UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
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 2-89185
GULLEDGE REALTY INVESTORS II
Virginia 54-1191237
(State of incorporation) (I.R.S. Employer Identification No.)
One North Jefferson, St. Louis, Missouri 63103
Registrant's telephone number: 314-955-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Limited Partnership Interests
(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
Documents Incorporated by Reference:
1. Registration Statement (No. 2-89185) of Registrant effective April 30, 1984
(the "Registration Statement").
2. Prospectus of Registrant dated April 30, 1984 (the "Prospectus").
3. Supplement No. 1 dated October 8, 1984 to Prospectus.
4. Supplement No. 2 dated February 6, 1985 to Prospectus.
5. Supplement No. 3 dated April 18, 1985 to Prospectus.
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K
SIGNATURES
PART I
ITEM 1. BUSINESS.
Gulledge Realty Investors II, L.P., ("Registrant" or "Partnership") is a
Virginia limited partnership formed to invest as a limited partner in other
limited partnerships ("Project Partnerships") that own and operate apartment
complexes ("Projects") that are financed and/or operated under federal or state
housing assistance programs. Part of the objective of the Registrant is to
generate tax losses for investors. However, due to changes in the tax
regulations, the use of these losses has been restricted for most investors.
Gull-AGE Properties, Inc. ("General Partner"), a Delaware corporation, is the
General Partner of the Registrant. The stock of the General Partner is owned by
Gull-AGE Capital Group, Inc., whose stock was originally owned 50% by the
Gulledge Corporation ("Gulledge"), the former General Partner, and 50% by A.G.
Edwards, Inc. ("Edwards"), a St. Louis-based financial services holding company.
In March of 1988, Edwards, through an affiliate, acquired all the shares of Gull
- -AGE Capital Group, Inc. formerly held by Gulledge. Edwards' principal
subsidiary, A.G. Edwards & Sons, Inc., a securities and commodities broker-
dealer, was a principal distributor of Units of the Registrant. As a result,
neither the General Partner nor Gull-AGE Capital Group, Inc. has any current
affiliation with Gulledge.
On November 1, 1990, Gull-AGE Properties, Inc. was approved by a majority-of-
interest of holders of limited partner units to become the sole General Partner
of the Registrant. Gull-AGE Properties, Inc. replaced the Gulledge Corporation
as Managing General Partner and Eugene A. Gulledge and Keith A. Gulledge as
individual General Partners.
Pursuant to the Securities Act of 1933, the Registrant filed a Form S-11
Registration Statement with the Securities and Exchange Commission. Reference
is made to the Prospectus contained in said Registration Statement declared
effective April 30, 1984.
Commencing on April 30, 1984, the Registrant began offering through Gulledge
Securities Corporation ("Selling Agent") and other broker-dealers up to 10,000
units (with an option to sell up to 25,000 units) of limited partnership
interest (the "Units") at $1,000 per unit ("Offering"), with a minimum purchase
of five Units ($5,000).
As of September 30, 1985, the date that the offering terminated, the
Registrant had accepted subscriptions for 11,458 units from 1,038 Investor
Limited Partners and 356 units from General and Special Limited Partners.
As of December 31, 1999, the Registrant has investments in Project
Partnerships which own the Projects listed below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Housing Original Offering Acquisition Government
PROJECT Completed Units Mortgages Proceeds Fees Programs
1.Carriage House 1973 240 $ 4,860,050 $ 2,175,000 $ 195,750 HUD Section 236
of Florence Apts.
Florence, KY
2.Olympic Village 1977 320 $ 5,989,253 $ 2,720,000 $ 244,800 HUD Sections
Chicago Heights, IL 8 and
221(d)(4);
Illinois HDA
3.Hawthorn Ridge 1977 176 $ 4,196,243 $ 1,836,000 $ 164,700 HUD Section
Woodbridge, IL 223(F)
4.Colony Place Apts. 1970 100 $ 1,744,265 $ 598,750 $ 53,950 HUD Sections
Fayetteville, NC 8 and 236
5.Country Oaks Apts. 1986 36 $ 1,054,350 $ 264,000 $ 23,760 FmHA 515
Somerville, TN
6.Rancho Vista Apts. 1986 28 $ 992,920 $ 239,500 $ 21,500 FmHA 515
Wickenburg, AZ
7.Pine West Apts. 1986 48 $ 1,282,500 $ 300,000 $ 27,000 FmHA 515
Indianola, MS
1,238 $ 24,129,046 $ 10,174,500 $ 915,160
</TABLE>
Although each Project must compete in the market place for tenants, interest
subsidies and/or rent supplements from governmental agencies make it possible to
offer certain of these dwelling units to eligible tenants at a cost
significantly below the market rate for comparable conventionally-financed
dwelling units.
ITEM 2. PROPERTIES.
Other than its interests in the Project Partnerships, the Registrant does not
own any property. The General Partner believes that the projects described
below are all in satisfactory physical condition.
Average Effective
Occupancy Monthly Rental
Project 1999 1998 1999 1998
Carriage House of Florence Apts. 98% 98% $369 $369
Olympic Village Apts. 96% 94% $804 $804
Hawthorn Ridge Apts. 96% 97% $762 $762
Colony Place Apts. 92% 91% $302 $302
Country Oaks Apts. 95% 95% $230 $230
Rancho Vista Apts. 94% 91% $321 $317
Pine West Apts. 99% 99% $275 $275
The Registrant had owned an investment in Camelot Housing which defaulted on its
mortgage in June 1995. The default was primarily caused by a decrease in
housing assistance payments from HUD and a resulting decline in occupancy. Due
to a significant amount of housing quality standard violations noted by HUD in a
physical inspection report, HUD greatly reduced its housing assistance payments
until such time as the repairs were completed. Without the payments from HUD,
the Project Partnership was unable to make its mortgage payments. The mortgage
was assigned to HUD at which time HUD initiated foreclosure proceedings. The
proceedings concluded during 1996. The effect on the Registrant's financial
statements was negligible because the investment in Project Partnerships was
reduced to zero several years ago. Also, this Project Partnership never paid
distributions nor was it expected to do so for the foreseeable future. In
addition, the tax effect of the foreclosure is negligible as losses from other
Project Partnerships are available to offset the gain due to the foreclosure.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not currently subject to any pending material legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
As of December 31, 1999, the number of holders of units was 1,038.
The Registrant is a limited partnership and thus has no common stock. There
is no ready market for the Units and it is not anticipated that there will be
any market. Any acquisitions or dispositions of Units that have occurred have
been the result of private transactions, usually between related parties, and
the Registrant has no knowledge of the prices bid for or asked with respect to
the Units. The General Partner has no plans to offer any services that would
match prospective buyers with prospective sellers of Units.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Income from Distributions
and Other Miscellaneous
Revenue $402,035 $ 56,010 $ 73,251 $ 45,946 $ 83,495
Equity Income (Losses)
of Project Partnerships 180,464 141,971 (2,695,167)
Expenses (498,059) (535,384) (248,899) (159,279) (132,509)
Net Income/(Loss) $ 84,440 $(337,403) $ (2,870,815) $(113,333)
$(49,014)
Investment in Project
Partnerships $487,199 $ 661,318 $ 976,602
Total Assets $511,571 $ 1,129,425 $1,498,463 $ 449,902 $448,855
Net Income/(Loss) per
partnership unit $ 7 $ (29) $ (243) $ (10) $ (4)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS.
The net income for 1999 was $84,440 compared to the net losses of $337,403
for 1998 and $2,870,815 for 1997 (see Items 6 and 14(a)1). The net income for
1999 was primarily due to a distribution from the sale of the assets of the
Greentree Housing Limited Partnership (Greentree) compared to the net losses for
1998 and 1997 described in the following paragraphs.
The assets of Greentree were sold on October 15, 1999. As a result of the sale,
the Registrant recorded an investment in Greentree equal to it's proportionate
share of the gain on the sale. Following the equity method of accounting, the
Registrant was then required to reduce the investment balance by previously
unrecognized losses from Greentree, which reduced the Registrant's investment to
zero. Further, the Registrant received a $347,596 distribution from Greentree
due in large part to the proceeds received from the sale. This distribution is
recorded in distributions from Project Partnerships in the Statement of
Operations.
During 1997, Hawthorn refinanced its mortgage and used the proceeds to make a
partial payment to the holder of a promissory note. The remaining balance of
the promissory note ($3,748,687) was assumed by the Registrant. Payment terms
are very similar to when Hawthorn held the promissory note. The promissory note
bears simple interest at a rate of 9%. Principal and interest payments can only
be made from distributions received from Hawthorn. The Registrant is not
required to use distributions from any other Project Partnerships to make
payments on this promissory note.
In conjunction with the assumption of the promissory note, the Registrant
recorded an investment in Hawthorn equal to the balance of the promissory note
assumed. Following the equity method of accounting for investments in project
partnership, the Registrant was then required to reduce the investment balance
by previously unrecognized losses from Hawthorn. Recognition of prior years'
unrecorded losses is the primary reason for the large increase in net loss for
1997 compared to prior years. However, in 1998 Hawthorn produced income and the
Registrant was required to recognize its share of that income under the equity
method of accounting. See footnote F of Item 14(a)1 for more information.
Distribution income received from the Project Partnerships was $383,005 in 1999
compared to $32,183 in 1998 and $52,702 in 1997. Income from distributions were
greater in 1999 compared to 1998 and 1997 primarily due to a $347,596
distribution from Greentree. The distribution from Greentree is due to the sale
of its assets in the current year.
Expenses decreased in 1999 compared to 1998 primarily because of a decrease in
consulting fees.
The accounting for an investment in a Project Partnership involves decreasing
the Registrant's investment in each Project Partnership by the Registrant's
share of the Project Partnership's loss until that investment reaches zero.
Losses incurred by a Project Partnership subsequent to the Registrant's
investment reaching zero are not reflected in the Registrant's financial
statements until such time as the Project Partnership reports net income.
Losses reported from the Project Partnerships are primarily the result of
depreciation expense and interest expense incurred on nonrecourse government
backed debt and nonrecourse secondary financing loans. These losses, in and of
themselves, do not accurately portray the surplus cash or excess cash (as
defined by HUD and Farmers' Home regulations) generating potential of the
projects, such surplus cash being available for distribution to the partners of
the Project Partnerships. The Registrant treats distributions as income, if the
investment in the Project Partnership is zero, or as a return or withdrawal of
capital invested in the Project Partnership, if the investment is above zero.
As of December 31, 1992, all investments in Project Partnerships were reduced to
a zero book basis; therefore, subsequent losses were not reported for financial
statement purposes. Now that the Registrant has a book basis in Hawthorn, as
discussed earlier, income and losses from Hawthorn will be reported for
financial statement purposes until the book basis is reduced to zero. Tax basis
losses from all the Project Partnerships remain available to the Registrant's
investors.
The Registrant's ownership interest in several of the Project Partnerships is
pledged as collateral in connection with promissory notes issued by the Project
Partnerships. The General Partner attempts to refinance the promissory notes as
they come due in order to avoid foreclosure by the noteholders and to continue
to defer the adverse tax consequences that would result from foreclosure. If
the General Partner were ever unable to renegotiate a promissory note, the
noteholder would likely exercise his rights to the collateral and seize the
Project Partnership. This would cause the Registrant to realize a gain for tax
purposes primarily due to the recapture of accelerated depreciation taken in
prior years.
The assets of the Registrant are illiquid. The primary source of cash to
finance day-to-day operations is from distributions, if any, to the Registrant
from the Project Partnerships. Due to a low volume of transactional activity,
the Registrant's need for cash to finance day-to-day operations is minimal. The
ability to sell the Registrant's assets, i.e. the Project Partnerships, is
limited by the overall market conditions in the geographic areas where the
Projects operate and, potentially, the ability of the Projects to qualify for
Low Income Housing Tax Credits. In addition, the purchase of these interests
was intended, and remains, to be for long-term investment purposes.
The distribution received from Project Partnerships in a given year is affected
by regulatory restrictions and limitations and by the operations of the Project
Partnerships. Operations of the Project Partnerships is, in turn, affected by
several factors, among which are:
Inflation and changing economic conditions involving the management and
ownership of rental real estate. Vacancy levels, rental payment defaults and
operating expenses are all dependent on general and local economic
conditions. Shifts in these conditions could impact operating results of the
Project Partnerships.
The need for capital additions or improvements may limit the amount of cash
available for distribution.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnership is exposed to interest rate risk related to changes in fair
value on its fixed rate debt. As of December 31, 1999, the partnership had
$3,746,010 of principal and accrued interest on a fixed rate note bearing
interest at 9% (See Note E to the Financial statements).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Registrant are filed herewith (See
Item 14(a)1). The supplementary financial information specified by
Item 302 of Regulation S-K is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no officers or directors. The General Partner is Gull-AGE
Properties, Inc. The following is information concerning the officers and
directors of the General Partner, all of which are compensated by A.G. Edwards &
Sons, Inc., an affiliate of the General Partner:
Name Position
Robert L. Proost Director, President and
Treasurer
Robert J. Herleth Vice President and
Assistant Secretary
Douglas L. Kelly Secretary
Joseph G. Porter Assistant Treasurer
Robert L. Proost, age 62, has been a Director of the General Partner,
President and Treasurer since March 1, 1997. Mr. Proost succeeds David W.
Mesker who retired on February 28, 1997. Mr. Proost has been Treasurer of
Edwards since March 1, 1997. He is currently Treasurer, Corporate Vice
President, Assistant Secretary and Director of Administration of A.G. Edwards &
Sons, Inc., of which he has been an employee since 1988. Prior to joining A.G.
Edwards & Sons, Inc. he was a partner in Peper, Martin, Jensen, Maichel and
Hetlage, a St. Louis area law firm. He is also President of A.G.E. Realty
Corp., the Special Limited Partner, which owns other real estate properties and
interests, and President of The Ceres Investment Company, a wholly-owned
subsidiary of A.G. Edwards & Sons, Inc., which serves as general partner in
several limited partnerships which invest in commodities futures.
Robert J. Herleth, age 47, is a Vice President of the General Partner and
manages the operations of the General Partner. Mr. Herleth joined A.G.
Edwards & Sons, Inc. in 1980. Since then he has specialized in the areas of
real estate and finance. He is also Vice President of A.G.E. Realty Corp., the
Special Limited Partner, which owns other real estate properties and interests.
Prior to joining A.G. Edwards & Sons, Inc., Mr. Herleth was employed by Pantheon
Corporation, a St. Louis area real estate development firm.
Douglas L. Kelly, age 51, is Secretary of the General Partner. Mr. Kelly
succeeds Ronald E. Buesinger who retired on February 28, 1994. Mr. Kelly joined
A.G. Edwards & Sons, Inc. on January 1, 1994 and serves as Director, Corporate
Vice President, Corporate Secretary and Director of Law and Compliance. Prior
to joining A.G. Edwards & Sons, Inc., Mr. Kelly was a partner in Peper, Martin,
Jensen, Maichel & Hetlage, a St. Louis area law firm, where he served as outside
counsel to A.G. Edwards & Sons, Inc. for eight years.
Joseph G. Porter, age 39, is the Assistant Treasurer of the General Partner.
Mr. Porter succeeds Eugene J. King who retired on February 28, 1999. Mr. Porter
joined A.G. Edwards & Sons, Inc. in 1982 and serves as Vice President and
Principal Accounting Officer.
The General Partner does not have any standing audit, nominating or
compensation committees.
ITEM 11. EXECUTIVE COMPENSATION.
Under the provisions of the Registrant's Limited Partnership Agreement, the
General Partner is entitled to receive an asset management fee (an annual
cumulative amount of $114,580) and a program management fee (an annual
noncumulative amount up to $59,250). The amount of these fees paid during 1999
were $714,580 for the asset management fee and $0 for the program management
fee. The accumulated amount of these fees accrued but not paid to the General
Partner at December 31, 1999 are $545,720 and $0, respectively. The ability to
pay the program management fee is limited by payment of priority items as
outlined in the Registrant's Limited Partnership Agreement.
The General Partner is also to receive a fee of 1% of the gross capital
proceeds generated by the Project Partnerships, for services connected with the
disposition of Partnership investments. This payment is limited by payment of
priority items as outlined in the Registrant's Limited Partnership Agreement.
In addition, the General Partner will receive any fees to which the prior
General Partners would be entitled for performing services with respect to the
Project Partnerships of which the Registrant is the limited partner.
Please refer to Note C of the financial statements referenced under
Item 14(a)1 for additional information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The General Partner owns a 1.1% interest in the Registrant and its affiliate,
A.G.E. Realty Corporation, owns a 0.10% interest in the Partnership as Special
Limited Partner. As of December 31, 1999, no person was known by the Registrant
to be the beneficial owner of more than a 5% interest in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
An affiliate of Gull-AGE Properties, Inc., A.G.E. Realty Corp. holds a .10%
interest in the Registrant as a Special Limited Partner.
Please refer to Item 11 for additional information.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following financial statements are included:
1. Financial Statements of the Registrant (filed herewith as Exhibit 1).
Independent Auditors' Report.
Balance Sheets as of December 31, 1999 and 1998.
Statements of Operations for the three years in the period ended
December 31, 1999.
Statements of Changes in Partners' Deficit for the three years in the
period ended December 31, 1999.
Statements of Cash Flows for the three years in the period ended
December 31, 1999.
Notes to Financial Statements.
Financial Statements of Unconsolidated Limited Partnership meeting
requirements of significant subsidiary/investee (Exhibit 2).
No financial schedules are applicable.
Management will provide, without charge, a copy of the Registrant's
annual report on Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the year ended December 31,
1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
April 14, 2000 GULLEDGE REALTY INVESTORS II
(Registrant)
By: Gull-AGE Properties, Inc.
(General Partner)
By: /s/Robert L. Proost
Robert L. Proost
President & Treasurer
& Director
By: /s/Robert J.Herleth
Robert J. Herleth
Vice President
By: /s/Joseph G. Porter
Joseph G. Porter
Assistant Treasurer
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
INDEPENDENT AUDITORS' REPORT
To the Partners of
Gulledge Realty Investors II:
We have audited the accompanying balance sheets of Gulledge Realty Investors II
(a limited partnership) as of December 31, 1999 and 1998, and the related
statements of operations, changes in 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 did not audit the financial statements of Hawthorn Housing
Limited Partnership for the years ended December 31, 1999 and 1998, a majority
owned Limited Partnership ("Project Partnership"), the Partnership's investment
in which is accounted for by use of the equity method. The Partnership's equity
of $487,199 and $661,318 in Hawthorne Housing Limited Partnership's net assets
at December 31, 1999 and 1998, respectively, and $180,464 and $141,971 of that
Project Partnership's net income for the years then ended are included in the
accompanying financial statements. The Project Partnership's financial
statements referred to above were audited by another auditor whose reports have
been furnished to us, and our opinion, insofar as it relates to amounts included
for such Project Partnership for the years ended December 31, 1999 and 1998, is
based solely on the report of the other auditor.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, based on our audits and the report of another auditor, such
financial statements present fairly, in all material respects, the financial
position of Gulledge Realty Investors II as of December 31, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America.
April 14, 2000
RBG&CO.
S2300-020 INDEPENDENT AUDITORS' REPORT
To The Partners
Hawthorn Housing Limited Partnership
We have audited the accompanying balance sheet of Hawthorn Housing Limited
Partnership, Project No. 071-11069, a limited partnership, as of December 31,
1999 and the related statements of profit and loss, partners' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawthorn Housing Limited
Partnership as of December 31, 1999 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information (shown on Pages 13 through 15) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken as
a whole.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 1, 2000 on our
consideration of Hawthorn Housing Limited Partnership's internal control and
reports dated February 1, 2000 on its compliance with specific requirements
applicable to major HUD programs and specific requirements applicable to Fair
Housing and Non-Discrimination.
February 1, 2000
Rubin, Brown, Gornstein & Co. LLP 230 South Bemiston Avenue
Certified Public Accountants/Business Consultants St. Louis, MO 63105
314/727-8150 TELwww.rbgco.com 314/727-9195 FAX
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31,
Assets 1999 1998
Cash and cash equivalents $ 14,777 $ 450,473
Advances to Project Partnerships 9,595 17,634
Investment in Project Partnerships
(Note E) 487,199 661,318
Total Assets $ 511,571 $ 1,129,425
Liabilities and Partners' Deficit
Accounts payable $ 8,500 $ 8,000
Payable to affiliates (Note D) 589,720 1,313,202
Capital contributions payable 50,000 50,000
Note Payable (Note E) 3,746,010 3,725,322
Total Liabilities 4,394,230 5,096,524
Partners' Deficit (Note B) (3,882,659) (3,967,099)
Total Liabilities and
Partners' Deficit 511,571 $ 1,129,425
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
Year Ended December 31,
1999 1998 1997
Revenue and equity in
Project Partnerships'
operations:
Interest $ 19,030 $ 23,827 $ 20,549
Distributions from
Project Partnership 383,005 32,183 52,702
Equity in income (loss)
of Project Partnerships 180,464 141,971 (2,695,167)
582,499 197,981 (2,621,916)
Expenses:
Asset management fee
(Note D) 114,580 114,580 114,580
Interest expense 314,424 320,462 44,368
Professional fees 8,000 9,000 8,553
Amortization 21,473
Operating expenses 61,055 91,342 59,925
498,059 535,384 248,899
Net Income/(Loss) $ 84,440 $ (337,403) $(2,870,815)
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Special
Total General Limited Limited
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ (758,881) $ (16,939) $ (30,430) $ (711,512)
Net loss for 1997 (2,870,815) (31,579) (54,545) (2,784,691)
Balances at December 31, 1997 (3,629,696) (48,518) (84,975) (3,496,203)
Net loss for 1998 (337,403) (3,741) (6,569) (327,093)
Balances at December 31, 1998 (3,967,099) (52,259) (91,544) (3,823,296)
Net income for 1999 84,440 929 1,604 81,907
Balances at December 31, 1999 $(3,882,659) $ (51,330) $ (89,940) $(3,741,389)
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income/(loss) $ 84,440 $ (337,403) $ (2,870,815)
Adjustments to reconcile net
income/(loss) to net cash from
operating activities:
Equity in (income)/loss of
Project Partnership (180,464) (141,971) 2,695,167
Distributions from zero-basis
Project Partnerships (383,005) (32,183) (52,702)
Amortization 21,473
Change in assets and liabilities:
Advances to Project Partnerships 8,039 13,463 31,061
Accrued interest note payable 20,688 (67,733) 44,368
Accounts payable 500 1,000 (7,000)
Payable to affiliates (723,482) 35,098 133,321
Net Cash From Operating Activities (1,173,284) (529,729) (5,127)
Cash Flows From Investing Activities:
Distributions from all
Project Partnerships 737,588 489,438 129,620
Net Cash from Investing Activities 737,588 489,438 129,620
Net Change In Cash and Cash Equivalents (435,696) (40,291) 124,493
Cash and Cash Equivalents-
Beginning of Year 450,473 490,764 366,271
Cash and Cash Equivalents-
End of Year $ 14,777 $ 450,473 $ 490,764
Supplemental disclosure of noncash
financing and investing activities:
Additional investment in partnerships
through assumption of Notes Payable -- -- $ 3,748,687
Interest payments $ 293,736 $ 133,104 --
</TABLE>
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II, L.P.
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
Note A Summary of Significant Accounting Policies
Partnership Organization
Gulledge Realty Investors II (the Partnership) is a limited
partnership organized on December 1, 1983 under the laws of the
Commonwealth of Virginia for the purpose of acquiring limited partner
interests in real estate limited partnerships (Project Partnerships).
These Project Partnerships are known as Florence Housing Partnership,
Colony Place Associates, Ltd., Greentree Housing Limited Partnership,
Camelot Housing Limited Partnership, Hawthorn Housing Limited
Partnership, Olympic Housing Limited Partnership, Country Oaks
Apartments Limited Partnership, Pine West Ltd., and Rancho Vista
Associates. Except for Camelot Housing (see Note E), each of the
Project Partnerships is an operating real estate project which
receives mortgage interest and/or rental assistance from the United
States Department of Housing and Urban Development (HUD) or Farmer's
Home Administration. The Partnership commenced operations on March 1,
1984.
The financial statements include only those assets, liabilities, and
results of operations which relate to the business of Gulledge Realty
Investors II and do not include any assets, liabilities, or operating
results attributable to the partners' individual activities.
In November 1988, the General Partners (Eugene A. Gulledge, Keith A.
Gulledge and The Gulledge Corporation) filed for bankruptcy. The
Limited Partnership Agreement allows for the replacement of a General
Partner in such circumstances subject to Limited Partner approval. In
November 1990, by approval of a majority vote of the limited
partnership units, Gull-AGE Properties, Inc. (GAP) replaced Eugene A.
Gulledge, Keith A. Gulledge and The Gulledge Corporation as the sole
General Partner. GAP is not affiliated with the Gulledges or their
affiliates. GAP had been performing certain administrative duties on
behalf of the Gulledges since the bankruptcy filing. As General
Partner, GAP will continue the operation of the Partnership in
accordance with the Limited Partnership Agreement.
Cash and Cash Equivalents
The Partnership considers interest bearing money market account
balances to be cash equivalents.
Investment in Project Partnerships
The investment in Project Partnerships is accounted for using the
equity method of accounting. Under the equity method, investments are
reflected at cost, adjusted for the Partnership's share of the Project
Partnerships' income or loss. The Partnership is under no obligation
to contribute additional capital, or to lend monies necessary to fund
cash flow deficiencies of the Project Partnerships, because the
Partnership is a limited partner in such partnerships. The investment
account will not be reduced below zero because the Partnership is not
liable for Project Partnership losses in excess of such investment.
Losses in subsequent years will be maintained separately for tax
purposes. These losses are available to be applied toward any
possible future income from these partnerships. Any distributions
received from the Project Partnerships subsequent to reducing the
investment account to zero, will be recognized as income in the year
received.
Income Taxes
No provision has been made for current or deferred income taxes since
they are the responsibility of each partner. Profits (or gains) and
losses of the Partnership are allocated to the partners in accordance
with the partnership agreement.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimated.
Segment Reporting
In fiscal year 1998, the company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 requires that a
public business enterprise report financial and descriptive
information about its reportable operating segments. The
Partnership's principal line of business is investing in Project
Partnerships that own and operate Projects that are financed and/or
operated under federal or state housing assistance programs.
Management has considered the requirements of SFAS No. 131 and
believes that the partnership operates in one business segment.
Note B Partners' Deficit
Profits and losses of the Partnership are allocated pro-rata to the
partners in accordance with their interest as follows:
General partner (131 units) 1.1%
Special limited partners (225 units) 1.9
Investor limited partners (11,458 units) 97.0
100.0%
Upon dissolution and termination of the Partnership, the net proceeds
resulting from the sale of Partnership assets are first used to pay
all debts and liabilities of the Partnership; next, to repay capital
contributions of the partners less any prior cash distributions; then,
to the payment of a cumulative disposition fee to the General Partner,
with any remaining funds allocated as follows:
General partner 4.0%
Special limited partners 6.0
Investor limited partners 90.0
100.0%
In the event that net operating revenues, as defined, are realized
during any fiscal year, an annual noncumulative program management fee
of up to $59,250 is payable to the managing General Partner. The fee
represents compensation for maintaining the Partnership's books,
records and accounts per the Partnership agreement. The amount of the
program management fee plus the asset management fee accrued each year
shall not exceed .5% of invested assets, as defined in the
Partnership's Limited Partnership Agreement.
Upon the distribution of capital proceeds by the Partnership, the
General Partner is authorized to receive a cumulative disposition fee
equal to 1% of the capital proceeds generated through the sale of
Project Partnerships to the extent such proceeds exceed priority
payments as defined in the Partnership Agreement.
Note C Reconciliation of Operations: Financial Statement Versus Income Tax
Return
The financial statement loss is reconciled to income tax (loss) gain
for the years ended December 31, 1999, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income/(loss) per financial statements $ 84,440 $(337,403)$(2,870,815)
Add: equity in loss/(gain) of Project
Partnership for financial statement
purposes in excess of equity in loss/(gain)
of Project Partnership for tax return
purposes (180,464) (141,971) 2,695,167
Less: equity in (losses) gains of
Project Partnerships for tax
return purposes in excess of
equity in (losses) gains of
Project Partnerships for financial
statement purposes (14,775) (1,199,159)
(1,531,938)
Distributions received from zero-basis
Project Partnership (383,005) (32,183) (52,702)
Net loss per income tax return $(493,804) $(1,710,716)$(1,760,288)
</TABLE>
Note D Payable To Affiliates
In accordance with the Partnership Agreement, the Partnership is
required to pay to the General Partner an annual asset management fee
of $114,580. Amounts due in accordance with this agreement at
December 31, 1999 and 1998 are $547,720 and $1,145,720, respectively.
Note E Project Partnerships
The Hawthorn project partnership refinanced its mortgage during 1997.
Proceeds from the refinancing were used to make a partial payment on
the promissory note which had come due December 31, 1996. The
remaining balance of the promissory note was renegotiated. The
mortgage was refinanced under HUD regulations which limit the amount
of debt that can be collateralized by the project. Accordingly, HUD
would not approve the mortgage refinance unless the promissory note
was no longer a liability of the project. Therefore, the general
partner of the Partnership and the noteholder agreed to have the
promissory note assumed by the Partnership. The promissory note is
now collateralized by the partners' interests in the Hawthorn project
partnership. Principal and interest are only payable from surplus
cash received by the Partnership from the Hawthorn project
partnership. The Partnership is not required to make any payments
from surplus cash it receives from any other project. The promissory
note plus accrued interest totaled $3,746,010 at December 31, 1999,
and bears simple interest at a rate of 9%. Any principal and interest
remaining unpaid on June 30, 2002, will be due in full.
In conjunction with assuming the liability for the promissory note,
the Partnership also recorded a corresponding investment in Hawthorn.
The investment account was then reduced by previously unrecorded
losses of Hawthorn in accordance with the equity method of accounting.
The investment account will be adjusted in future years by the
Partnership's share of any additional income or loss from Hawthorn.
This investment account will also be reduced whenever the Partnership
receives a distribution from Hawthorn. Therefore, until the
investment account is reduced to zero, the Partnership will not
recognize distribution income in future years from the Hawthorn
project partnership.
None of the Project Partnerships are experiencing significant cash
flow deficiencies after adding back non-cash items such as
depreciation, amortization and accrued interest on promissory notes
not currently payable to the operating losses of the Project
Partnerships.
Note E Project Partnerships (continued)
The assets of Greentree Housing Limited Partnership were sold on
October 15, 1999. As a result of the sale, the Registrant recorded an
investment in Greentree equal to its proportionate share of the gain
on the sale. Following the equity method of accounting, the
Registrant was then required to reduce its investment balance by
previously unrecognized losses from Greentree, which reduced the
Registrant's investment back to zero. Further, the Registrant
received a $347,596 distribution from Greentree due in large part to
the proceeds received from the sale. This distribution is recorded in
distributions from Project Partnerships in the Statement of
Operations.
The Partnership's investment in the following Project Partnerships
(the "Projects") serves as collateral in connection with promissory
notes issued by the Projects as described below:
Project Partnership Promissory Note
(Debtor) Including Accrued Interest Payment Terms
Colony Place $2,218,000 9% interest due annually.
Principal plus unpaid interest
due on November 30, 1999.
Note is currently in default.
Florence Housing $5,083,000 13% interest due annually.
Principal plus unpaid interest
due on December 31, 1999.
Note is currently in default.
Olympic Housing $8,078,000 10% interest due annually.
Principal plus unpaid interest
due on December 31, 2000
The ability of the Projects to refinance or renegotiate these
Promissory Notes when due is uncertain at this time. Factors that may
affect the Projects' ability to refinance or renegotiate include
changes in tax laws, changes in interest rates, and the operations of
the Projects.
Note E Project Partnerships (continued)
The Partnership could lose its ownership interest in the Project
Partnerships if it is unsuccessful in renegotiating these notes.
Though the Partnership's investment in these Project Partnerships is
zero, the impact on future operations could be significant as
distributions from Project Partnerships is the primary source of
revenue for the Partnership.
Colony Place's promissory note was originally due December 31, 1995,
but was extended until June 30, 1997, while a sale of the project was
being pursued under the Low Income Housing Preservation and Resident
Homeownership Act ("LIHPRHA"). LIHPRHA was a program administered by
the Department of Housing and Urban Development ("HUD").
Unfortunately, funds are no longer available under the LIHPRHA
program. The promissory note had been extended to November 30, 1999,
while the general partner attempted to locate a buyer for the project.
A buyer was not located before November 30, 1999. This note is
currently in default. Therefore, the noteholder may demand payment
and the project may revert to the noteholder.
Florence Housing's promissory note was originally due
December 31, 1995, but was extended to December 31, 1999. This note
is currently in default. Olympic Housing's promissory note was
originally due December 31, 1995, but was extended to December 31,
2000. In addition, the interest rate on Olympic's note was reduced
from 12% to 10% and payment terms were changed to allow more of the
project's available surplus cash to be paid to the noteholder as
partial payment of the annual interest due on the promissory note.
Note F Condensed Financial Data of Project Partnerships
The following is a summary of the condensed financial position and
results of operations of the Project Partnerships which have been
obtained from audited financial statements and are not covered by the
accompanying independent auditors' report (dollars in thousands):
Note F Condensed Financial Data of Project Partnerships (continued)
Colony Place Associates, Ltd.
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $1,093 $1,158
Other Assets 161 128
$1,254 $1,286
Liabilities and Partners' Deficit:
Mortgage Notes Payable $2,878 $2,735
Other Liabilities 138 101
Partners' Deficit (1,762) (1,550)
$1,254 $1,286
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $ 339 $ 336 $ 341
Interest Income 2 3 1
Other Income 8 8 9
Total Revenue 349 347 351
Expenses:
Operating Expenses $ 307 $ 297 $ 290
Financial Expenses 181 164 157
Depreciation 66 66 66
Total Expenses 554 527 513
Net Loss $(205) $(180) $(162)
Note F Condensed Financial Data of Project Partnerships (continued)
Country Oaks Apartments, Ltd.
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $ 177 $ 242
Other Assets 200 195
$ 377 $ 437
Liabilities and Partners' Deficit:
Mortgage Notes Payable $1,026 $1,029
Other Liabilities 59 59
Partners' Deficit (708) (651)
$ 377 $ 437
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $ 159 $ 156 $ 154
Interest Income 4 4 7
Other Income 6 7 7
Total Revenue 169 167 168
Expenses:
Operating Expenses 60 59 64
Financial Expenses 87 88 88
Depreciation 74 73 72
Total Expenses 221 220 224
Net Loss $ (52) $(53) $ (56)
Note F Condensed Financial Data of Project Partnerships (continued)
Florence Housing Associates
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $3,147 $3,277
Other Assets 670 703
$3,817 $3,980
Liabilities and Partners' Deficit:
Mortgage Notes Payable $7,232 $7,117
Other Liabilities 231 164
Partners' Deficit (3,646) (3,301)
$3,817 $3,980
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $1,065 $1,021 $ 972
Interest Income 28 32 37
Other Income 16 16 17
Total Revenue 1,109 1,069 1,026
Expenses:
Operating Expenses 1,042 812 970
Financial Expenses 262 245 251
Depreciation 151 147 143
Total Expenses 1,455 1,204 1,364
Net Loss $(346) $(135) $(338)
Note F Condensed Financial Data of Project Partnerships (continued)
Greentree Housing, Ltd.
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $ $1,455
Other Assets 70 178
$ 70 $1,633
Liabilities and Partners' Capital (Deficit):
Mortgage Notes Payable $ $2,604
Other Liabilities 2 78
Partners' Capital (Deficit) 68 (1,049)
$ 70 $1,633
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $ 332 $ 401 $ 393
Interest Income 8 3 1
Other Income 625 13 14
Total Revenue 965 417 408
Expenses:
Operating Expenses 253 323 322
Financial Expenses 153 164 160
Depreciation 37 50 50
Total Expenses 443 537 532
Net Income/(Loss) $ 522 $(120) $(124)
Note F Condensed Financial Data of Project Partnerships (continued)
Hawthorn Housing Limited Partnership
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $4,018 $4,224
Other Assets 1,538 1,565
$5,556 $5,789
Liabilities and Partners' Capital:
Mortgage Notes Payable $4,820 $4,860
Other Liabilities 243 260
Partners' Capital 493 669
$5,556 $5,789
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $1,490 $1,458 $1,439
Interest Income 35 30 71
Other Income 62 30 35
Total Revenue $1,587 1,518 1,545
Expenses:
Operating Expenses 808 758 759
Financial Expenses 344 354 818
Depreciation 253 263 269
Total Expenses 1,405 1,375 1,846
Net Income/(Loss) $ 182 $ 143 $ (301)
Note F Condensed Financial Data of Project Partnerships (continued)
Olympic Housing Limited Partnership
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $7,422 $7,612
Other Assets 821 773
$8,243 $8,385
Liabilities and Partners' Deficit:
Mortgage Notes Payable $12,707 $12,318
Other Liabilities 895 908
Partners' Deficit (5,359) (4,841)
$8,243 $8,385
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $2,432 $2,447 $2,421
Interest Income 16 13 15
Other Income 51 38 43
Total Revenue 2,499 2,498 2,479
Expenses:
Operating Expenses 1,847 1,930 1,723
Financial Expenses 927 941 950
Depreciation 300 301 300
Total Expenses 3,074 3,172 2,973
Net Loss $(575) $(674) $ (494)
Note F Condensed Financial Data of Project Partnerships (continued)
Pine West, Ltd.
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $ 995 $1,021
Other Assets 150 138
$1,145 $1,159
Liabilities and Partners' Deficit:
Mortgage Notes Payable $1,252 $1,256
Other Liabilities 45 35
Partners' Deficit (152) (132)
$1,145 $1,159
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $ 150 $ 160 $ 148
Interest Income 5 4 2
Other Income 6 6 7
Total Revenue 161 170 157
Expenses:
Operating Expenses 119 107 116
Financial Expenses 36 35 33
Depreciation 26 26 26
Total Expenses 181 168 175
Net (Loss)/Income $ (20) $ 2 $ (18)
Note F Condensed Financial Data of Project Partnerships (continued)
Rancho Vista Associates
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $ 620 $ 665
Other Assets 73 65
$ 693 $ 730
Liabilities and Partners' Deficit:
Mortgage Notes Payable $ 905 $ 908
Other Liabilities 14 17
Partners' Deficit (226) (195)
$ 693 $ 730
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $ 169 $ 164 $ 155
Interest Income 1 1 1
Other Income 3 2 2
Total Revenue 173 167 158
Expenses:
Operating Expenses 80 76 61
Financial Expenses 80 82 83
Depreciation 44 33 33
Total Expenses 204 191 177
Net Loss $ (31) $(24) $ (19)
Note F Condensed Financial Data of Project Partnerships (continued)
Combined Total of Project Partnerships
Condensed Balance Sheets
December 31,
1999 1998
Assets:
Rental Property (Net) $17,472 $19,654
Other Assets 3,683 3,745
$21,155 $23,399
Liabilities and Partners' Deficit:
Mortgage Notes Payable $30,820 $32,827
Other Liabilities 1,627 1,622
Partners' Deficit (11,292) (11,050)
$21,155 $23,399
Condensed Statements of Operations
For The Year Ended December 31,
1999 1998 1997
Revenues:
Rental Income $6,136 $6,143 $ 6,023
Interest Income 99 90 135
Other Income 777 120 134
Total Revenue 7,012 6,353 6,292
Expenses:
Operating Expenses 4,516 4,362 4,305
Financial Expenses 2,070 2,073 2,540
Depreciation 951 959 959
Total Expenses 7,537 7,394 7,804
Net Loss $(525) $(1,041) $(1,512)
Note G Fair Value of Financial Instruments
FASB Statement No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about
financial instruments, when it is practicable to estimate fair value.
The carrying amounts of assets and liabilities reported on the
statements of financial position that require such disclosure
approximate fair value.
FINANCIAL STATEMENTS
OF
UNCONSOLIDATED LIMITED PARTNERSHIPS
MEETING REQUIREMENTS OF SIGNIFICANT
SUBSIDIARY/INVESTEE
HAWTHORN HOUSING
LIMITED PARTNERSHIP
071-11069
FINANCIAL STATEMENTS
DECEMBER 31, 1999
RBG&CO.
S2300-020 INDEPENDENT AUDITORS' REPORT
To The Partners
Hawthorn Housing Limited Partnership
We have audited the accompanying balance sheet of Hawthorn Housing Limited
Partnership, Project No. 071-11069, a limited partnership, as of December 31,
1999 and the related statements of profit and loss, partners' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawthorn Housing Limited
Partnership as of December 31, 1999 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information (shown on Pages 13 through 15) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken as
a whole.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 1, 2000 on our
consideration of Hawthorn Housing Limited Partnership's internal control and
reports dated February 1, 2000 on its compliance with specific requirements
applicable to major HUD programs and specific requirements applicable to Fair
Housing and Non-Discrimination.
February 1, 2000
Rubin, Brown, Gornstein & Co. LLP 230 South Bemiston Avenue
Certified Public Accountants/Business Consultants St. Louis, MO 63105
314/727-8150 TELwww.rbgco.com 314/727-9195 FAX
BALANCE SHEET
PAGE 1 OF 2
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
1120 Cash - operations $ 440,645
1125 Cash - entity 1,865
1130 Tenant accounts receivable 3,333
1145 Accounts receivable and
notes receivable -- entity 858
1200 Miscellaneous prepaid expenses 15,173
1100T TOTAL CURRENT ASSETS $ 461,874
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits held in trust 62,720
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits 118,684
1320 Replacement reserve 403,652
1300T TOTAL DEPOSITS 522,336
FIXED ASSETS (NOTE 2)
1410 Land 620,000
1420 Buildings 6,579,724
1440 Building equipment - portable 479,089
1400T TOTAL FIXED ASSETS 7,678,813
1495 Less: Accumulated depreciation 3,660,724
1400N NET FIXED ASSETS 4,018,089
OTHER ASSETS
1520 Intangible assets 475,608
1590 Miscellaneous other assets 15,000
1500T TOTAL OTHER ASSETS 490,608
1000T TOTAL ASSETS $5,555,627
BALANCE SHEET
PAGE 2 OF 2
DECEMBER 31, 1999
LIABILITIES
CURRENT LIABILITIES
2100 Accounts payable - operations $23,765
2120 Accrued wages payable 3,040
2123 Accrued management fee payable 7,616
2150 Accrued property taxes 148,087
2170 Mortgage payable - first mortgage
(short-term) (Note 2) 42,201
2174 Other loans -
advances from general partner 1,459
2210 Prepaid revenue 9,224
2122T TOTAL CURRENT LIABILITIES $ 235,392
DEPOSIT AND PREPAYMENT LIABILITIES
2191 Tenant deposits held in trust (contra) 49,124
LONG-TERM LIABILITIES
2320 Mortgage payable - first mortgage (Note 2) 4,777,879
2000T TOTAL LIABILITIES 5,062,395
PARTNERS' EQUITY
3130 Partners' equity 493,232
2033T TOTAL LIABILITIES AND PARTNERS' EQUITY $ 5,555,627
STATEMENT OF PROFIT AND LOSS
FOR THE YEAR ENDED DECEMBER 31, 1999
PART 1 DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT
Rent Revenue - Gross Potential 5120 $1,146,955
Tenant Assistance Payments 5121 $ 443,062
Rent Revenue - Stores and Commercial 5140 $
Garage and Parking Spaces 5170 $
RENTAL Flexible Subsidy Revenue 5180 $
REVENUE Miscellaneous Rent Revenue 5190 $
5100 Excess Rent 5191 $
Rent Revenue/Insurance 5192 $
Special Claims Revenue 5193 $
Retained Excess Income 5194 $
TOTAL RENT REVENUE 5100T $ 1,590,017
Apartments 5220 $ 63,591
Stores and Commercial 5240 $
VACANCIES Rental Concessions 5250 $ 36,308
5200 Garage and Parking Spaces 5270 $
Miscellaneous 5290 $
TOTAL VACANCIES 5200T $ 99,899
NET RENTAL REVENUE Rent
Revenue Less Vacancies 5152N $1,490,118
5300 Nursing Homes/ Assisted Living/
Board and Care/ Other Elderly Care/
Coop/ and Other Revenues 5300
Financial Revenue -
Project Operations 5410 $ 9,108
FINANCIAL Revenue from Investments -
Residual Receipts 5430 $
REVENUE Revenue from Investments -
Replacement Reserve 5440 $ 25,815
5400 Revenue from Investments -
Miscellaneous 5490 $
TOTAL FINANCIAL REVENUE 5400T $ 34,923
Laundry and Vending Revenue 5910 $ 4,866
OTHER Tenant Charges 5920 $ 22,050
REVENUE Interest Reduction Payments Revenue 5945 $
5900 Miscellaneous Revenue 5990 $ 35,000
TOTAL OTHER REVENUE 5900T $ 61,916
TOTAL REVENUE 5000T $1,586,957
Conventions and Meetings 6203 $
Management Consultants 6204 $
Advertising and Marketing 6210 $ 15,137
Other Renting Expenses 6250 $
Office Salaries 6310 $ 18,598
ADMINISTRATIVE Office Expenses 6311 $22,467
EXPENSES Office or Model Apartment Rent 6312 $ 8,664
6200/6300 Management Fee 6320 $ 81,342
Manager or Superintendent Salaries 6330 $ 34,016
Administrative Rent Free Unit 6331 $
Legal Expenses - Project 6340 $ 839
Audit Expense 6350 $ 7,800
Bookkeeping Fees/Accounting Svcs. 6351 $ 1,848
Bad Debts 6370 $ 5,973
Miscellaneous Administrative Exp. 6390 $ 1,135
TOTAL ADMINISTRATIVE EXPENSES 6263T $ 197,819
Fuel Oil/Coal 6420
UTILITIES Electricity 6450 $ 29,839
EXPENSE Water 6451 $ 35,797
6400 Gas 6452 $ 65,794
Sewer 6453 $ 14,891
TOTAL UTILITIES EXPENSE 6400T $ 146,321
TOTAL EXPENSES
(CARRY FORWARD TO PAGE 2) $ 344,140
Page 1 of 2
Project Name: Hawthorn Housing Limited Partnership
BALANCE CARRIED FORWARD $ 344,140
DESCRIPTION OF ACCOUNT ACCT. NO. AMOUNT
Payroll 6510 $ 100,745
Supplies 6515 $ 32,598
Contracts 6520 $ 115,819
Operating Operating and Maintenance Rent
Free Unit 6521 $
Maintenance Garbage and Trash Removal 6525 $ 8,468
Expenses Security Payroll/Contract 6530 $
6500 Security Rent Free Unit 6531 $
Heating/Cooling Repairs
and Maintenance 6546 $
Snow Removal 6548 $ 11,181
Vehicle and Maint. Equip.
Operation and Repairs 6570 $
Miscellaneous Operating and
Maintenance Expenses 6590 $ 829
Total Operating and
Maintenance Expenses 6500T $ 269,640
Real Estate Taxes 6710 $ 144,996
Payroll Taxes
(Project's Share) 6711 $ 15,277
Taxes Property and Liability
Insurance (Hazard) 6720 $ 18,912
and Fidelity Bond Insurance 6721 $ 888
Insurance Workmen's Compensation 6722 $ 3,619
6700 Health Insurance and
Other Employee Benefits 6723 $ 6,840
Miscellaneous Taxes, Licenses,
Permits and Insurance 6790 $ 2,970
Total Taxes and Insurance 6700T $ 193,502
Interest on Mortgage Payable 6820 $ 319,560
Financial Interest on Notes Payable
(Long-Term) 6830 $
Expenses Interest on Notes Payable
(Short-Term) 6840 $
6800 Mortgage Insurance
Premium/Service Charge 6850 $ 24,209
Miscellaneous Financial Exp. 6890 $ 1,273
Total Financial Expenses $ 345,042
6900 Nursing Homes/ Asstd. Living/
Board and Care/ Other Elderly
Care Expenses 6900 $
Total Cost of Operations
before Deprec. and Amort. 6000T $1,152,324
Profit (Loss) before Deprec.
and Amortization 5060T $ 434,633
Depreciation Expense 6600 $ 236,847
Amortization Expense 6610 $ 16,500
Total Deprec. and Amort. $253,347
Operating Profit or (Loss) 5060N $181,286
Officer's Salaries 7110 $
Corporate or Legal Expenses 7120 $ (858)
Mortgagor Federal, State, and
Other Income Taxes 7130 $
Entity Interest Income 7140 $ (143)
Expenses Interest on Notes Payable 7141 $
7100 Interest on Mortgage Payable 7142 $
Other Expenses Amortization
of organization costs 7190 $
Net Entity Expenses 7100T $ (1,001)
Profit or Loss
(Net Income or Loss) 3250 $182,287
MISCELLANEOUS OR OTHER INCOME AND EXPENSE SUB-ACCOUNT GROUPS. If miscellaneous
or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590,
6790, 6890 and 7190) exceed the Account Groupings by 10% or more, attach a
separate schedule describing or explaining the miscellaneous income or expense.
PART II
1.Total mortgage principal payments required during the audit year (12
monthly payments). This applies to all direct loans and HUD-held
and fully insured mortgages. Any HUD approved second mortgages
should be included in the figures. (S1000-010)
$ 39,730
2.Total of 12 monthly deposits in the audit year into the Replacement
Reserve account, as required by the Regulatory Agreement even if
payments may be temporarily suspended or reduced. (Account S1000-
020)
$ 18,600
3.Replacement Reserve or Residual Receipts releases which are included
as expense items on this Profit and Loss Statement. (Account S1000-
030)
$ 57,627
4.Project Improvement Reserve Releases under the Flexible Subsidy
Program that are included as expense items on this Profit and Loss
Statement. (Account S1000-040)
$ N/A
Page 2 of 2
SCHEDULE OF SUB-ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1999
ACCOUNT AMOUNT
5990 -- MISCELLANEOUS REVENUE
5990-010 Gain on sale of easement 5990-020 $35,000
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
S1100-010 BEGINNING OF YEAR $669,109
3250 NET INCOME 182,287
S1200-420 DISTRIBUTIONS (358,164)
3130 END OF YEAR $493,232
STATEMENT OF CASH FLOWS
PAGE 1 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES ACCOUNT AMOUNT
Receipts:
S1200-010 Rental receipts $1,483,717
S1200-020 Interest receipts 34,923
S1200-030 Other operating receipts 46,916
S1200-040 Total Receipts 1,565,556
Disbursements:
S1200-050 Administrative 116,266
S1200-070 Management fee 80,836
S1200-090 Utilities 145,944
S1200-100 Salaries and wages 100,281
S1200-110 Operating and maintenance 168,809
S1200-120 Real estate taxes 145,681
S1200-140 Property insurance 19,364
S1200-150 Miscellaneous taxes and insurance 29,877
S1200-160 Tenant security deposits 6,695
S1200-180 Interest on mortgage 319,560
S1200-210 Mortgage insurance premium (MIP) 24,209
S1200-220 Miscellaneous financial 1,273
S1200-225 Entity/Construction Disbursements:
S1200-226 Entity legal fees S1200-227 3,675
S1200-230 Total Disbursements 1,162,470
S1200-240 NET CASH PROVIDED BY OPERATING ACTIVITIES 403,086
CASH FLOWS FROM INVESTING ACTIVITIES
S1200-245 Net releases from the
mortgage escrow account 3,494
S1200-250 Net releases from the reserve
for replacement account 58,998
S1200-345 Entity investing activities:
S1200-346 Interest income from entity cash S1200-347 143
S1200-350 NET CASH USED IN INVESTING ACTIVITIES 62,635
CASH FLOWS FROM FINANCING ACTIVITIES
S1200-360 Mortgage principal payments (39,730)
S1200-330 Net purchases of fixed assets (30,488)
S1200-420 Distributions (358,164)
S1200-455 Entity financing activities:
S1200-460 NET CASH USED IN FINANCIAL ACTIVITIES (428,382)
S1200-470 NET INCREASE IN CASH AND CASH EQUIVALENTS 37,339
S1200-480 BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS 405,171
S1200T END OF PERIOD CASH AND CASH EQUIVALENTS $ 442,510
STATEMENT OF CASH FLOWS
PAGE 2 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1999
RECONCILIATION OF NET INCOME TO NET CASH PROVIDEDACCOUNT AMOUNT
BY OPERATING ACTIVITIES
3250 Net income $ 182,287
Adjustments to reconcile net income to net cash
provided by operating activities:
6600 Depreciation 236,847
6610 Amortization 16,500
Change in assets and liabilities:
S1200-490 Increase in tenant accounts
receivable (1,145)
S1200-520 Decrease in prepaid expenses
517
S1200-530 Decrease in cash restricted for
tenant
security deposits 1,591
S1200-535 Increase in entity asset
accounts
S1200-536 Increase in cash - entity S1200-537 (143)
S1200-540 Decrease in accounts payable
(577)
S1200-560 Increase in accrued liabilities
285
S1200-580 Decrease in tenant security
deposits
held in trust (8,286)
S1200-590 Decrease in prepaid revenue
(5,257)
S1200-600 Other adjustments to reconcile
net income to
net cash provided by operating activities (15,000)
S1200-605 Decrease in entity liability
accounts
S1200-606 Decrease in accounts
payable - entity S1200-607 (3,675)
S1200-610 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 403,086
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION (S3100-010)
The Partnership was organized as a limited partnership during June 1984 for
the purpose of constructing and operating a rental housing project pursuant
to a regulatory agreement with Illinois Housing Development Authority
(IHDA). In November 1997, the Project was refinanced under Section 223(f)
of the National Housing Act. The project consists of 176 units located in
Woodridge, Illinois, operating under the name of Hawthorn Ridge Apartments.
The project is regulated by the U.S. Department of Housing and Urban
Development (HUD) and the Illinois Housing Development Authority (IHDA), as
administrator of the housing assistance contract, as to rent charges and
operating methods.
The regulatory agreement with HUD limits annual distributions of net
operating receipts to "surplus cash". At December 31, 1999, there was
"surplus cash" in the amount of $410,596 available for distribution.
SIGNIFICANT ACCOUNTING POLICIES (S3100-040)
The following significant accounting policies have been followed in the
preparation of the financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
The Partnership considers all temporary cash investments as cash
equivalents. These temporary cash investments are securities held for
cash management purposes, having maturities of three months or less.
The Partnership deposits its cash in financial institutions. At times,
deposits exceed federally insured limits. The Partnership has not
experienced losses in such accounts.
HAWTHORN HOUSING LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
The Partnership provides an allowance for doubtful accounts equal to the
estimated collection losses that will be incurred in collection of all
receivables. The estimated losses are based on a review of the current
status of the existing receivables. No allowance for doubtful accounts
was provided for at December 31, 1999 as none was deemed necessary by
management.
Rental property is carried as cost. Depreciation is provided using
straight-line and accelerated methods over estimated useful lives ranging
from five to forty years.
The replacement reserve can only be used for improvements to buildings
upon prior approval of HUD.
Deferred loan costs of $506,303 consist of fees for obtaining the HUD
insured mortgage loan and are being amortized using the straight-line
method over the life of the mortgage loan. Accumulated amortization
amounted to $30,695 at December 31, 1999.
Income or loss of the Partnership is allocated .01% to the general
partner and 99.99% to the limited partners. No income tax provision has
been included in the financial statements since income or loss of the
Partnership is required to be reported by the partners on their
respective income tax returns.
2. MORTGAGE PAYABLE (S3100-050)
The mortgage payable is insured by the Department of Housing and Urban
Development and collateralized by a deed of trust on the rental property.
The mortgage is payable to P/R Mortgage & Investment Corp. and bears
interest at the rate of 6.6% per annum. Principal and interest are payable
by the Partnership in monthly installments of $29,940 through December 2032.
Under agreements with the mortgage lender and HUD, the Partnership is
required to make monthly escrow deposits for property taxes, insurance,
mortgage insurance and replacement of project assets.
The scheduled maturities of the mortgage payable at December 31, 1999 are as
follows: (S3100-x1x)
YEAR AMOUNT
2000 S3100-060 $ 42,201
2001 S3100-070 45,072
2002 S3100-080 48,138
2003 S3100-090 51,413
2004 S3100-100 54,911
Thereafter S3100-110 4,578,345
$ 4,820,080
3. COMMITMENTS (S3100-X3X) (S3100-240)
The Partnership has entered into a regulatory agreement with HUD which
regulates, among other things, the rents which may be charged for apartment
units in the project, prohibits the sale of the project without HUD consent,
limits the annual distribution of cash flow to the partners and otherwise
regulates the relationship between the Partnership and HUD.
The Department of Housing and Urban Development, through a program
administered by the Illinois Housing Development Authority, has contracted
with the Partnership, effective December 1976, under Section 8 of the
National Housing Act of 1968, to make housing assistance payments to the
project on behalf of qualified tenants. The term of the agreement is five
years with renewal options for terms not to exceed forty years.
4. RELATED PARTY TRANSACTIONS (S3100-200)
The project is managed by Alan Fox Real Estate Investment and Management
Co., Inc., an affiliate of the special limited partner. The management
contract provides for a management fee of 5.4% of gross collections.
Through September 30, 1999, Alan Fox Real Estate Investment and Management
Co., Inc. has subcontracted the daily management of the project to Floyd M.
Phillips & Co., Inc. Total fees incurred for 1999 were $81,342. At
December 31, 1999, management fees of $7,616 are payable to Alan A. Fox Real
Estate Investment and Management Co., Inc. (53100-230)
S3100-210 Company Name Alan A. Fox Real Estate Investment and
Management Co., Inc.
S3100-220 Amount Received $80,836
HAWTHORN HOUSING
LIMITED PARTNERSHIP
071-11069
FINANCIAL STATEMENTS
DECEMBER 31, 1998
RBG&CO.
S2300-020 INDEPENDENT AUDITORS' REPORT
To The Partners
Hawthorn Housing Limited Partnership
We have audited the accompanying balance sheet of Hawthorn Housing Limited
Partnership, Project No. 071-11069, a limited partnership, as of December 31,
1998 and the related statements of profit and loss, partners' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hawthorn Housing Limited
Partnership as of December 31, 1998 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information (shown on Pages 12 through 14) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements taken as
a whole.
In accordance with Government Auditing Standards, we have also issued a report
dated January 29, 1999 on our consideration of Hawthorn Housing Limited
Partnership's internal control structure and a report dated January 29, 1999 on
its compliance with laws and regulations.
/s/Rubin, Brown, Gornstein & Co. LLP
January 29, 1999
Rubin, Brown, Gornstein & Co. LLP 230 South Bemiston Avenue
Certified Public Accountants/Business Consultants St. Louis, MO 63105
314/727-8150 TELwww.rbgco.com 314/727-9195 FAX
BALANCE SHEET
PAGE 1 OF 2
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
1120 Cash - operations $403,449
1125 Cash - entity 1,722
1130 Tenant accounts receivable 2,188
1200 Miscellaneous prepaid expenses 15,690
1100T TOTAL CURRENT ASSETS $423,049
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits held in trust 64,311
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits 122,178
1320 Replacement reserve 462,650
1300T TOTAL DEPOSITS 584,828
FIXED ASSETS (NOTE 2)
1410 Land 620,000
1420 Buildings 6,549,236
1440 Building equipment - portable 479,089
1400T TOTAL FIXED ASSETS 7,648,325
1495 Less: Accumulated depreciation 3,423,877
1400N NET FIXED ASSETS 4,224,448
OTHER ASSETS
1520 Intangible assets 492,108
1000T TOTAL ASSETS $5,788,744
See the accompanying notes to financial statements
BALANCE SHEET
PAGE 2 OF 2
DECEMBER 31, 1998
LIABILITIES
CURRENT LIABILITIES
2100 Accounts payable - operations $24,342
2113 Accounts payable - entity 3,675
2120 Accrued wages payable 2,577
2123 Accrued management fee payable 7,110
2150 Accrued property taxes 148,771
2170 Mortgage payable -
first mortgage (short-term) 39,513
2174 Other loans -
advances from general partner 1,459
2210 Prepaid revenue 14,481
2122T TOTAL CURRENT LIABILITIES $241,928
DEPOSIT AND PREPAYMENT LIABILITIES
2191 Tenant deposits
held in trust (contra) 57,410
LONG-TERM LIABILITIES
2320 Mortgage payable -
first mortgage (Note 2) 4,820,297
2000T TOTAL LIABILITIES 5,119,635
PARTNERS' EQUITY
3130 Partners' equity 669,109
2033T TOTAL LIABILITIES
AND PARTNERS' EQUITY $5,788,744
See the accompanying notes to financial statements
STATEMENT OF PROFIT AND LOSS
FOR THE YEAR ENDED DECEMBER 31, 1998
PART 1 DESCRIPTION OF ACCOUNT ACCT. AMOUNT
NO.
Rent Revenue - Gross 5120 $1,129,
Potential 647
Tenant Assistance Payments 5121 $461,29
4
Rent Revenue - Stores and 5140 $
Commercial
Garage and Parking Spaces 5170 $
RENTAL Flexible Subsidy Revenue 5180 $
REVENUE Miscellaneous Rent Revenue 5190 $
5100 Excess Rent 5191 $
Rent Revenue/Insurance 5192 $
Special Claims Revenue 5193 $
Retained Excess Income 5194 $
TOTAL RENT REVENUE 5100T $1,590
,941
Apartments 5220 $(46,21
7)
Stores and Commercial 5240 $
VACANCI Rental Concessions 5250 $(87,15
ES 5)
5200 Garage and Parking Spaces 5270 $
Miscellaneous 5290 $
TOTAL VACANCIES 5200T $(133,
372)
NET RENTAL REVENUE Rent 5152N $1,457
Revenue Less Vacancies ,569
5300 Nursing Homes/ Assisted
Living/ Board and Care/
Other
Elderly Care/ Coop/ and 5300
Other Revenues
Financial Revenue - Project 5410 $4,295
Operations
FINANCI Revenue from Investments - 5430 $
AL Residual Receipts
REVENUE Revenue from Investments - 5440 $25,810
Replacement Reserve
5400 Revenue from Investments - 5490 $
Miscellaneous
TOTAL FINANCIAL REVENUE 5400T $30,105
Laundry and Vending Revenue 5910 $5,470
OTHER Tenant Charges 5920 $24,850
REVENUE Interest Reduction Payments 5945 $
Revenue
5900 Miscellaneous Revenue 5990 $ 59
TOTAL OTHER REVENUE 5900T $30,379
TOTAL REVENUE 5000T $1,518
,053
Conventions and Meetings 6203 $
Management Consultants 6204 $
Advertising and Marketing 6210 $13,574
Other Renting Expenses 6250 $
Office Salaries 6310 $22,921
ADMINIS Office Expenses 6311 $20,270
TRATIVE
EXPENSE Office or Model Apartment 6312 $8,664
S Rent
6200/63 Management Fee 6320 $78,032
00
Manager or Superintendent 6330 $32,919
Salaries
Administrative Rent Free 6331 $
Unit
Legal Expenses - Project 6340 $1,225
Audit Expense 6350 $13,125
Bookkeeping Fees/Accounting 6351 $
Services
Bad Debts 6370 $10,842
Miscellaneous Administrative 6390 $1,483
Expenses
TOTAL ADMINISTRATIVE 6263T $203,0
EXPENSES 55
Fuel Oil/Coal 6420 $
UTILITI Electricity 6450 $28,187
ES
EXPENSE Water 6451 $31,238
6400 Gas 6452 $53,678
Sewer 6453 $18,935
TOTAL UTILITIES EXPENSE 6400T $132,0
38
TOTAL EXPENSES (CARRY $335,0
FORWARD TO PAGE 2) 93
See the accompanying notes to financial statements
Page 1 of 2
Project Name: Hawthorn Housing Limited Partnership
BALANCE CARRIED FORWARD $335,0
93
DESCRIPTION OF ACCOUNT ACCT. AMOUNT
NO.
Payroll 6510 $94,1
09
Supplies 6515 $36,8
90
Contracts 6520 $72,2
34
OPERAT Operating and Maintenance Rent 6521 $
ING Free Unit
MAINTE Garbage and Trash Removal 6525 $8,465
NANCE
EXPENS Security Payroll/Contract 6530 $
ES
6500 Security Rent Free Unit 6531 $
Heating/Cooling Repairs and 6546 $4,720
Maintenance
Snow Removal 6548 $6,667
Vehicle and Maintenance Equipment 6570 $
Operation and Repairs
Miscellaneous Operating and 6590 $1,276
Maintenance Expenses
TOTAL OPERATING AND MAINTENANCE 6500T $ 224,361
EXPENSES
Real Estate Taxes 6710 $148,
106
Payroll Taxes (Project's Share) 6711 $14,6
13
TAXES Property and Liability Insurance 6720 $23,1
(Hazard) 41
AND Fidelity Bond Insurance 6721 $148
INSURA Workmen's Compensation 6722 $2,715
NCE
6700 Health Insurance and Other 6723 $7,033
Employee Benefits
Miscellaneous Taxes, Licenses, 6790 $3,105
Permits and Insurance
TOTAL TAXES AND INSURANCE 6700T $ 198,861
Interest on Mortgage Payable 6820 $322,
090
FINANC Interest on Notes Payable (Long- 6830 $
IAL Term)
EXPENS Interest on Notes Payable (Short- 6840 $
ES Term)
6800 Mortgage Insurance Premium/Service 6850 $24,5
Charge 00
Miscellaneous Financial Expenses 6890 $1,026
TOTAL FINANCIAL EXPENSES $ 347,616
6900 Nursing Homes/ Assisted Living/
Board and Care/ Other
Elderly Care Expenses 6900 $
TOTAL COST OF OPERATIONS BEFORE 6000T $ 1,105,931
DEPRECIATION AND AMORTIZATION
PROFIT (LOSS) BEFORE DEPRECIATION 5060T $ 412,122
AND AMORTIZATION
Depreciation Expense 6600 $248,
166
Amortization Expense 6610 $14,4
66
TOTAL DEPRECIATION AND $ 262,632
AMORTIZATION
OPERATING PROFIT OR (LOSS) 5060N $ 149,490
Officer's Salaries 7110 $
CORPOR Legal Expenses 7120 $3,675
ATE OR
MORTGA Federal, State, and Other Income 7130 $
GOR Taxes
ENTITY Interest Income 7140 $(37)
EXPENS Interest on Notes Payable 7141 $
ES
7100 Interest on Mortgage Payable 7142 $
Other Expenses Amortization of 7190 $2,447
organization costs
NET ENTITY EXPENSES 7100T $ 6,085
PROFIT OR LOSS (NET INCOME OR 3250 $ 143,405
LOSS)
MISCELLANEOUS OR OTHER INCOME AND EXPENSE SUB-ACCOUNT GROUPS.
If miscellaneous or other income and/or expense sub-accounts
(5190, 5290, 5490, 5990, 6390, 6590, 6790, 6890 and 7190) exceed
the Account Groupings by 10% or more, attach a separate schedule
describing or explaining the miscellaneous income or expense.
PART II
1. Total mortgage principal payments required during $36,99
the audit year (12 monthly payments). This applies to 6
all direct loans and HUD-held and fully insured
mortgages. Any HUD approved second mortgages should be
included in the figures. (S1000-010)
2. Total of 12 monthly deposits in the audit year into $18,60
the Replacement Reserve account, as required by the 0
Regulatory Agreement even if payments may be temporarily
suspended or reduced. (Account S1000-020)
3. Replacement Reserve or Residual Receipts releases $
which are included as expense items on this Profit and
Loss Statement. (Account S1000-030)
4. Project Improvement Reserve Releases under the $ N/A
Flexible Subsidy Program that are included as expense
items on this Profit and Loss Statement. (Account S1000-
040)
See the accompanying notes to financial statements
Page 2 of 2
STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
S1100-010 BEGINNING OF YEAR $986,467
3250 NET INCOME 143,405
S1200-420 DISTRIBUTIONS (460,763)
3130 END OF YEAR $669,109
STATEMENT OF CASH FLOWS
PAGE 1 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES ACCOUNT AMOUNT
Receipts:
S1200-010 Rental receipts $1,462,231
S1200-020 Interest receipts 30,105
S1200-030 Other operating receipts 30,379
S1200-040 Total Receipts 1,522,715
Disbursements:
S1200-050 Administrative 123,998
S1200-070 Management fee 70,922
S1200-090 Utilities 132,993
S1200-110 Operating and maintenance 216,670
S1200-120 Real estate taxes 144,439
S1200-140 Property insurance 33,299
S1200-150 Miscellaneous taxes and insurance 14,613
S1200-160 Tenant security deposits (10,928)
S1200-180 Interest on mortgage 349,039
S1200-230 Total Disbursements 1,075,045
S1200-240 NET CASH PROVIDED BY OPERATING ACTIVITIES 447,670
CASH FLOWS FROM INVESTING ACTIVITIES
S1200-245 Net deposits to the
mortgage escrow account (43,726)
S1200-250 Net deposits to the
reserve for replacement account (20,150)
S1200-345 Entity investing activities:
S1200-346 Decrease in IHDA receivable S1200-347 26,692
S1200-346 Interest income from entity cash S1200-347 37
S1200-350 NET CASH USED IN INVESTING ACTIVITIES (37,147)
CASH FLOWS FROM FINANCING ACTIVITIES
S1200-360 Mortgage principal payments (40,190)
S1200-420 Distributions (460,763)
S1200-455 Entity financing activities:
S1200-456 Decrease in distributions payable S1200-457 (1,111)
S1200-460 NET CASH PROVIDED BY (USED IN)
FINANCIAL ACTIVITIES (502,064)
S1200-470 NET DECREASE IN CASH
AND CASH EQUIVALENTS (91,541)
S1200-480 BEGINNING OF PERIOD CASH
AND CASH EQUIVALENTS 496,712
S1200T END OF PERIOD CASH
AND CASH EQUIVALENTS $405,171
See the accompanying notes to financial statements
STATEMENT OF CASH FLOWS
PAGE 2 OF 2
FOR THE YEAR ENDED DECEMBER 31, 1998
RECONCILIATION OF NET INCOME TO NET CASH PROVIDEDACCOUNT AMOUNT
BY OPERATING ACTIVITIES
3250 Net income $143,405
Adjustments to reconcile net income to net cash
provided by operating activities:
6600 Depreciation 248,166
6610 Amortization 16,913
Change in assets and liabilities:
S1200-490 Increase in tenant accounts
receivable (2,071)
S1200-520 Decrease in prepaid expenses
26,388
S1200-530 Decrease in cash restricted for
tenant
security deposits 22,530
S1200-535 Increase in entity asset
accounts
S1200-536 Increase in cash - entity S1200-537 (37)
S1200-540 Decrease in accounts payable
(7,456)
S1200-580 Decrease in tenant security
deposits held in trust (10,576)
S1200-590 Increase in prepaid revenue
6,733
S1200-605 Increase (decrease) in entity
liability accounts
S1200-606 Increase in accounts payable -
entity S1200-607 3,675
S1200-610 NET CASH PROVIDED BY OPERATING ACTIVITIES $447,670
See the accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION (S3100-010)
The Partnership was organized as a limited partnership during June 1984 for
the purpose of constructing and operating a rental housing project pursuant
to a regulatory agreement with Illinois Housing Development Authority
(IHDA). In November 1997, the Project was refinanced under Section 223(f)
of the National Housing Act. The project consists of 176 units located in
Woodridge, Illinois, operating under the name of Hawthorn Ridge Apartments.
The project is regulated by the U.S. Department of Housing and Urban
Development (HUD) and the Illinois Housing Development Authority (IHDA), as
administrator of the housing assistance contract, as to rent charges and
operating methods.
The regulatory agreement with HUD limits annual distributions of net
operating receipts to "surplus cash". At December 31, 1998, there was
"surplus cash" in the amount of $361,840 available for distribution.
SIGNIFICANT ACCOUNTING POLICIES (S3100-040)
The following significant accounting policies have been followed in the
preparation of the financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
The Partnership considers all temporary cash investments as cash
equivalents. These temporary cash investments are securities held for
cash management purposes, having maturities of three months or less.
The Partnership deposits its cash in financial institutions. At times,
deposits exceed federally insured limits. The Partnership has not
experienced losses in such accounts.
HAWTHORN HOUSING LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
The Partnership provides an allowance for doubtful accounts equal to the
estimated collection losses that will be incurred in collection of all
receivables. The estimated losses are based on a review of the current
status of the existing receivables. No allowance for doubtful accounts
was provided for at December 31, 1998 as none was deemed necessary by
management.
Rental property is carried as cost. Depreciation is provided using
straight-line and accelerated methods over estimated useful lives ranging
from five to forty years.
The replacement reserve can only be used for improvements to buildings
upon prior approval of HUD.
Deferred loan costs of $506,303 consist of fees for obtaining the HUD
insured mortgage loan and are being amortized using the straight-line
method over the life of the mortgage loan. Accumulated amortization
amounted to $16,229 at December 31, 1998.
Organization costs of $118,800 are recorded at cost and are deferred and
amortized over a period of 15 years. Accumulated amortization amounted
to $116,766 at December 31, 1998.
Income or loss of the Partnership is allocated .01% to the general
partner and 99.99% to the limited partners. No income tax provision has
been included in the financial statements since income or loss of the
Partnership is required to be reported by the partners on their
respective income tax returns.
2. MORTGAGE PAYABLE (S3100-050)
The mortgage payable is insured by the Department of Housing and Urban
Development and collateralized by a deed of trust on the rental property.
The mortgage is payable to P/R Mortgage & Investment Corp. and bears
interest at the rate of 6.6% per annum. Principal and interest are payable
by the Partnership in monthly installments of $29,940 through December 2032.
Under agreements with the mortgage lender and HUD, the Partnership is
required to make monthly escrow deposits for property taxes, insurance,
mortgage insurance and replacement of project assets.
The scheduled maturities of the mortgage payable at December 31, 1998 are as
follows: (S3100-x1x)
YEAR AMOUNT
1999 S3100-060 $ 39,513
2000 S3100-070 42,201
2001 S3100-080 45,072
2002 S3100-090 48,138
2003 S3100-100 51,413
Thereafter S3100-110 4,633,473
$4,859,810
3. COMMITMENTS (S3100-X3X) (S3100-240)
The Partnership has entered into a regulatory agreement with HUD which
regulates, among other things, the rents which may be charged for apartment
units in the project, prohibits the sale of the project without HUD consent,
limits the annual distribution of cash flow to the partners and otherwise
regulates the relationship between the Partnership and HUD.
The Department of Housing and Urban Development, through a program
administered by the Illinois Housing Development Authority, has contracted
with the Partnership, effective December 1976, under Section 8 of the
National Housing Act of 1968, to make housing assistance payments to the
project on behalf of qualified tenants. The term of the agreement is five
years with renewal options for terms not to exceed forty years.
4. MANAGEMENT AGREEMENT (S3100-230)
The project is managed by Alan Fox Real Estate Investment and Management
Co., Inc. The management contract provides for a management fee of 5.4% of
gross collections. Alan Fox Real Estate Investment and Management Co., Inc.
has subcontracted the daily management of the project to Floyd M. Phillips &
Co., Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 14,777
<SECURITIES> 0
<RECEIVABLES> 9,595
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,372
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 511,571
<CURRENT-LIABILITIES> 648,220
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,882,659)
<TOTAL-LIABILITY-AND-EQUITY> 511,571
<SALES> 0
<TOTAL-REVENUES> 582,499
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 183,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,424
<INCOME-PRETAX> 84,440
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,440
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
