership will realize any potential capital appreciation on its portfolio of
investments taken as a whole. A sale of the Partnership's final asset, which
management currently expects to complete during the second quarter of calendar
year 2000, would be followed by an orderly liquidation of the Partnership.
Because a buyer of the Villages at Montpelier property is expected to assume the
existing HUD-insured mortgage loan secured by the property, a sale transaction
will require formal HUD approval, which could take as long as 90-to-120 days
after closing to receive. Accordingly, the final distribution of proceeds from
the sale of the Villages at Montpelier property and the formal liquidation of
the Partnership may not be completed until the third quarter of 2000.
Notwithstanding management's expectations, there are no assurances that the
disposition of the remaining asset and a liquidation of the Partnership will be
completed within this time frame.
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, 1999 and 1998 and revenues and expenses for
each of the three years in the period ended December 31, 1999. 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, 1999. The carrying amount of cash and cash equivalents approximates
their fair value as of December 31, 1999 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 $18,160,000 as of December 31,
1999 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. In accordance with the Partnership Agreement, sale or
refinancing proceeds are to be distributed first, 100% to the Limited Partners
until the Limited Partners have received an amount equal to their Adjusted
Capital Contributions. Then a real estate brokerage commission is payable to the
Partnership's Adviser. In connection with the sale of each property, the Adviser
is entitled to receive a real estate brokerage commission in an amount equal to
the lower of 1% of the selling prices of the properties in the portfolio or 50%
of the standard real estate brokerage commission that would be charged by
unaffiliated third parties providing comparable services in the areas where the
property is located. Any remaining sale or refinancing proceeds would be
distributed 85% to the Limited Partners and 15% to the General Partners.
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 ended
December 31, 1999, 1998 and 1997. Accounts payable - affiliates at December 31,
1998 consisted of management fees of $99,000 payable to the Adviser.
Included in general and administrative expenses for the years ended
December 31, 1999, 1998 and 1997 is $38,000, $37,000 and $35,000, 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 $1,000, $2,000 and $2,000,
(included in general and administrative expenses) for managing the Partnership's
cash assets during the years ended December 31, 1999, 1998 and 1997,
respectively.
4. Local Limited Partnerships
--------------------------
As of December 31, 1999, the Partnership had 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, 1999 and 1998
(In thousands)
Assets
------
1999 1998
---- ----
Current assets $ 2,009 $ 1,800
Restricted deposits and funded reserves 1,991 2,127
Operating investment property, net 22,352 23,441
Other assets 921 963
-------- --------
$ 27,273 $ 28,331
======== ========
Liabilities and Capital
-----------------------
Current liabilities and tenant
security deposits $ 1,642 $ 1,280
Due to general partner 2,509 2,509
Long-term mortgage debt, less current portion 30,986 31,663
Partnership's share of combined partners'
deficit accounts (4,582) (3,919)
Local partners' shares of combined partners'
deficit accounts (3,282) (3,202)
-------- --------
$ 27,273 $ 28,331
======== ========
Condensed Combined Summary of Operations
For the years ended December 31, 1999, 1998 and 1997
(In thousands)
1999 1998 1997
---- ---- ----
Rental revenues, including
government subsidies $ 9,850 $ 10,039 $ 9,963
Other income 291 114 130
------- -------- --------
10,141 10,153 10,093
Property operating expenses 6,217 5,847 5,834
Interest expense and mortgage
insurance 2,815 2,868 2,904
Depreciation and amortization 1,308 1,373 1,389
------- -------- --------
10,340 10,088 10,127
------- -------- --------
Net income (loss) $ (199) $ 65 $ (34)
======= ======== ========
Net income (loss):
Partnership's share of
operations $ (188) $ 52 $ (37)
Local partners' share of
operations (11) 13 3
------- -------- --------
$ (199) $ 65 $ (34)
======= ======== ========
Reconciliation of Partnership's Share of Operations
(In thousands)
1999 1998 1997
---- ---- ----
Partnership's share of
operations, as shown above $ (188) $ 52 $ (37)
Losses in excess of basis not
recognized by Partnership 185 157 221
Income offset with prior year
unrecognized losses - - -
------- -------- --------
Partnership's share of local
limited partnerships' income
(loss) $ (3) $ 209 $ 184
======= ======== ========
<PAGE>
Reconciliation of Partnership's Investments
(In thousands)
1999 1998
---- ----
Partnership's share of combined partners'
deficit accounts, as shown above $ (4,582) $ (3,919)
Accumulated losses in excess of basis
not recognized by Partnership 2,666 2,481
Cumulative distributions in excess
of investment basis 1,901 1,465
Excess basis in local limited partnerships 15 15
-------- --------
Investments in local limited
partnerships, at equity $ - $ 42
======== ========
"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 regulatory agreements and 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. In October 1998,
the Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the operating general partner to discuss the Partnership's desire to
liquidate its investments in the near term. With regard to the five properties
that were still receiving government subsidies, the associated distributable
cash flow restrictions, substantial capital reserve requirements and regulatory
reporting obligations, which are characteristic of all subsidized low-income
housing properties, significantly limited the pool of potential buyers for these
real estate assets. Furthermore, the uncertainty regarding potential future
reductions in the level of federal government assistance for these programs
further restricted the properties' marketability. Consequently, a negotiated
sale of the Partnership's interests in these properties to the operating general
partners, which receive management fee revenues from the properties through an
affiliated management company, was deemed to be in the best interests of the
Limited Partners. As discussed further below and in Note 1, on February 15, 2000
the Partnership sold its interests in five of the six real estate limited
partnerships for total consideration of $2,750,000 to affiliates of the
operating general partners of the local limited partnerships. Subsequent to the
sale of these five local limited partnership interests, the Partnership and the
local general partner of the sixth and final local limited partnership began a
joint marketing effort for the sale of the Villages at Montpelier Apartments. A
sale of the Partnership's final asset, which management currently expects to
complete during the second quarter of calendar year 2000, would be followed by
an orderly liquidation of the Partnership.
"Investments in local limited partnerships, at equity" on the balance
sheets is comprised of the following local limited partnership investments, at
the balances indicated (in thousands):
1999 1998
---- ----
Fawcett's Pond Apartments Company $ - $ 42
Quaker Meadows Apartments Company - -
South Laurel Apartments Limited Partnership - -
Marvin Gardens Associates - -
Colonial Farms Ltd. - -
Holbrook Apartments Company - -
------ -------
Investments in local limited
partnerships, at equity $ - $ 42
====== =======
<PAGE>
The Partnership received cash distributions from the limited partnerships
as set forth below (in thousands):
1999 1998 1997
---- ---- ----
Fawcett's Pond Apartments Company $ 24 $ 24 $ 24
Quaker Meadows Apartments Company 63 99 90
South Laurel Apartments Limited
Partnership 113 66 -
Marvin Gardens Associates 16 11 4
Colonial Farms Ltd. 22 26 27
Holbrook Apartments Company 237 234 225
------- ------- -------
$ 475 $ 460 $ 370
======= ======= =======
The investments in Fawcett's Pond Apartments Company, Quaker Meadows
Apartments Company, South Laurel Apartments Limited Partnership, Marvin Gardens
Associates and Colonial Farms Ltd. at December 31, 1999 do not reflect
accumulated losses therefrom of $66,000, $1,323,000, $902,000, $199,000 and
$176,000, 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 1999,
1998 and 1997 were $743,000, $749,000 and $752,000, respectively. Such amounts
comprised approximately 76%, 77% and 76%, 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 was 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, 1999 of approximately $4,122,000, payable
in monthly installments of $30,746 including principal and interest at 7.5%.
On February 15, 2000, the Partnership sold its interest in Fawcett's Pond
to an affiliate of the operating general partner of the local limited
partnership for net consideration of $82,545. The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory approvals from
the mortgage lender and state and federal housing agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership upon the receipt of all of the required regulatory approvals,
but in no event later than March 31, 2000. On March 1, 2000, the affiliated
buyer agreed to the release of the escrowed funds to the Partnership and
indemnified the Partnership for any approvals not yet received. As a result of
this transaction, the Partnership no longer has any interest in the Village at
Fawcett's Pond Apartments.
The partnership agreement generally provided that the Partnership would
receive 95% of annual distributable cash flow payable annually and that the
local partners were entitled to receive 5% of annual distributable cash flow.
Cash distributions and incentive management fees were limited by agreements
between the limited partnership and HUD to 6% of the initial equity investment.
The agreement also provided that taxable income and tax loss in each year
were to be allocated, generally, in the same proportion as cash flow was
distributed in that year.
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 is also 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,
1999.
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 1999, 1998 and 1997
were $1,351,000, $1,310,000 and $1,313,000, respectively. Such amounts comprised
approximately 81%, 81% and 81% of the limited partnership's total revenues in
each of such years.
The aggregate investment by the Partnership for the 95% interest was
$1,358,925 (including an acquisition fee of $104,525 paid to the Adviser of the
Partnership). The Partnership's interest was 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, 1999 of approximately $4,840,000, payable in monthly
installments of $62,930 including principal and interest at 12.5%.
On February 15, 2000, the Partnership sold its interest in Quaker Meadows
to an affiliate of the operating general partner of the local limited
partnership for net consideration of $803,969. The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory approvals from
the mortgage lender and state and federal housing agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership upon the receipt of all of the required regulatory approvals,
but in no event later than March 31, 2000. On March 1, 2000, the affiliated
buyer agreed to the release of the escrowed funds to the Partnership and
indemnified the Partnership for any approvals not yet received. As a result of
this transaction, the Partnership no longer has any interest in the Quaker Court
and The Meadows Apartments.
The restated partnership agreement generally provided that the Partnership
would receive 95% of annual distributable cash flow payable annually and that
the local partners would be entitled to receive 5% of annual distributable cash
flow. Cash distributions were limited by agreements between the limited
partnership and MHFA to the extent funds available for distribution as defined
by MHFA.
The agreement also provided that taxable income and tax loss in each year
would be allocated, generally, in the same proportion as cash flow was
distributed in that year.
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 is also paid on an annual basis in
the event that the property's cash flow exceeds certain target amounts.
Incentive management fees of $42,000, $77,000 and $69,000 were paid to an
affiliate of the local general partners for the years ended December 31, 1999,
1998 and 1997, 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 subsidy agreement expired on
July 31, 1997, and management did not apply for an extension of the agreement.
The units previously designated as low-income units have been re-leased at
market rates which has kept the total revenues of the local limited partnership
relatively unchanged from the previously subsidized level. Total rent subsidy
received by the limited partnership during 1997 was $506,000. Such amount
comprised approximately 12% of the limited partnership's total revenue for that
year.
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, 1999 of approximately $11,525,000, 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 $40,000 and $3,000 were paid to an affiliate of the
local general partners for 1999 and 1998, respectively. No incentive management
fees were earned for the year ended December 31, 1997.
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 ("Marvin Gardens") 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 1999, 1998 and 1997 were $313,000,
$309,000 and $329,000, respectively. Such amounts comprised approximately 75%,
74% and 77%, 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, 1999 of approximately $1,500,000, payable to the California Housing
Finance Agency (CHFA) in monthly installments of $15,310, including principal
and interest at 8.15%.
On February 15, 2000, the Partnership sold its interest in Marvin Gardens
to an affiliate of the operating general partner of the local limited
partnership for net consideration of $254,420. The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory approvals from
the mortgage lender and state and federal housing agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership upon the receipt of all of the required regulatory approvals,
but in no event later than March 31, 2000. On March 1, 2000, the affiliated
buyer agreed to the release of the escrowed funds to the Partnership and
indemnified the Partnership for any approvals not yet received. As a result of
this transaction, the Partnership no longer has any interest in the Marvin
Gardens Apartments.
The restated partnership agreement generally provided that the Partnership
would receive 95% of annual distributable cash flow payable annually and that
the local partners would be entitled to receive 5% of annual distributable cash
flow. Cash distributions were 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 were cumulative and
could be distributed in subsequent years if future operations provided surplus
cash in excess of current requirements.
The agreement also provided that taxable income and tax loss in each year
would be allocated, generally, in the same proportion as cash flow was
distributed in that year.
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 is also paid on an annual basis in the event that the
property's cash flow exceeds certain target amounts. Incentive management fees
of $5,000 and $1,000 were paid to an affiliate of the local general partners for
the years ended December 31, 1999 and 1998, respectively. No incentive
management fees were earned for the year ended December 31, 1997.
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
("Colonial Farms") 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 1999, 1998 and 1997 were $561,000, $531,000 and
$579,000, respectively. Such amounts comprised approximately 69%, 65% and 71%,
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 was held subject to a permanent
nonrecourse mortgage loan due June 1, 2013 with an outstanding balance at
December 31, 1999 of approximately $2,537,000, payable to CHFA in monthly
installments of $27,411, including principal and interest at 9.15%
On February 15, 2000, the Partnership sold its interest in Colonial Farms
to an affiliate of the operating general partner of the local limited
partnership for net consideration of $387,849. The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory approvals from
the mortgage lender and state and federal housing agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership upon the receipt of all of the required regulatory approvals,
but in no event later than March 31, 2000. On March 1, 2000, the affiliated
buyer agreed to the release of the escrowed funds to the Partnership and
indemnified the Partnership for any approvals not yet received. As a result of
this transaction, the Partnership no longer has any interest in the Colonial
Farms Apartments.
The restated partnership agreement generally provided that the Partnership
would receive 95% of annual distributable cash flow payable annually and that
the local partners would be entitled to receive 5% of annual distributable cash
flow. Cash distributions were 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 were cumulative and
could be distributed in subsequent years if future operations provided surplus
cash in excess of current requirements.
The agreement also provided that taxable income and tax loss in each year
would be allocated, generally, in the same proportion as cash flow was
distributed in that year.
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 is also 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 were paid to an
affiliate of the local general partners for each of the three years in the
period ended December 31, 1999.
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 ("Holbrook Apartments") 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 1999, 1998 and 1997 were $1,570,000,
$1,574,000 and $1,565,000, respectively. Such amounts comprised approximately
75%, 75% and 74% 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, 1999 of approximately $7,139,000, payable to GNMA in monthly installments of
$54,207 including principal and interest at 7.5%.
On February 15, 2000, the Partnership sold its interest in Holbrook
Apartments to an affiliate of the operating general partner of the local limited
partnership for net consideration of $1,221,217. The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory approvals from
the mortgage lender and state and federal housing agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership upon the receipt of all of the required regulatory approvals,
but in no event later than March 31, 2000. On March 1, 2000, the affiliated
buyer agreed to the release of the escrowed funds to the Partnership and
indemnified the Partnership for any approvals not yet received. As a result of
this transaction, the Partnership no longer has any interest in the Ramblewood
Apartments.
The restated partnership agreement generally provided that the Partnership
would receive 85% of annual distributable cash flow payable annually and that
the local partners would be entitled to receive 15% of annual distributable cash
flow. Cash distributions were limited by agreements between the limited
partnership and HUD to the extent of surplus cash, as defined by HUD.
The agreement also provided that taxable income and tax loss in each year
would be allocated, generally, in the same proportion as cash flow was
distributed in that year.
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 is also paid on an annual basis in
the event that the property's cash flow exceeds certain target amounts.
Incentive management fees of $155,000, $153,000 and $146,000 were paid to an
affiliate of the local general partners for the years ended December 31, 1999,
1998 and 1997, respectively.
<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, 1999 and 1998, and the related statements
of operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1999. 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 requires 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, 1999 and 1998, and the results of its operations, the
changes in partners' deficit and its cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note J as to which the
date is March 1, 2000
<PAGE>
FAWCETT'S POND APARTMENTS COMPANY
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 377,797 $ 378,141
Accounts receivable 3,060 2,647
Due from affiliates 2,366 -
Prepaid expenses 12,629 12,464
---------- ----------
Total current assets 395,852 393,252
---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants' security deposits 19,173 20,583
Mortgage escrow deposits 28,212 53,570
Reserve for replacements 279,007 286,880
---------- ----------
326,392 361,033
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $2,494,671 and $2,344,695 3,209,743 3,298,592
DEFERRED FINANCING COSTS, net of accumulated
amortization of $138,431 and $130,269 198,295 206,486
---------- ----------
Total assets $4,130,282 $4,259,363
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 61,920 $ 57,459
Accounts payable and accrued expenses 18,544 11,851
Accrued interest payable 25,761 26,120
Rent deferred credits 65,070 2,966
---------- ----------
Total current liabilities 171,295 98,396
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 4,059,795 4,121,716
Due to general partner 277,400 277,400
Tenants' security deposits 19,018 19,850
---------- ----------
Total liabilities 4,527,508 4,517,362
PARTNERS' DEFICIT (397,226) (257,999)
---------- ----------
Total liabilities and partners' deficit $4,130,282 $4,259,363
========== ==========
See notes to financial statements
<PAGE>
FAWCETT'S POND APARTMENTS COMPANY
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income, net $ 937,498 $ 940,839 $ 941,478
Financial revenue 16,658 17,448 25,534
Other income 17,968 16,596 16,701
--------- --------- ---------
Total revenue 972,124 974,883 983,713
--------- --------- ---------
Expenses
Operating expenses
Marketing 1,324 751 1,756
Administration 44,693 48,067 59,354
Utilities 29,541 27,464 30,591
Management fee 46,875 47,131 47,098
Maintenance and repairs 286,032 114,064 126,573
Salaries 91,414 92,736 76,232
Payroll taxes 7,178 8,111 7,648
Insurance 22,901 23,832 25,206
Real estate taxes 59,194 46,352 67,717
--------- --------- ---------
Total operating expenses 589,152 408,508 442,175
--------- --------- ---------
Nonoperating expenses
Interest 311,130 315,296 319,161
Mortgage insurance premium 20,739 21,018 21,275
Depreciation and amortization 158,139 160,760 162,549
Incentive management fee 6,303 6,303 6,303
Miscellaneous financial expenses 674 345 625
--------- --------- ---------
Total nonoperating expenses 496,985 503,722 509,913
--------- --------- ---------
Total expenses 1,086,137 912,230 952,088
--------- --------- ---------
EXCESS (DEFICIENCY) OF
REVENUE OVER EXPENSES $(114,013) $ 62,653 $ 31,625
========= ========= =========
See notes to financial statements
<PAGE>
FAWCETT'S POND APARTMENTS COMPANY
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
General Limited
Partner Partner Total
------- ------- -----
Partners' deficit, December 31, 1996 $ (71,952) $(229,897) $(301,849)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 1,581 30,044 31,625
--------- --------- ---------
Partners' deficit, December 31, 1997 (71,632) (223,806) (295,438)
Distributions (1,261) (23,953) (25,214)
Excess of revenue over expenses 3,133 59,520 62,653
--------- --------- ---------
Partners' deficit, December 31, 1998 (69,760) (188,239) (257,999)
Distributions (1,261) (23,953) (25,214)
Excess of expenses over revenue (5,701) (108,312) (114,013)
--------- --------- ---------
Partners' deficit, December 31, 1999 $ (76,722) $(320,504) $(397,226)
========= ========= =========
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, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Rental income received $ 999,410 $ 942,681 $ 941,319
Interest received 13,523 17,448 15,978
Other income received 17,747 16,596 16,600
Administrative expenses paid (140,690) (96,205) (97,068)
Management fees paid (47,319) (47,131) (47,098)
Utilities paid (26,791) (30,782) (28,522)
Maintenance and repairs expenses paid (278,388) (164,733) (171,100)
Real estate taxes paid (59,194) (80,210) (33,859)
Payroll taxes paid (7,178) (8,111) (7,648)
Property insurance paid (8,621) (8,233) (8,275)
Other taxes and insurance paid (14,539) (15,571) (16,038)
Interest paid on mortgage (311,488) (315,629) (319,470)
Mortgage insurance paid (20,645) (20,929) (21,193)
Miscellaneous financial expenses paid (674) (345) (625)
Mortgagor entity expenses paid (6,303) (6,303) (6,303)
(Increase) decrease in mortgage escrow
deposits 25,358 14,057 (31,945)
Net security deposits received (paid) 578 281 3,745
---------- ---------- ----------
Net cash provided by operating
activities 134,786 196,881 188,498
---------- ---------- ----------
Cash flows from investing activities
Additions to property and equipment (61,127) (72,415) (78,343)
Deposits to reserve for replacements (22,092) (22,092) (22,092)
Withdrawals from reserve for
replacements 33,099 416 17,312
Increase in due from affiliates (2,336) - -
---------- ---------- ----------
Net cash used in investing
activities (52,456) (94,091) (83,123)
---------- ---------- ----------
Cash flows from financing activities
Repayment of mortgage payable (57,460) (53,319) (49,479)
Distributions (25,214) (25,214) (25,214)
---------- ---------- ----------
Net cash used in financing
activities (82,674) (78,533) (74,693)
---------- ---------- ----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (344) 24,257 30,682
Cash and cash equivalents, beginning 378,141 353,884 323,202
---------- ---------- ----------
Cash and cash equivalents, ending $ 377,797 $ 378,141 $ 353,884
========== ========== ==========
(continued)
<PAGE>
<TABLE>
FAWCETT'S POND APARTMENTS COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of excess (deficiency)
of revenue over expenses to net cash
provided by operating activities
Excess (deficiency) of revenue
over expenses $ (114,013) $ 62,653 $ 31,625
Adjustments to reconcile excess
(deficiency) of revenue over
expenses to net cash provided by
operating activities
Depreciation 149,977 152,601 154,387
Amortization 8,162 8,159 8,162
Interest earned on reserve for
replacements (3,136) - (9,103)
Changes in assets and liabilities
Increase in accounts receivable (413) (636) (394)
(Increase) decrease in prepaid
expenses (165) 117 975
Decrease (increase) in mortgage
escrow deposits 25,358 14,057 (31,945)
Decrease in tenants' security
deposits - net 578 281 3,745
Increase (decrease) in accounts
payable and accrued expenses 6,693 (42,496) 31,674
Decrease in accrued interest payable (359) (333) (309)
Increase (decrease) in rent-deferred
credits 450 2,478 (319)
Increase in deferred subsidy income 61,654 - -
---------- --------- ---------
Net cash provided by operating activities $ 134,786 $ 196,881 $ 188,498
========== ========= =========
</TABLE>
See notes to financial statements
<PAGE>
FAWCETT'S POND APARTMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fawcett's Pond Apartments Company (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.
Annual cash distributions and incentive management fees are limited by
agreements between the Partnership and the Department of Housing and Urban
Development (HUD) to $31,517 which represents 6% of the initial equity
investment, 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
approximate fair 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 using the straight-line method.
As of December 31, 1999, management does not believe that these are any
current facts or circumstances that would indicate impairment of the rental
property in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121.
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 - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999 and 1998, the Partnership maintained tenant security
deposits of $19,173 and $20,583 in interest-bearing escrow bank accounts.
The Partnership also has a reserve for replacements and mortgage escrow
deposits totaling $307,219 and $340,450 at December 31, 1999 and 1998,
respectively, on deposit with Reilly Mortgage Group, Inc. These funds are
held in interest-bearing bank accounts and money market accounts, which are
carried at cost and approximate fair value.
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at December
31, 1999 and 1998:
1999 1998
---- ----
Land $ 440,000 $ 440,000
Buildings and improvements 4,431,850 4,436,077
Furniture and equipment 832,564 767,210
----------- -----------
5,704,414 5,643,287
Less accumulated depreciation 2,494,671 2,344,695
----------- -----------
$ 3,209,743 $ 3,298,592
=========== ===========
NOTE D - 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 totaling $30,746 and bears
interest at a rate of 7.5% per annum.
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, 1999, are as follows:
December 31,
------------
2000 $ 61,920
2001 $ 66,727
2002 $ 71,907
2003 $ 71,489
2004 $ 83,505
Management believes that the carrying amount of the mortgage payable
approximates fair value at December 31, 1999, as there is no significant
difference in the market rate of interest for similar debt between that date
and the date of the mortgage.
NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT
The 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 1999, 1998 and 1997 were $742,514, $749,294, and $751,930,
respectively.
NOTE F - RELATED PARTY TRANSACTIONS
Due to General Partner
----------------------
At December 31, 1999 and 1998, 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
---------------
The project is managed by CMJ Management Company, Inc. (CMJ Management), an
affiliate of the general partner, pursuant to an agreement approved by HUD
which provides for a management fee of 5% of monthly rental collections.
Management fees totaled $46,875, $47,131 and $47,098 for 1999, 1998 and 1997,
respectively. Further, CMJ Management is paid accounting and bookkeeping fees
which amounted to $8,748 for each of the years ended December 31, 1999, 1998
and 1997. In addition, CMJ Management received incentive management fees of
$6,303 payable from distributable cash for each of the years ended December
31, 1999, 1998 and 1997.
<PAGE>
Reimbursed Costs
----------------
CMJ Management and affiliates make monthly expenditures (primarily payroll,
central office accounting services, direct marketing and insurance costs) on
behalf of the Partnership, which are reimbursed the following month. As of
December 31, 1999, intercompany balances receivable totaled $2,366.
Laundry Services
----------------
During 1999, the Partnership entered into an agreement with Norlantic Laundry
Services, Inc., an affiliate of the general partner, to provide laundry
facilities for the project. The Partnership received 50% of the revenue
earned on the laundry facilities which totaled $3,613 as of December 31,
1999, and is included in other income.
Maintenance Services
--------------------
During the year, the Partnership contracted with Go Pro Maintenance Services,
Inc., an affiliate of the general partner, to perform certain repairs and
maintenance. As of December 31, 1999, $45,000 has been incurred.
NOTE G - TAX BASIS INCOME (LOSS)
The reconciliation of the excess (deficiency) of revenue over expenses
reported in the accompanying statements of operations with the income (loss)
reported on the Federal income tax basis follows:
1999 1998 1997
---- ---- ----
Excess (deficiency) of revenue
over expenses per statement
of operations $ (114,013) $ 62,653 $ 31,625
GAAP to tax depreciation adjustment 107,765 (137,101) (56,395)
Deferred rental income adjustment 62,104 2,248 328
---------- --------- ---------
Income (loss) for Federal
income tax purposes $ 55,856 $ (72,200) $ (24,442)
========== ========= =========
NOTE H - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances, security deposits held in
trust with major financial institutions and its funded reserve with the
mortgage lender. The cash balances consist of a repurchase agreement backed
by government securities totaling $383,207 and a checking account. The
security deposits consist of a savings account. The checking and savings
account balances in the bank are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Partnership has not experienced any losses
with respect to bank balances in excess of government provided insurance.
Management believes that no significant concentration of credit risk exists
with respect to these cash balances at December 31, 1999.
NOTE J - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS
The Partnership agreement allows the limited partner to cause the sale of
the assets of the Partnership subsequent to June 30, 1995, but not earlier
than one year after it has given written notice of its desire to cause such
sale to the general partner, and only if, during such one-year period, the
general partner does not cause the sale of the Partnership's assets. If the
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 the assets to the general partner, and
either the general partner does not accept such offer within 90 days of
receiving it, or the general partner does not complete the sale in accordance
with such offer after accepting the terms. In October 1998, the limited
partner gave the written notice described above to the general partner of the
Partnership and exercised its rights under the Partnership agreement to cause
the sale of the Partnership's assets. At December 31, 1999, the general
partner was negotiating with the limited partner for the purchase of its
interest in the Partnership.
Subsequent to year-end, on February 15, 2000 an affiliate of the general
partner purchased the limited partner's interest in the Partnership for net
consideration of $82,545. The sale closed into escrow on February 15, 2000
pending the receipt of the required regulatory approvals from the mortgage
lender and state and federal housing agencies that subsidize the
Partnership's residential apartment property. The sale proceeds were to be
released to the former limited partner upon the receipt of all of the
required regulatory approvals, but in no event later than March 31, 2000. On
March 1, 2000, the affiliated buyer agreed to the release of the escrowed
funds to the former limited partner and indemnified the limited partner for
any approvals not yet received. It is the general partner's intention to
continue the business of the Partnership.
<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, 1999 and 1998, and the related statements of
operations, partner's deficit and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
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 present fairly, in all material
respects, the financial position of Quaker Meadows Apartments Company as of
December 31, 1999 and 1998, and the results of its operations, the changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ REZNICK FEDDER & SILVERMAN
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note I as to which
the date is March 1, 2000
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 141,167 $ 189,109
Accounts receivable - tenants 8,729 6,549
Accounts receivable - subsidy 106,559 42,715
Other receivables 720 381
Prepaid expenses 1,068 1,068
---------- ----------
Total current assets 258,243 239,822
---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenant security deposits 19,211 18,685
Mortgage escrow deposits 12,603 12,742
Reserve for replacements 262,141 254,514
---------- ----------
293,955 285,941
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,536,826 and $4,324,098 3,329,417 3,520,803
DEFERRED FINANCING COSTS, net of accumulated
amortization of $70,656 and $66,591 59,495 63,560
---------- ----------
Total assets $3,941,110 $4,110,126
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 151,877 $ 135,044
Accounts payable and accrued expenses 97,426 46,245
Accrued interest payable 50,778 52,125
Rent deferred credits 23,230 3,658
---------- ----------
Total current liabilities 323,311 237,072
---------- ----------
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 4,688,074 4,839,950
Due to general partner 1,072,952 1,072,952
Tenants' security deposits 16,235 16,594
---------- ----------
Total liabilities 6,100,572 6,166,568
PARTNERS' DEFICIT (2,159,462) (2,056,442)
---------- ----------
Total liabilities and partners' deficit $3,941,110 $4,110,126
========== ==========
See notes to financial statements
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income $1,660,022 $1,594,319 $1,600,492
Less vacancies (16,202) - (1,774)
Financial revenue 14,548 19,081 24,836
Other income 10,372 530 1,718
---------- ---------- ----------
Total revenue 1,668,740 1,613,930 1,625,272
---------- ---------- ----------
Expenses
Operating expenses
Administration 107,917 89,376 58,502
Management fees to affiliate 66,028 63,652 63,958
Utilities 123,967 130,386 136,254
Maintenance and repairs 287,419 167,879 220,781
Insurance 12,251 12,753 14,026
Real estate taxes 56,413 59,519 50,624
Salaries 152,777 130,272 125,272
---------- ---------- ----------
Total operating expenses 806,772 653,837 669,417
---------- ---------- ----------
Nonoperating expenses
Interest 618,770 634,112 641,632
Depreciation and amortization 216,796 270,251 274,586
Incentive management fee 41,810 76,627 68,655
Social services expense 21,578 36,080 32,757
---------- ---------- ----------
Total nonoperating expenses 898,954 1,017,070 1,017,630
---------- ---------- ----------
Total expenses 1,705,726 1,670,907 1,687,047
---------- ---------- ----------
EXCESS OF EXPENSES OVER
REVENUES $ (36,986) $ (56,977) $ (61,775)
========== ========== =========
See notes to financial statements
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
General Limited
Partner Partner Total
------- ------- -----
Partners' deficit, December 31, 1996 $(332,507) $(1,406,366) $(1,738,873)
Distributions (4,753) (90,337) (95,090)
Excess of expenses over revenue (3,089) (58,686) (61,775)
--------- ----------- -----------
Partners' deficit, December 31, 1997 (340,349) (1,555,389) (1,895,738)
Distributions (5,186) (98,541) (103,727)
Excess of expenses over revenue (2,849) (54,128) (56,977)
--------- ----------- -----------
Partners' deficit, December 31, 1998 (348,384) (1,708,058) (2,056,442)
Distributions (3,303) (62,731) (66,034)
Excess of expenses over revenue (1,849) (35,137) (36,986)
--------- ----------- -----------
Partners' deficit, December 31, 1999 $(353,536) $(1,805,926 $(2,159,462)
========= =========== ===========
Profit and loss sharing percentage 5% 95% 100%
= == ===
See notes to financial statements
<PAGE>
<TABLE>
QUAKER MEADOWS APARTMENTS COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Rental income received $1,597,029 $1,588,003 $1,558,213
Interest received 5,233 6,586 6,268
Other income received 10,372 530 16,194
Administrative expenses paid (107,980) (89,376) (91,259)
Management fees paid (66,028) (63,652) (63,958)
Utilities paid (116,422) (130,386) (137,125)
Maintenance and repair expenses paid (243,723) (113,966) (202,054)
Real estate taxes paid (56,413) (59,519) (50,624)
Property insurance paid (12,251) (5,338) (12,724)
Interest paid on mortgages (620,117) (642,069) (641,632)
Salaries and wages paid (152,777) (130,272) (125,272)
Social services expenses paid (21,578) (36,080) (32,757)
Incentive fees paid (41,810) (76,627) (68,655)
(Increase) decrease in mortgage escrow deposits 139 627 (595)
(Increase) decrease in tenant security
deposits - net (885) (450) 529
---------- ---------- ----------
Net cash provided by operating activities 172,789 248,011 154,549
---------- ---------- ----------
Cash flows from investing activities
Additions to building and equipment (21,342) (18,982) (59,313)
Decrease (increase) in reserve for replacements 5,852 (31,460) 58,103
Increase in residual receipts deposits (4,164) - -
---------- ---------- ----------
Net cash used in investing activities (19,654) (50,442) (1,210)
---------- ---------- ----------
Cash flows from financing activities
Repayment of mortgage payable (135,043) (119,850) (106,769)
Distributions to partners (66,034) (103,727) (95,090)
---------- ---------- ----------
Net cash used in financing activities (201,077) (223,577) (201,859)
---------- ---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (47,942) (26,008) (48,520)
Cash and cash equivalents, beginning 189,109 215,117 263,637
---------- ---------- ----------
Cash and cash equivalents, ending $ 141,167 $ 189,109 $ 215,117
========== ========== ==========
</TABLE>
(continued)
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Reconciliation of excess of expenses
over revenue to net cash provided
by operating activities
Excess of expenses over revenue $ (36,986) $ (56,977) $(61,775)
Adjustments to reconcile excess
of expenses over revenue to
net cash provided by operating
activities
Depreciation 212,731 266,186 270,521
Amortization 4,065 4,065 4,065
Interest earned on reserve for
replacement (9,315) (12,495) (18,568)
Changes in assets and liabilities
(Increase) decrease in accounts
receivable (66,363) 42,086 (26,255)
Decrease (increase) in mortgage
escrow deposits, net 139 627 (595)
(Increase) decrease in tenants'
security deposits, net (885) (450) 529
Decrease in prepaid expenses - 7,415 1,302
Increase (decrease) in accounts
payable and accrued expenses 51,178 (2,091) (14,901)
Decrease in accrued interest
payable (1,347) - -
Increase (decrease) in rent
deferred credits 19,572 (355) 226
--------- --------- --------
Net cash provided by
operating activities $ 172,789 $ 248,011 $154,549
========= ========= ========
See notes to financial statements
<PAGE>
QUAKER MEADOWS APARTMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quaker Meadows Apartments Company (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 rental units located in Lynn, Massachusetts, and is currently
operating under the name of Quaker Meadows Apartments.
Under a regulatory agreement with MHFA, the project is regulated as to cash
distributions. Cash distributions, incentive management fees and resident
council fees are limited to funds available for distributions as defined by
MHFA.
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 fair 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 services lives using the straight-line method.
Management does not believe that there are any current facts or circumstances
that would indicate impairment of rental property in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121.
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,
which approximates the effective interest method.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
tenants of the property are operating leases.
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 - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999 and 1998, the Partnership maintained tenant security
deposits of $19,211 and $18,685, respectively, in interest bearing escrow
bank accounts and U.S. Treasury Bills. The investment in a U.S. Treasury Bill
is held to maturity and is carried at cost which approximates fair value.
The Partnership also has a reserve for replacements and escrow funds totaling
$274,744 and $267,256 at December 31, 1999 and 1998, respectively, on deposit
with MHFA. These funds are held in interest bearing bank accounts, which are
carried at cost which approximates fair value.
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at December
31, 1999 and 1998:
1999 1998
---- ----
Land $ 46,363 $ 46,363
Buildings and improvements 7,051,645 7,051,645
Furniture and equipment 768,235 746,893
----------- -----------
7,866,243 7,844,901
Less accumulated depreciation 4,536,826 4,324,098
----------- -----------
$ 3,329,417 $ 3,520,803
=========== ===========
NOTE D - MORTGAGE PAYABLE
The mortgage payable represents a permanent mortgage from the Massachusetts
Housing Finance Agency (MHFA), collateralized by a deed of trust on the
rental property and due September 1, 2013. The mortgage is payable in equal
monthly installments of $62,930 (principal and interest) at an interest rate
of 12.5%. The terms of the permanent mortgage also require monthly escrow
deposits for real estate taxes and a replacement reserve.
The liability of the Partnership under the mortgage is limited to the
underlying value of the real estate, plus other amounts deposited with the
lender.
Aggregate maturities of the mortgage payable for the five years following
December 31, 1999, are as follows:
December 31,
------------
2000 $ 151,877
2001 $ 170,808
2002 $ 192,098
2003 $ 216,043
2004 $ 242,972
Management believes it is not practical to estimate the fair value of the
mortgage payable to MHFA because programs with similar characteristics are
not currently available to the partnership.
NOTE E - 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 1999, 1998
and 1997 were $1,350,956, $1,310,382 and $1,312,610, respectively.
NOTE F - RELATED PARTY TRANSACTIONS
Due to General Partners
-----------------------
At December 31, 1999 and 1998, due to general partner consisted of unpaid
developer advances of $1,072,952. These advances are non-interest bearing and
payable from proceeds upon sale of refinancing of the project after certain
priority payments, as defined in the Partnership agreement.
Management Fees
---------------
The project is managed by CMJ Management Company, Inc. (CMJ Management), an
affiliate of the general partner, pursuant to an agreement approved by MHFA
which provides for a management fee of 4% of monthly rental collections.
Management fees totaled $66,028, $63,652 and $63,958 for 1999, 1998 and 1997,
respectively. Further, CMJ Management is paid accounting and bookkeeping fees
which amounted to $8,004, for 1999, 1998 and 1997, respectively. In addition,
CMJ Management received incentive management fees of $41,830, $76,627 and
$68,655 for the years ended December 31, 1999, 1998 and 1997, respectively.
Reimbursed Costs
----------------
CMJ Management 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.
<PAGE>
NOTE G - TAX BASIS (LOSS) INCOME
The reconciliation of the excess of expenses over revenue reported in the
accompanying statement of operations with the (loss) income reported on the
Federal income tax basis follows:
1999 1998 1997
---- ---- ----
Excess of expenses over revenues
per statement of operations $ (36,986) $ (56,977) $ (61,775)
GAAP to tax depreciation adjustment 184,916 (143,496) 26,048
Deferred rental income adjustment 19,573 3,659 226
---------- --------- ---------
Income (loss) for Federal income
tax purposes $ 167,503 $(196,814) $ (35,501)
========== ========= =========
NOTE H - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances, security deposits held in
trust with major financial institutions and its funded reserve with the
mortgage lender. The cash balances consist of a repurchase agreement backed
by government securities totaling $163,376 and a checking account. The
security deposits consist of a United States Treasury Bill in the amount of
$14,683 and a savings account. The checking and savings account balances in
the bank are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Partnership has not experienced any losses with respect to bank
balances in excess of government provided insurance. Management believes no
significant concentration of credit risk exists with respect to these cash
balances as of December 31, 1999.
NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS
The Partnership agreement allows the limited partner to cause the sale of the
assets of the Partnership subsequent to June 30, 1995, but not earlier than
one year after it has given written notice of its desire to cause such sale
to the general partner, and only if, during such one-year period, the general
partner does not cause the sale of the Partnership's assets. If the 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 the assets to the general partner, and either the general
partner does not accept such offer within 90 days of receiving it, or the
general partner does not complete the sale in accordance with such offer
after accepting the terms. In October 1998, the limited partner gave the
written notice described above to the general partner of the Partnership and
exercised its rights under the Partnership agreement to cause the sale of the
Partnership's assets. At December 31, 1999, the general partner was
negotiating with the limited partner for the purchase of its interest in the
Partnership.
Subsequent to year-end, on February 15, 2000 an affiliate of the general
partner purchased the limited partner's interest in the Partnership for net
consideration of $803,969. The sale closed into escrow on February 15, 2000
pending the receipt of the required regulatory approvals from the mortgage
lender and state and federal housing agencies that subsidize the
Partnership's residential apartment property. The sale proceeds were to be
released to the former limited partner upon the receipt of all of the
required regulatory approvals, but in no event later than March 31, 2000. On
March 1, 2000, the affiliated buyer agreed to the release of the escrowed
funds to the former limited partner and indemnified the limited partner for
any approvals not yet received. It is the general partner's intention to
continue the business of the Partnership.
<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, 1999 and 1998, and the related statements
of operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1999. 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, 1999 and 1998, and the results of its
operations, the changes in partners' deficit and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Reznick Fedder & Silverman
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
January 24, 2000
<PAGE>
SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 321,730 $ 322,501
Accounts receivable 18,603 24,580
Other receivables - property tax abatement 28,502 -
Due from affiliates 6,871 -
Prepaid expenses 179,087 151,963
---------- ----------
Total current assets 554,793 499,044
---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants' security deposits 131,598 119,274
Mortgage escrow deposits 159,673 168,666
Reserve for replacement 150,549 143,468
---------- ----------
441,820 431,408
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $7,781,574 and $7,331,024 7,747,461 8,129,744
DEFERRED FINANCING COSTS, net of accumulated
amortization of $204,752 and $197,758 300,806 312,968
---------- ----------
Total assets $9,044,880 $9,373,164
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 178,384 $ 165,533
Accounts payable and accrued expenses 82,014 70,941
Accrued interest payable 72,034 73,068
Rent deferred credits 27,923 5,170
Deferred laundry income 5,000 5,000
Due to affiliates - 2,181
---------- ----------
Total current liabilities 365,355 321,893
---------- ----------
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 11,346,995 11,525,378
Due to general partner 645,989 645,989
Tenants' security deposits 128,310 122,670
Deferred laundry income 20,000 25,000
---------- ----------
Total liabilities 12,506,649 12,640,930
PARTNERS' DEFICIT (3,461,769) (3,267,766)
---------- ----------
Total liabilities and partners' deficit $9,044,880 $9,373,164
========== ==========
See notes to financial statements
<PAGE>
South Laurel Apartments Limited Partnership
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income $4,494,641 $4,337,446 $4,298,989
Vacancies (490,656) (249,244) (306,701)
Financial revenue 18,485 22,548 18,629
Other income 140,310 119,662 109,369
---------- ---------- ----------
Total revenue 4,162,780 4,230,412 4,120,286
---------- ---------- ----------
Expenses
Operating expenses
Administration 430,983 420,403 483,602
Management fee 216,990 218,093 214,497
Utilities 514,088 510,907 485,153
Maintenance and repairs 808,710 920,248 810,622
Salaries 548,407 529,704 519,252
Insurance 40,535 39,108 44,875
Real estate taxes 230,445 252,279 260,632
---------- ---------- ----------
Total operating expenses 2,790,158 2,890,742 2,818,633
---------- ---------- ----------
Nonoperating expenses
Interest 870,170 882,171 893,305
Mortgage insurance premium 58,011 58,812 59,553
Depreciation and amortization 462,711 471,363 479,869
Incentive management fee 40,176 2,985 -
Miscellaneous financial expenses 2,308 1,423 3,750
---------- ---------- ----------
Total nonoperating expenses 1,433,376 1,416,754 1,436,477
---------- ---------- ----------
Total expenses 4,223,534 4,307,496 4,255,110
---------- ---------- ----------
EXCESS OF EXPENSES OVER REVENUE $ (60,754) $ (77,084) $ (134,824)
========== ========== ==========
See notes to financial statements
<PAGE>
<TABLE>
SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
<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, 1996 $(106,781) $(1,278,259) $(1,054,670) $(538,684) $(2,978,394)
Excess of expenses over
revenue (1,348) (5,394) (114,600) (13,482) (134,824)
--------- ----------- ----------- --------- -----------
Partners' deficit,
December 31, 1997 (108,129) (1,283,653) (1,169,270) (552,166) (3,113,218)
Distributions (775) (3,099) (65,844) (7,746) (77,464)
Excess of expenses over
revenue (771) (3,083) (65,522) (7,708) (77,084)
-------- ----------- ----------- --------- -----------
Partners' deficit,
December 31, 1998 (109,675) (1,289,835) (1,300,636) (567,620) (3,267,766)
Distributions (1,332) (5,330) (113,262) (13,325) (133,249)
Excess of expenses over
revenue (608) (2,430) (51,641) (6,075) (60,754)
--------- ----------- ----------- --------- -----------
Partners' deficit,
December 31, 1999 $(111,615) $(1,297,595) $(1,465,539) $(587,020) $(3,461,769)
========= =========== =========== ========= ===========
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, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Rental income received $4,032,714 $4,090,458 $4,011,723
Interest received 15,856 19,878 15,309
Other income received 135,310 124,158 102,435
Administrative expenses paid (438,565) (427,196) (483,602)
Utilities paid (487,142) (514,815) (492,180)
Management fees paid (226,042) (218,093) (214,497)
Maintenance and repairs expenses paid (817,000) (916,171) (861,868)
Salaries paid (506,354) (487,275) (474,215)
Real estate taxes paid (283,321) (251,887) (260,467)
Payroll taxes paid (42,053) (42,429) (39,245)
Property insurance paid (43,285) (39,085) (44,875)
Mortgage insurance paid (58,011) (58,812) (59,158)
Interest paid on mortgage (871,204) (883,131) (894,196)
Incentive management fees (40,176) (2,985) -
Miscellaneous financial expenses paid (2,308) (1,424) (3,750)
(Increase) decrease in tenants security
deposits, net (6,684) 3,396 3,088
Decrease (increase) in mortgage
escrow deposits 8,993 (8,318) 22,891
---------- ---------- ----------
Net cash provided by operating
activities 370,728 386,269 327,393
---------- ---------- ----------
Cash flows from investing activities
Additions to property and equipment (68,266) (42,490) (137,952)
Deposits to reserve for replacements (52,520) (52,520) (52,520)
Withdrawals from reserve for
replacements 48,068 27,341 85,111
---------- ---------- ----------
Net cash used in investing
activities (72,718) (67,669) (105,361)
---------- ---------- ----------
Cash flows from financing activities
Mortgage principal payments (165,532) (153,608) (142,542)
Distributions to partners (133,249) (77,464) -
---------- ---------- ----------
Net cash used in financing
activities (298,781) (231,072) (142,542)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS (771) 87,528 79,490
Cash and cash equivalents, beginning 322,501 234,973 155,483
---------- ---------- ----------
Cash and cash equivalents, ending $ 321,730 $ 322,501 $ 234,973
========== ========== ==========
(continued)
<PAGE>
<TABLE>
SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of excess of expenses over revenue
to net cash provided by operating activities
Excess of expenses over revenue $ (60,754) $ (77,084) $(134,824)
Adjustments to reconcile excess of expenses
over revenue to net cash provided by
operating activities
Depreciation 450,549 459,200 467,707
Amortization 12,162 12,162 12,162
Interest earned on reserve for replacements (2,629) (2,670) (3,320)
Changes in assets and liabilities
Decrease in tenant accounts receivable 5,977 8,477 31,282
(Increase) decrease in accounts receivable -
other (28,502) 11,258 (1,934)
(Increase) decrease in prepaid expenses (27,124) 339 6,351
Decrease (increase) in mortgage escrow
deposits 8,993 (8,318) 22,891
Increase (decrease) in accounts payable and
accrued expenses 11,074 (10,490) (58,273)
Decrease in accrued interest payable (1,034) (960) (891)
Increase (decrease) in rent - deferred credits 22,752 (6,222) (11,845)
Decrease in deferred laundry income (5,000) (5,000) (5,000)
Due to/from affiliates - net (9,052) 2,181 -
Tenants' security deposits - net (6,684) 3,396 3,087
---------- ---------- ---------
Net cash provided by operating activities $ 370,728 $ 386,269 $ 327,393
========== ========== =========
</TABLE>
See notes to financial statements
<PAGE>
SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
South Laurel Apartments Limited Partnership (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
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. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives using the straight-line method.
As of December 31, 1999, management does not believe that there are any
current facts or circumstances that would indicate impairment of rental
property in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method.
Deferred Laundry Income
-----------------------
Deferred laundry income is being recognized into other income on a
straight-line basis over the term of the related contract.
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 - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999 and 1998, the Partnership maintained tenant security
deposits of $131,598 and $119,274 in interest-bearing escrow bank accounts
and a money market account which is carried at cost and approximates fair
value.
The Partnership also has a reserve for replacements and escrow funds totaling
$310,222 and $312,134 at December 31, 1999 and 1998, respectively, on deposit
with Reilly Mortgage Group, Inc. These funds are held in interest-bearing
bank accounts and a money market account which is carried at cost and
approximates fair value.
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at December
31, 1999 and 1998:
1999 1998
---- ----
Land $ 140,756 $ 140,756
Buildings and improvements 12,558,456 15,149,544
Furniture and equipment 2,829,823 170,468
---------- -----------
15,529,035 15,460,768
Less accumulated depreciation 7,781,574 7,331,024
---------- -----------
$7,747,461 $ 8,129,744
========== ===========
NOTE D - 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 totaling $86,395 and bears interest at a rate of 7.5%
per annum.
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, 1999, are as follows:
December 31,
------------
2000 $178,384
2001 $192,232
2002 $207,155
2003 $223,237
2004 $240,568
Management believes that the carrying amounts of the Partnerships mortgage
approximates fair value at December 31, 1999, as there is no significant
difference in the market rate of interest between that date and the date of
the mortgage.
NOTE E - 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 expired July 31, 1997, and management has not
applied for an extension of the agreement. Total housing assistance payments
received during 1997 were $506,366.
NOTE F - RELATED PARTY TRANSACTIONS
Due to General Partner
----------------------
At December 31, 1999 and 1998, 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
---------------
The project is managed by CMJ Management Company, Inc. (CMJ Management), an
affiliate of the general partner, pursuant to an agreement approved by HUD
which provides for a management fee of 5.25% of monthly rental collections.
Management fees totaled $216,900, $218,093 and $214,497 for 1999, 1998 and
1997, respectively. Further, CMJ Management is paid accounting and
bookkeeping fees which amounted to $45,490 for each of the years ended
December 31, 1999, 1998 and 1997. In addition, CMJ Management received
incentive management fees of $40,176, $2,985 and $-0- payable from
distributable cash for the years ended December 31, 1999, 1998 and 1997,
respectively.
<PAGE>
Reimbursed Costs
----------------
CMJ Management and affiliates make monthly expenditures (primarily payroll,
central office accounting, direct marketing and insurance costs) on behalf of
the Partnership which are reimbursed the following month. As of December 31,
1999 and 1998, the amount due to/from affiliate for such expenditures were
$6,871 and $2,181, respectively.
NOTE G - 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:
1999 1998 1997
---- ---- ----
Excess of expenses over revenue
per statements of operations $ (60,754) $ (77,084) $(134,824)
Deferred rental income and laundry
income adjustment 17,753 (11,213) (16,844)
GAAP to tax depreciation adjustment 313,406 (136,923) (166,665)
---------- ---------- ----------
Income (loss) for Federal income
tax purposes $ 270,405 $ (225,220) $(318,333)
========== ========== =========
NOTE H - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances, including repurchase
agreements and security deposits held in trust with major financial
institutions and its funded reserves with the mortgage lender. The cash
balances consist of a repurchase agreement backed by government securities
totaling $319,031 and a checking account. The security deposits consist of a
money market and a savings account. The checking and savings account balances
are insured by the Federal Deposit Insurance Corporation up to $100,000. The
Partnership has not experienced any losses with respect to bank balances in
excess of government provided insurance. Management believes that no
significant concentration of credit risk exists with respect to these cash
balances as of December 31, 1999.
NOTE I - CONTINUATION OF THE PARTNERSHIP
The Partnership agreement allows the limited partner to cause the sale of the
assets of the Partnership subsequent to June 30, 1995, but not earlier than
one year after it has given written notice of its desire to cause such sale
to the general partner, and only if, during such one-year period, the general
partner does not cause the sale of the Partnership's assets. If the 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 the assets to the general partner, and either the general
partner does not accept such offer within 90 days of receiving it, or the
general partner does not complete the sale in accordance with such offer
after accepting the terms. In October 1998, the limited partner gave the
written notice described above to the general partner of the Partnership. The
limited partner has exercised its right under the Partnership agreement to
cause the sale of the Partnership's assets. The general partner has agreed to
allow the limited partner to actively market the assets of the Partnership in
fiscal year 2000
<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, 1999 and 1998, and the related statements of
operations, partners' deficit and cash flows for each of the three years in the
period ended December 31, 1999. 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, 1999 and 1998, and the results of its operations, the changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Reznick Fedder & Silverman
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
February 4, 2000, except for
the second paragraph of
Note I as to which
the date is March 1, 2000
<PAGE>
MARVIN GARDENS ASSOCIATES
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash $ 2,369 $ 37,207
Accounts receivable 1,836 1,694
Accounts receivable - tenant subsidy 22,539 2,723
Due to affiliates 93 -
Prepaid expenses 4,074 2,263
---------- -----------
Total current assets 30,911 43,887
---------- -----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenant security deposits 9,169 10,677
Real estate tax impound fund 5,096 5,822
Replacement reserve fund 125,037 121,104
Insurance impound fund 2,560 4,146
Interest income receivable - impounds 1,200 1,480
Utility deposit 1,478 1,478
---------- -----------
144,540 144,707
---------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,262,451 and $1,187,715 1,158,860 1,233,596
DEFERRED FINANCING COSTS, net of accumulated
amortization of $23,691 and $22,318 22,678 24,051
---------- -----------
Total assets $1,356,989 $ 1,446,241
========== ===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Current maturities of mortgage payable $ 64,178 $ 59,171
Accounts payable and accrued expenses 19,003 20,236
Deferred rental income 670 156
---------- -----------
Total current liabilities 83,851 79,563
---------- -----------
Mortgage payable, less current maturities 1,436,309 1,500,449
Due to general partner 194,019 194,019
Tenants' security deposits 7,659 7,869
---------- -----------
Total liabilities 1,721,838 1,781,900
PARTNERS' DEFICIT (364,849) (335,659)
---------- -----------
Total liabilities and partners' deficit $1,356,989 $ 1,446,241
========== ===========
See notes to financial statements
<PAGE>
MARVIN GARDENS ASSOCIATES
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income $ 410,364 $406,235 $410,401
Less vacancies (4,700) (3,603) (1,496)
Financial revenue 7,603 6,798 7,742
Other income 4,470 4,887 8,405
---------- -------- --------
Total revenue 417,737 414,317 425,052
---------- -------- --------
Expenses
Operating expenses
Administration 19,172 18,488 25,512
Utilities 31,142 27,546 29,201
Management fee 17,778 17,782 17,738
Maintenance and repairs 80,368 66,813 75,504
Salaries 47,483 58,611 56,766
Insurance 5,132 7,906 8,102
Real estate taxes 22,720 23,015 22,556
---------- -------- --------
Total operating expenses 223,795 220,161 235,379
---------- -------- --------
Nonoperating expenses
Interest 124,677 129,258 133,514
Depreciation and amortization 76,109 76,110 76,109
Incentive management fee 4,908 981 -
---------- -------- --------
Total nonoperating expenses 205,694 206,349 209,623
---------- -------- --------
Total expenses 429,489 426,510 445,002
---------- -------- --------
EXCESS OF EXPENSES OVER REVENUE $ (11,752) $(12,193) $(19,950)
========== ======== ========
See notes to financial statements
<PAGE>
<TABLE>
MARVIN GARDENS ASSOCIATES
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
Special
General Limited Limited
Partners Partners Partner Total
-------- -------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $(8,804) $(69,340) $(209,791) $(287,935)
Distributions (40) (161) (3,832) (4,033)
Excess of expenses over revenue (199) (798) (18,953) (19,950)
------- -------- --------- ---------
Balance, December 31, 1997 (9,043) (70,299) (232,576) (311,918)
Distributions (116) (462) (10,970) (11,548)
Excess of expenses over revenue (122) (488) (11,583) (12,193)
------- -------- --------- ---------
Balance, December 31, 1998 (9,281) (71,249) (255,129) (335,659)
Distributions (174) (698) (16,566) (17,438)
Excess of expenses over revenue (118) (470) (11,164) (11,752)
------- -------- --------- ---------
Balance, December 31, 1999 $(9,573) $(72,417) $(282,859) $(364,849)
======= ======== ========= ==========
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, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Rental income received $ 386,220 $ 402,470 $ 405,562
Interest receipts 2,539 203 1,256
Other income received 4,470 4,887 8,405
Administrative expenses paid 19,557) (26,331) (25,512)
Management fees paid (17,778) (17,782) (17,738)
Utilities paid (32,427) (27,546) (28,085)
Salaries and wages paid (44,251) (45,857) (52,567)
Operating and maintenance expenses paid (84,186) (66,712) (75,937)
Real estate taxes paid (22,720) (23,015) (22,556)
Payroll taxes (3,232) (4,912) (4,199)
Property and other insurance paid (6,943) (7,625) (5,592)
Interest paid on mortgage (124,677) (129,258) (133,514)
Incentive management fee paid (746) (981) -
Decrease (increase) in insurance
impound fund 1,586 6,648 (5,023)
Decrease (increase) in real estate
tax impound fund 726 1,368 (900)
Net security deposits received (paid) 1,298 (36) (195)
--------- ---------- ----------
Net cash provided by operating
activities 40,322 65,521 43,405
--------- ---------- ----------
Cash flows from investing activities
Additions to property and equipment - - (6,170)
Deposits to replacement reserve fund (16,128) (13,440) (16,128)
Withdrawals from reserve for
replacements 17,539 17,422 42,312
--------- ---------- ----------
Net cash provided by
investing activities 1,411 3,982 20,014
--------- ---------- ----------
Cash flows from financing activities
Repayment of mortgage payable (59,133) (51,007) (50,300)
Distributions (17,438) (11,548) (4,033)
--------- ---------- ----------
Net cash used in financing
activities (76,571) (62,555) (54,333)
--------- ----------- ----------
NET (DECREASE) INCREASE IN CASH (34,838) 6,948 9,086
Cash, beginning 37,207 30,259 21,173
--------- ---------- ----------
Cash, ending $ 2,369 $ 37,207 $ 30,259
========= ========== ==========
(continued)
<PAGE>
<TABLE>
MARVIN GARDENS ASSOCIATES
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of excess of expenses over revenue
to net cash provided by operating activities
Excess of expenses over revenue $ (11,752) $ (12,193) $ (19,950)
Adjustments to reconcile excess of expenses
over revenue to net cash provided by
operating activities
Depreciation 74,736 74,737 74,736
Amortization of deferred financing costs 1,373 1,373 1,373
Interest earned on reserve for replacements (5,344) (6,780) (6,027)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable - tenant subsidy (142) (1,282) (1,441)
(Increase) decrease in accounts receivable -
other (19,816) 1,330 (2,004)
Decrease (increase) in interest income
receivable -impounds 280 185 (459)
(Increase) decrease in prepaid expenses (1,811) 281 2,510
Decrease (increase) in real estate tax
impound fund 726 1,368 (900)
Decrease (increase) in insurance
impound fund 1,586 6,648 (5,023)
(Decrease) increase in accounts payable
and accrued expenses (1,233) 100 683
Increase (decrease) in prepaid revenue 514 (210) 102
Decrease in due to affiliates (93) - -
Increase (decrease) in tenant security
deposits funded 1,298 (36) (195)
--------- ---------- ----------
Net cash provided by operating
activities $ 40,322 $ 65,521 $ 43,405
========= ========== ==========
</TABLE>
See notes to financial statements
<PAGE>
MARVIN GARDENS ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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) 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 in
July 2003, and has two five-year renewal options. For the years ended
December 31, 1999, 1998 and 1997 rental subsidies for the Project totaled
$312,683, $308,541 and $328,830, 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 of 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. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives using the straight-line method.
As of December 31, 1999, management does not believe that there are any
current facts or circumstances that would indicate impairment of rental
property in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method which approximates the effective interest 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.
Reclassifications
-----------------
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation.
NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999 and 1998, the Partnership maintained tenant security
deposits of $9,169 and $10,677, respectively, in an interest bearing escrow
bank account and a certificate of deposit which are carried at cost and
approximate fair value.
The Partnership also has a reserve for replacements and escrow funds totaling
$133,893 and $132,552 at December 31, 1999 and 1998, respectively, on deposit
with CHFA. These funds are held in interest bearing bank accounts, which are
carried at cost and approximate fair value.
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at
December 31, 1999 and 1998:
1999 1998
---- ----
Land $ 294,320 $ 294,320
Buildings and improvements 2,126,991 2,126,991
----------- -----------
2,421,311 2,421,311
Less accumulated depreciation 1,262,451 1,187,715
----------- -----------
$ 1,158,860 $ 1,233,596
=========== ===========
NOTE D - 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
mortgage is payable in monthly installments of principal and interest at the
rate of 8.15%, totaling $15,310. 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 each of the five years
following December 31, 1999, are as follows:
December 31,
------------
2000 $64,178
2001 $69,908
2002 $75,498
2003 $81,887
2004 $88,815
Management believes that the carrying amount of the mortgage payable
approximates fair value at December 31, 1999, as there is no significant
difference in the market rate of interest for similar debt between that rate
and the rate of the mortgage.
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, 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, 1999, and 1998 and 1997 were $17,778, $17,738
and $17,738, respectively. Effective September 1994, CMJ Management Company,
Inc. receives 30% of the monthly fee which totaled $5,333, $5,321 and $5,321
for the years ended December 31, 1999, 1998 and 1997, respectively. For the
years ended December 31, 1999 and 1998, incentive management fees charged for
the project totaled $4,908 and $981, respectively.
NOTE F - TAX BASIS LOSS
The reconciliation of the excess of expenses over revenue reported in the
accompanying statements of operations with the income/(loss) reportable on a
Federal income tax basis for the years ended December 31, 1999, 1998 and 1997
are as follows:
1999 1998 1997
---- ---- ----
Excess of expenses over revenue per
statements of operations $ (11,752) $ (12,193) $ (19,950)
GAAP to tax depreciation adjustment 66,190 (30,842) (11,448)
Deferred rental income adjustments 514 (202) 102
--------- ---------- ----------
Income (loss) for Federal income
tax purposes $ 54,952 $ (43,237) $ (31,296)
========= ========== ===========
<PAGE>
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances and security deposits held
in trust with major financial institutions and its funded reserves with the
mortgage lender. The Partnership has not experienced any losses with respect
to bank balances in excess of government provided insurance. Management
believes that no significant concentration to credit risk exists with respect
to these cash balances as of December 31, 1999.
NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS
The Partnership agreement allows the limited partner to cause the sale of the
assets of the Partnership subsequent to June 30, 1995, but not earlier than
one year after it has given written notice of its desire to cause such sale
to the general partner, and only if, during such one-year period, the general
partner does not cause the sale of the Partnership's assets. If the 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 the assets to the general partner, and either the general
partner does not accept such offer within 90 days of receiving it, or the
general partner does not complete the sale in accordance with such offer
after accepting the terms. In October 1998, the limited partner gave the
written notice described above to the general partner of the Partnership and
exercised its rights under the Partnership agreement to cause the sale of the
Partnership's assets. At December 31, 1999, the general partner was
negotiating with the limited partner for the purchase of its interest in the
Partnership.
Subsequent to year-end, on February 15, 2000 an affiliate of the general
partner purchased the limited partner's interest in the Partnership for net
consideration of $254,420. The sale closed into escrow on February 15, 2000
pending the receipt of the required regulatory approvals from the mortgage
lender and state and federal housing agencies that subsidize the
Partnership's residential apartment property. The sale proceeds were to be
released to the former limited partner upon the receipt of all of the
required regulatory approvals, but in no event later than March 31, 2000. On
March 1, 2000, the affiliated buyer agreed to the release of the escrowed
funds to the former limited partner and indemnified the limited partner for
any approvals not yet received. It is the general partners' intention to
continue the business of the Partnership.
<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, 1999 and 1998, and the related statements of operations,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1999. 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, 1998 and 1997, and the results of its operations, the changes in
partners' deficit and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Reznick Fedder & Silverman
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
February 11, 2000, except for
the second paragraph of
Note H as to which
the date is March 1, 2000
<PAGE>
COLONIAL FARMS LTD.
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 27,328 $ 69,430
Short-term investment 29,333 -
Rents receivable - 1,100
Deposits 675 675
Prepaid expenses 7,228 4,808
---------- ----------
Total current assets 64,564 76,013
---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Real estate tax impound fund 14,091 14,141
Reserve for replacements 245,943 236,465
Insurance impound fund 6,891 8,961
Reserve fund for operations 44,944 43,101
Tenants' security deposits 27,341 25,281
Interest income receivable - impounds 3,458 3,370
---------- ----------
342,668 331,319
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $2,190,253 and $2,064,714 1,913,396 2,038,935
DEFERRED FINANCING COSTS, net of accumulated
amortization of $40,417 and $38,140 35,350 37,627
---------- ----------
Total assets $2,355,978 $2,483,894
========== ==========
LIABILITIES AND PARTNERS' DEFICITS
CURRENT LIABILITIES
Current maturities of mortgage payable $ 100,990 $ 92,191
Accounts payable and accrued expenses 25,454 22,286
Accrued interest payable 19,342 20,046
Deferred rental income 7,644 2,868
---------- ----------
Total current liabilities 153,430 137,391
---------- ----------
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 2,435,760 2,536,750
Due to general partner 318,115 318,115
Tenants' security deposits 20,946 19,455
---------- ----------
Total liabilities 2,928,251 3,011,711
PARTNERS' DEFICIT (572,273) (527,817)
---------- ----------
Total liabilities and partners' deficit $2,355,978 $2,483,894
========== ==========
See notes to financial statements
<PAGE>
COLONIAL FARMS LTD.
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income $ 788,067 $ 786,081 $785,784
Less vacancies - (23,294) (7,410)
Financial revenue 16,694 16,527 17,490
Other income 11,247 32,686 23,694
--------- --------- --------
Total revenue 816,008 812,000 819,558
--------- --------- --------
Operating expenses
Administrative 28,640 68,109 34,427
Management fee 44,740 43,440 42,640
Utilities 32,840 31,434 34,619
Maintenance and repairs 204,565 167,816 155,985
Salaries 101,855 81,179 79,872
Insurance 10,736 13,372 12,135
Real estate taxes 43,173 42,663 41,368
--------- --------- --------
Total operating expenses 466,549 448,013 401,046
--------- --------- --------
Non-operating expenses
Interest 236,043 244,135 244,011
Depreciation and amortization 127,816 128,129 128,174
Incentive management fee 7,060 7,060 7,060
Earned surplus reimbursement - 12,059 69,664
--------- --------- --------
Total nonoperating expenses 370,919 391,383 448,909
--------- --------- --------
Total expenses 837,468 839,396 849,955
--------- --------- --------
EXCESS OF EXPENSES
OVER REVENUE $ (21,460) $ (27,396) $(30,397)
========= ========= ========
See notes to financial statements
<PAGE>
<TABLE>
COLONIAL FARMS LTD.
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
Special
General Limited Limited
Partner Partner Partner Total
------- ------- ------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $(23,033) $(94,173) $(296,341) $(413,547)
Distributions (565) (847) (26,826) (28,238)
Excess of expenses over revenue (608) (912) (28,877) (30,397)
--------- -------- --------- ---------
Balance, December 31, 1997 (24,206) (95,932) (352,044) (472,182)
Distributions (565) (847) (26,827) (28,239)
Excess of expenses over revenue (548) (822) (26,026) (27,396)
--------- -------- --------- ---------
Balance, December 31, 1998 (25,319) (97,601) (404,897) (527,817)
Distributions (460) (690) (21,846) (22,996)
Excess of expenses over revenue (429) (644) (20,387) (21,460)
--------- -------- --------- ---------
Balance, December 31, 1999 $ (26,208) $(98,935) $(447,130) $(572,273)
========= ======== ========= =========
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, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Rental income received $ 793,917 $776,725 $770,456
Interest received 5,930 6,303 5,597
Other income received 11,273 32,685 23,694
Administrative expenses paid (28,814) (68,108) (34,427)
Management fees paid (44,994) (43,440) (42,640)
Utilities paid (32,236) (31,434) (40,324)
Salaries and wages paid (77,779) (67,973) (67,643)
Maintenance and repairs expenses paid (201,572) (173,759) (166,198)
Real estate taxes paid (43,174) (42,663) (41,368)
Payroll taxes paid (24,076) (13,207) (12,228)
Property and other insurance paid (13,156) (15,834) (5,710)
Interest paid on mortgage (236,747) (244,776) (244,305)
Incentive management fee paid (7,060) (7,060) (7,060)
Earned surplus reimbursement - (12,058) (69,666)
Increase in reserve fund for operations (1,843) (1,929) (33)
(Increase) decrease in real estate
tax impound fund 50 (913) (793)
(Increase) decrease in insurance
impound fund 2,070 7,203 (6,654)
Net security deposits (paid) received (569) (472) (399)
--------- -------- --------
Net cash provided by
operating activities 101,220 99,290 60,299
--------- -------- --------
Cash flows from investing activities
Purchases of equipment - - (21,366)
Deposits to reserve for replacements (22,404) (22,404) (22,404)
Withdrawals from reserve for
replacements 23,602 32,364 24,391
--------- -------- --------
Net cash provided by (used in)
investing activities 1,198 9,960 (19,379)
--------- -------- --------
Cash flows from financing activities
Repayment of mortgage payable (92,191) (84,160) (76,827)
Distributions to partners (22,996) (28,239) (28,238)
--------- -------- --------
Net cash used in financing activities (115,187) (112,399) (105,065)
--------- -------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (12,769) (3,149) (64,145)
Cash and cash equivalents, beginning 69,430 72,579 136,724
--------- -------- --------
Cash and cash equivalents, ending $ 56,661 $ 69,430 $ 72,579
========= ======== ========
(continued)
<PAGE>
COLONIAL FARMS LTD.
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Reconciliation of excess of expenses over
revenue to net cash provided by
operating activities
Excess of expenses over revenue $ (21,460) $ (27,396) $ (30,397)
Adjustments to reconcile excess of
expenses over revenue to net cash
provided by operating activities
Depreciation 125,539 125,852 125,896
Amortization 2,277 2,277 2,277
Interest earned on reserve for
replacements (10,676) (10,485) (10,611)
Changes in assets and liabilities
(Increase) decrease in assets
Tenant accounts receivable 1,100 11,534 (8,010)
Accounts receivable - other (88) 261 (1,282)
Miscellaneous prepaid expenses (2,420) (2,462) 6,425
Tenant security deposits funded (2,060) (472) (399)
Reserve fund for operations (1,843) (1,929) (33)
Real estate tax impound 50 (913) (793)
Insurance impound fund 2,070 7,203 (6,654)
Increase (decrease) in liabilities
Accounts payable and accrued
expenses 3,422 (5,943) (10,507)
Accrued interest payable (704) (641) (5,705)
Tenant security deposits held in
trust 1,491 - -
Prepaid revenue 4,776 2,404 92
Due to affiliates (254) - -
---------- ---------- ----------
Net cash provided by
operating activities $ 101,220 $ 99,290 $ 60,299
========== ========== ==========
See notes to financial statements
<PAGE>
COLONIAL FARMS, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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 Modesta,
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, 1999, 1998
and 1997, rental subsidies for the Project totaled $560,837, $531,063, and
$579,485, respectively.
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. As of December 31,
1999, accumulated limited distributions available totaled $40,542.
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 approximate fair value.
Investments
-----------
Investments with maturities between three and twelve months are considered
short-term investments. Short-term investments consist of United States
Treasury Bills which are held to maturity. Held to maturity investments are
carried at cost which approximate fair 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 using the straight-line method. As of
December 31, 1999, management does not believe that there are any current
facts or circumstances that would indicate impairment of rental property in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized by the straight-line method over the
life of the related debt, which approximates the effective interest method.
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership and
the tenants of the property are operating leases.
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.
Reclassifications
-----------------
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 presentation.
NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999 and 1998, the Partnership maintained tenant security
deposits of $27,341 and $25,281, respectively, in an interest bearing escrow
bank account and a certificate of deposit which are carried at cost and
approximate fair value.
The Partnership also has a reserve for replacements and escrow funds
totalling $315,327 and $306,281 at December 31, 1999 and 1998, respectively,
on deposit with CHFA. These funds are held in interest bearing bank accounts
which are carried at cost and approximate fair value.
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at
December 31, 1999 and 1998:
1999 1998
---- ----
Land $ 450,000 $ 450,000
Buildings and improvements 3,238,575 3,238,575
Furniture and equipment 415,074 415,074
---------- ----------
4,103,649 4,103,649
Less accumulated depreciation 2,190,253 2,064,714
---------- ----------
$1,913,396 $2,038,935
========== ==========
NOTE D - 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 on the note of
9.15% and monthly principal and interest payments of $27,411. 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 each of the five years
following December 31, 1999, are as follows:
December 31,
------------
2000 $100,990
2001 $110,628
2002 $121,186
2003 $132,751
2004 $145,421
Management believes that the carrying amount of the mortgage payable
approximates fair value at December 31, 1999, as there is no significant
difference in the market rate of interest for similar debt between that date
and the date of the mortgage.
NOTE E - RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, due to 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, 1999, 1998, and 1997
were $44,740, $43,440, and $42,640, respectively. Effective September 1994,
CMJ Management receives 30% of the monthly management fee which totaled
$13,425 and $13,032 for the years ended December 31, 1999 and 1998,
respectively. CMJ Management Company, Inc. also is entitled to receive an
incentive management fee. For each of the years ended December 31, 1999, 1998
and 1997, incentive fees charged for the project totaled $7,060, in
accordance with the terms of the supplemental management agreement.
<PAGE>
NOTE F - RECONCILIATION OF TAX (LOSS) INCOME WITH EXCESS OF EXPENSES OVER
REVENUE PER FINANCIAL STATEMENTS
The reconciliation of the excess of expenses over revenue reported in the
statements of operations with the (loss) income reported on the Federal
income tax return for the years ended December 31, 1999, 1998, and 1997 is as
follows:
1999 1998 1997
---- ---- ----
Excess of expenses over revenue $ (21,460) $ (27,396) $ (30,397)
GAAP to tax depreciation adjustment 65,987 (53,713) (19,460)
Deferred rental income adjustments (1,195) 731 90
--------- --------- ---------
Income (loss) for Federal income
tax purposes $ 43,332 $ (80,378) $ (49,767)
========= ========= =========
NOTE G - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances and security deposits held
in trust with major financial institutions and its funded reserves with the
mortgage lender. The cash balance consists of a checking account. The
security deposits consist of a checking account. The checking account
balances in the bank is insured by the Federal Deposit Insurance Corporation
up to $100,000. The Partnership has not experienced any losses with respect
to bank balances in excess of government provided insurance. Management
believes that no significant concentration of credit risk exists with respect
to these cash balances as of December 31, 1999.
NOTE H - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS
The Partnership agreement allows the limited partner to cause the sale of the
assets of the Partnership subsequent to June 30, 1995, but not earlier than
one year after it has given written notice of its desire to cause such sale
to the general partner, and only if, during such one-year period, the general
partner does not cause the sale of the Partnership's assets. If the 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 the assets to the general partner, and either the general
partner does not accept such offer within 90 days of receiving it, or the
general partner does not complete the sale in accordance with such offer
after accepting the terms. In October 1998, the limited partner gave the
written notice described above to the general partner of the Partnership and
exercised its right under the Partnership Agreement to cause the sale of the
Partnership's assets. At December 31, 1999, the general partner was
negotiating with the limited partner for the purchase of its interest in the
Partnership.
Subsequent to year-end, on February 15, 2000 an affiliate of the general
partner purchased the limited partner's interest in the Partnership for net
consideration of $387,849. The sale closed into escrow on February 15, 2000
pending the receipt of the required regulatory approvals from the mortgage
lender and state and federal housing agencies that subsidize the
Partnership's residential apartment property. The sale proceeds were to be
released to the former limited partner upon the receipt of all of the
required regulatory approvals, but in no event later than March 31, 2000. On
March 1, 2000, the affiliated buyer agreed to the release of the escrowed
funds to the former limited partner and indemnified the limited partner for
any approvals not yet received. It is the general partner's intentions to
continue the business of the Partnership.
<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, 1999 and 1998 and the related statements of
operations, partners' deficit and cash flows for each of the three years ended
December 31, 1999. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our 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, 1999 and 1998, and the results of its operations, the changes
in partners' deficit and its cash flows for each of the three years ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Reznick Fedder & Silverman
------------------------------
REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note I as to which the
date is March 1, 2000
<PAGE>
HOLBROOK APARTMENTS COMPANY
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 670,730 $ 514,632
Accounts receivable - tenants 1,821 1,998
Other receivables 15,202 14,182
Prepaid expenses 15,084 15,871
---------- ----------
Total current assets 702,837 546,683
---------- ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Security deposits 3,611 -
Mortgage escrow deposits 47,733 77,606
Reserve for replacements 391,552 496,439
---------- ----------
442,896 574,045
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $4,665,089 and $4,412,465 4,993,103 5,219,391
DEFERRED FINANCING COSTS, net of accumulated
amortization of $249,595 and $235,877 304,356 318,074
---------- ----------
Total assets $6,443,192 $6,658,193
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
Current maturities of mortgage payable $ 119,118 $ 110,538
Accounts payable and accrued expenses 31,930 38,017
Accrued interest payable 45,308 45,308
Rent deferred credits 132,712 1,054
Due to affiliates 620 1,067
Tenants' security deposits 3,009 -
---------- ----------
Total current liabilities 332,697 195,984
LONG-TERM LIABILITIES
Mortgage payable, less current maturities 7,019,552 7,138,669
---------- ----------
Total liabilities 7,352,249 7,334,653
PARTNERS' DEFICIT (909,057) (676,460)
---------- ----------
Total liabilities and partners' deficit $6,443,192 $6,658,193
========== ==========
See notes to financial statements
<PAGE>
HOLBROOK APARTMENTS COMPANY
STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Revenue
Rental income $ 2,077,992 $2,074,864 $2,079,319
Vacancies (6,659) (7,275) (4,727)
Financial revenue 24,865 31,766 35,842
Other income 7,769 8,345 8,608
----------- ---------- ----------
Total revenue 2,103,967 2,107,700 2,119,042
----------- ---------- ----------
Expenses
Operating expenses
Administration 136,463 123,690 134,493
Utilities 86,807 81,913 112,614
Management fee 98,765 98,128 98,776
Maintenance and repairs 318,437 201,428 173,586
Salaries 208,531 195,890 214,500
Insurance 14,457 14,776 16,350
Real estate taxes 197,579 213,250 181,311
----------- ---------- ----------
Total operating expenses 1,061,039 929,075 931,630
----------- ---------- ----------
Nonoperating expenses
Interest 539,942 547,260 554,700
Mortgage insurance premium 35,947 36,480 36,979
Depreciation and amortization 266,341 265,973 268,185
Incentive management fee 155,013 153,231 146,297
----------- ---------- ----------
Total nonoperating expenses 997,243 1,002,944 1,006,161
----------- ---------- ----------
Total expenses 2,058,282 1,932,019 1,937,791
----------- ---------- ----------
EXCESS OF REVENUE OVER
EXPENSES $ 45,685 $ 175,681 $ 181,251
=========== ========== ==========
See notes to financial statements
<PAGE>
HOLBROOK APARTMENTS COMPANY
STATEMENTS OF PARTNERS' DEFICIT
Years ended December 31, 1999, 1998 and 1997
General Limited
Partner Partner Total
------- ------- -----
Partners' (deficit) equity,
December 31, 1996 $(585,184) $ 92,609 $ (492,575)
Distributions (39,781) (225,427) (265,208)
Excess of revenue over expenses 27,188 154,063 181,251
--------- --------- ----------
Partners' (deficit) equity,
December 31, 1997 (597,777) 21,245 (576,532)
Distributions (41,341) (234,268) (275,609)
Excess of revenue over expenses 26,352 149,329 175,681
--------- --------- ----------
Partners' deficit,
December 31, 1998 (612,766) (63,694) (676,460)
Distributions (41,742) (236,540) (278,282)
Excess of revenue over expenses 6,853 38,832 45,685
--------- --------- ----------
Partners' deficit,
December 31, 1999 $(647,655) $(261,402) $ (909,057)
========= ========= ==========
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, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Cash flows from operating activities
Rental income received $ 2,203,168 $2,061,424 $2,069,734
Interest received 15,165 19,587 15,185
Other income received 7,769 3,803 28,030
Administrative expenses paid (169,100) (123,690) (135,301)
Management fees paid (98,765) (98,128) (98,776)
Utilities paid (83,045) (81,913) (119,299)
Salaries paid (30,613) (160,249) (181,164)
Operating and maintenance paid (435,802) (199,621) (312,749)
Real estate taxes paid (197,579) (213,250) (181,311)
Property insurance paid (14,457) (14,625) (14,811)
Payroll taxes paid (18,520) (15,194) (14,705)
Other taxes and insurance paid (18,439) (20,447) (18,631)
Net tenant security deposits received
(paid) (602) - -
Interest paid on mortgage (539,942) (547,901) (555,294)
Increase in mortgage escrow deposits 29,873 (1,247) (15,290)
Mortgage insurance paid (35,966) (36,480) (36,899)
Mortgage entity expenses paid (155,013) (153,231) (146,297)
Due to affiliates - net (1,467) 1,067 -
----------- ---------- ----------
Net cash provided by
operating activities 456,665 419,905 282,422
----------- ---------- ----------
Cash flows from investing activities
Additions to property and equipment (26,335) (9,476) (52,029)
Deposits to reserve for replacements (51,936) (40,920) (40,920)
Withdrawals from reserve for
replacements 166,523 15,428 47,190
----------- --------- ----------
Net cash provided by (used in)
investing activities 88,252 (34,968) (45,759)
----------- --------- ----------
Cash flows from financing activities
Mortgage principal payments (110,537) (102,574) (95,185)
Distributions paid to partners (278,282) (275,609) (265,208)
----------- --------- ----------
Net cash used in financing
activities (388,819) (378,183) (360,393)
----------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 156,098 6,754 (123,730)
Cash and cash equivalents, beginning 514,632 507,878 631,608
----------- --------- ----------
Cash and cash equivalents, ending $ 670,730 $ 514,632 $ 507,878
=========== ========= ==========
(continued)
<PAGE>
HOLBROOK APARTMENTS COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Reconciliation of excess of revenue
over expenses to net cash provided
by operating activities
Excess of revenue over expenses $ 45,685 $ 175,681 $ 181,251
Adjustments to reconcile excess of
revenue over expenses to net cash
provided by operating activities
Depreciation 252,623 252,254 254,644
Amortization of deferred financing
costs 13,718 13,719 13,541
Interest earned on replacement reserves (9,700) (12,179) (20,618)
Changes in assets and liabilities
Decrease (increase) in accounts
receivable - tenants 177 1,298 (1,143)
Decrease (increase) in accounts
receivable - other - (4,542) 18,908
Decrease in prepaid expenses 787 151 1,619
Tenant security deposits funded (3,611) - -
Decrease (increase) in mortgage
escrow deposits 29,873 (1,247) (15,290)
Decrease in other assets - - 475
(Decrease) increase in accounts
payable and accrued expenses (6,087) 4,849 (146,656)
Decrease in accrued interest payable - (641) (594)
Tenant security deposits held in trust 3,009 - -
Increase (decrease) in prepaid revenue 131,658 (10,505) (3,715)
Increase in due to affiliates - net (1,467) 1,067 -
--------- --------- ---------
Net cash provided by operating
activities $ 456,665 $ 419,905 $ 282,422
========= ========= =========
See notes to financial statements
<PAGE>
HOLBROOK APARTMENTS COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Holbrook Apartments Company (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
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. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives using the straight-line method.
As of December 31, 1999, management does not believe that there are any
current facts or circumstances that would indicate impairment of the rental
property in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121.
Deferred Financing Costs
------------------------
Deferred financing costs are amortized over the term of the mortgage using
the straight-line method which approximates the effective interest 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 - RESTRICTED DEPOSITS AND FUNDED RESERVES
At December 31, 1999, the Partnership maintained tenant security deposits of
$3,611 in an interest bearing escrow bank account.
The Partnership has a reserve for replacements and mortgage escrow deposits
totaling $439,285 and $574,045 at December 31, 1999 and 1998, respectively,
on deposit with WMF/Huntoon, Paige Associates Limited. These funds are held
in interest-bearing money market accounts and are carried at cost, which
approximates fair value.
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
Investment in property and equipment consisted of the following at December
31, 1999 and 1998:
1999 1998
---- ----
Land $ 390,000 $ 390,000
Buildings and improvements 9,032,409 9,006,073
Furniture and equipment 235,783 235,783
----------- -----------
9,658,192 9,631,856
Less accumulated depreciation 4,665,089 4,412,465
----------- -----------
$ 4,993,103 $ 5,219,391
=========== ===========
NOTE D - 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
principle and interest totaling $54,207 and bears interest at a rate of 7.5%.
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, 1999, are as follows:
December 31,
------------
2000 $119,118
2001 $128,366
2002 $138,331
2003 $149,070
2004 $160,643
Management believes that the carrying amount of the mortgage payable
approximates fair value at December 31, 1999, as there is no significant
difference in the market rate of interest for similar debt between that date
and the date of the mortgage.
NOTE E - 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 1999,
1998 and 1997 were $1,570,186, $1,573,691 and $1,565,374, respectively.
NOTE F- RELATED PARTY TRANSACTIONS
Management Fee
--------------
The project is managed by CMJ Management Company, Inc. (CMJ Management), an
affiliate of the general partner, pursuant to an agreement approved by HUD
which provides for a management fee of 4.5% of monthly rental collections.
Management fees totaled $98,765, $98,128 and $98,776 for 1999, 1998 and 1997,
respectively. Further, CMJ Management is paid accounting and bookkeeping fees
which amounted to $14,868 for each of the years ended December 31, 1999, 1998
and 1997. In addition, CMJ Management received incentive management fees of
$155,013, $153,231 and $146,297 for the years ended December 31, 1999, 1998
and 1997, respectively.
Reimbursed Costs
----------------
CMJ Management and affiliates make monthly expenditures (primarily payroll,
central office accounting services, direct marketing and insurance costs) on
behalf of the Partnership, which are reimbursed the following month. As of
December 31, 1999 and 1998, intercompany balances receivable totaled $15,202
and $14,182, respectively. Intercompany balances payable totaled $620 and
$1,067, respectively.
<PAGE>
Laundry Services
----------------
During 1999 the Partnership entered into an agreement with Norlantic Laundry
Services, Inc., an affiliate of the general partner, to provide laundry
facilities for the project. The Partnership receives 50% of the revenue
earned on the laundry facilities which totaled $7,145 for the year ended
December 31, 1999, and is included in other income.
Maintenance Services
--------------------
During the year, the Partnership contracted with Go Pro Maintenance Services,
Inc., an affiliate of the general partner, to perform repairs and
maintenance. For the year ended December 31, 1999, $1,638 has been incurred.
NOTE G - TAX BASIS INCOME
The reconciliation of the excess of revenue over expenses in the accompanying
statements of operations with the income reported on a Federal income tax
basis as follows:
1999 1998 1997
---- ---- ----
Excess of revenue over expenses
per statement of operations $ 45,685 $ 175,681 $ 181,251
Additional amortization of
deferred costs 8,571 8,571 8,393
GAAP to tax depreciation adjustment 201,896 (52,693) 140,373
Deferred rental income adjustment 131,658 (10,504) (3,715)
--------- --------- ----------
Income for Federal income tax
purposes $ 387,810 $ 121,055 $ 326,302
========= ========= ==========
NOTE H - CONCENTRATION OF CREDIT RISK
The Partnership maintains operating cash balances, security deposits held in
trust with major financial institutions and its funded reserves with the
mortgage lender. The cash balances consist of a repurchase agreement backed
by government securities totaling $689,708 and a checking account. The
security deposits consist of a savings account. The checking and savings
account balances in the bank are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Partnership has not experienced any losses
with respect to bank balances in excess of government provided insurance.
Management believes that no significant concentration of credit risk exists
with respect to these cash balances as of December 31, 1999.
NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS
The Partnership agreement allows the limited partner to cause the sale of the
assets of the Partnership subsequent to June 30, 1995, but not earlier than
one year after it has given written notice of its desire to cause such sale
to the general partner, and only if, during such one-year period, the general
partner does not cause the sale of the Partnership's assets. If the 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 the assets to the general partner, and either the general
partner does not accept such offer within 90 days of receiving it, or the
general partner does not complete the sale in accordance with such offer
after accepting the terms. In October 1998, the limited partner gave the
written notice described above to the general partner of the Partnership and
exercised its rights under the Partnership Agreement to cause the sale of the
Partnership's assets. At December 31, 1999, the general partner was
negotiating with the limited partner for the purchase of its interest in the
Partnership.
Subsequent to year-end, on February 15, 2000 an affiliate of the general
partner purchased the limited partner's interest in the Partnership for net
consideration of $1,221,217. The sale closed into escrow on February 15, 2000
pending the receipt of the required regulatory approvals from the mortgage
lender and state and federal housing agencies that subsidize the
Partnership's residential apartment property. The sale proceeds were to be
released to the former limited partner upon the receipt of all of the
required regulatory approvals, but in no event later than March 31, 2000. On
March 1, 2000, the affiliated buyer agreed to the release of the escrowed
funds to the former limited partner and indemnified the limited partner for
any approvals not yet received. It is the general partner's intention to
continue the business of the Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Partnership's audited financial statements for the year ended December
31, 1999 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-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 449
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 449
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 449
<CURRENT-LIABILITIES> 27
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 422
<TOTAL-LIABILITY-AND-EQUITY> 449
<SALES> 0
<TOTAL-REVENUES> 459
<CGS> 0
<TOTAL-COSTS> 300
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 156
<INCOME-TAX> 0
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156
<EPS-BASIC> 17.57
<EPS-DILUTED> 17.57
</TABLE>
