<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
March 18, 1996
CAPITAL REALTY INVESTORS TAX EXEMPT FUND LIMITED PARTNERSHIP
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
1-9793 52-1483643
- ------------------------ -----------------------------------
(Commission File Number) (IRS Employer Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
--------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
------------
As described in the following NEWS RELEASE, Capital Realty Investors
Tax Exempt Fund Limited Partnership has filed preliminary joint proxy materials
with the Securities and Exchange Commission regarding the previously announced
proposed merger with affiliates of Capital Apartment Properties, Inc., and
announced an increase in the Series II consideration.
FOR IMMEDIATE RELEASE
CONTACT: James T. Pastore
Pastore Communications Group
202-546-6451
Susan T. Backman or
Curtis C. Rimmey
CRITEF Partnerships
301-231-0231
CRITEF General Partners File Merger Proxy; Announce Increased CRITEF-II
Consideration
ROCKVILLE, MD, Mar. 18, 1996 -- (AMEX: CRA, CRB, CRL) -- The general
partners of two Capital Realty Investors Tax Exempt Fund limited partnerships
(CRITEF partnerships) said today they have filed preliminary joint proxy
materials with the Securities and Exchange Commission regarding the previously
announced proposed merger of the partnerships with affiliates of Capital
Apartment Properties, Inc. (CAPREIT).
Under the merger terms, the holders of the CRITEF partnerships'
Beneficial Assignee Certificates (BACs) are expected to receive an aggregate
gross amount of approximately $158.8 million in cash for their interests in the
partnerships. This amount is subject to adjustment at closing, but the aggregate
gross merger consideration for the BACs will not be less than $157.3 million or
greater than $160.3 million.
The proxy statement includes the fairness opinions rendered by
Oppenheimer & Co., Inc. to the CRITEF partnerships.
The closing of the merger transactions is subject to, among other
things, clearance of the proxy statement by the Securities and Exchange
Commission and approval by the BAC holders at special meetings of the CRITEF
partnerships.
There are two CRITEF partnerships with three series of securities that
trade on the American Stock Exchange:
- - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series I
(CRITEF-I) (AMEX:CRA);
- - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series II
(CRITEF-II) (AMEX:CRB);
- - Capital Realty Investors Tax Exempt Fund III Limited Partnership
(CRITEF-III) (AMEX:CRL).
2
<PAGE>
ITEMS 5. OTHER EVENTS - Continued
------------
Since the terms were last announced on Feb. 1, 1996, the consideration for
CRITEF-II has been increased approximately eight cents ($.08) per BAC.
The gross redemption prices of the BACs in the merger are as follows:
- - $14.41 per BAC for CRITEF-I's 2,280,000 BACs, subject to adjustment but not
less than $14.27 or greater than $14.55;
- - $14.24 per BAC for CRITEF-II's 3,238,760 BACs, subject to adjustment but not
less than $14.10 or greater than $14.38;
- - $15.18 per BAC for CRITEF-III's 5,258,268 BACs, subject to adjustment but
not less than $15.04 or greater than $15.32.
The per-BAC gross amounts above, as adjusted, will be reduced by any
plaintiffs' counsels' fees and expenses as may be awarded by the court in a
pending class action suit. The parties have agreed to settle the suit subject
to preliminary court approval. After that, the parties will send notice of the
proposed settlement to class members for approval.
The CRITEF partnerships together hold 18 tax-exempt mortgage revenue bonds
used to finance multifamily housing communities in eight states. Formed by CRI
in 1986 and 1987, the partnerships began trading on the American Stock Exchange
on July 1, 1993.
CAPREIT, based in Rockville, Maryland, is a self-managed private real estate
investment trust. CAPREIT owns 30 multifamily complexes containing 7,512 units
located in 10 states. In addition, CAPREIT manages another 40 apartment
communities (including 14 of the CRITEF communities) for third-party owners.
The largest shareholder in CAPREIT is Apollo Real Estate Investment Fund, L.P.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of Businesses Acquired
None
(b) Pro Forma Financial Information
None
(c) Exhibits
Exhibit No. 99 - Additional Exhibits
Financial statements for certain borrowers (nominee entities of the
Partnership which took title to certain properties) are being provided as
exhibits. Certain of these financial statements include explanatory language in
the independent accountants' report expressing doubt about the borrower's
ability to continue as a going concern. The explanatory language resulted from a
borrower's inability to generate sufficient cash flow to meet its mortgage loan
obligations to the Partnership. As the Partnership is the holder of these
mortgage loans and nominees of the Partnership have taken title to the
properties that secure the loans, the borrower's ability to continue as a going
concern has no impact on the Partnership's ability to continue as a going
concern.
These financial statements are prepared on an income tax basis of
accounting and not pursuant to Regulation S-X. Management has presented these
financial statements for informational purposes only.
a. Financial Statements and Independent Auditors' Report CRICO of Royal
Oaks Limited Partnership December 31, 1995
b. CRICO of Trailway Pond I Limited Partnership (A Minnesota Limited
Partnership) Financial Statements As of December 31, 1995 and 1994, Together
With Auditors' Report
3
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - Continued
---------------------------------
c.Financial Statements and Independent Auditors' Report CRICO of Valley
Creek I Limited Partnership December 31, 1995
d.Financial Statements and Independent Auditors' Report CRICO of White
Bear Woods I Limited Partnership December 31, 1995
e.CRICO of Ethan's I Limited Partnership (A Missouri Limited
Partnership) Financial Statements As of December 31, 1995 and 1994, Together
With Auditors' Report
f.Financial Statements and Independent Auditors' Report CRICO of
Fountain Place Limited Partnership December 31, 1995
g.Financial Statements and Independent Auditors' Report CRICO of James
Street Crossing Limited Partnership December 31, 1995
h.CRICO of Trailway Pond II Limited Partnership (A Minnesota Limited
Partnership) Financial Statements As of December 31, 1995 and 1994, Together
With Auditors' Report
i.Financial Statements and Independent Auditors' Report CRICO of Royal
Oaks Limited Partnership December 31, 1994
j.CRICO of Trailway Pond I Limited Partnership ( A Minnesota Limited
Partnership) Financial Statements As of December 31, 1994 and 1993, Together
With Auditors' Report
k.Financial Statements and Independent Auditors' Report CRICO of Valley
Creek I Limited Partnership December 31, 1994
l.Financial Statements and Independent Auditors' Report CRICO of White
Bear Woods I Limited Partnership December 31, 1994
m.CRICO of Ethan's I Limited Partnership (A Missouri Limited
Partnership) Financial Statements As of December 31, 1994 and 1993, Together
With Auditors' Report
n.Financial Statements and Independent Auditors' Report CRICO of
Fountain Place Limited Partnership December 31, 1994
o.Financial Statements and Independent Auditors' Report CRICO of James
Street Crossing Limited Partnership December 31, 1994
p.CRICO of Trailway Pond II Limited Partnership (A Minnesota Limited
Partnership) Financial Statements As of December 31, 1994 and 1993, Together
With Auditors' Report
4
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Capital Realty Investors Tax Exempt Fund
Limited Partnership
(Registrant)
By: CRITEF Associates Limited Partnership,
General Partner
By: C.R.I., Inc., Managing General Partner
March 22, 1996 /s/ Richard J. Palmer
- ------------------ By: --------------------------------------
Date Richard J. Palmer
Senior Vice President
5
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
(99) Additional Exhibits
a. Financial Statements and Independent Auditors' Report
CRICO of Royal Oaks Limited Partnership December 31, 1995
b. CRICO of Trailway Pond I Limited Partnership (A
Minnesota Limited Partnership) Financial Statements As of
December 31, 1995 and 1994, Together With Auditors' Report
c. Financial Statements and Independent Auditors' Report
CRICO of Valley Creek I Limited Partnership
December 31, 1995
d. Financial Statements and Independent Auditors' Report
CRICO of White Bear Woods I Limited Partnership
December 31, 1995
e. CRICO of Ethan's I Limited Partnership (A Missouri
Limited Partnership) Financial Statements As of
December 31, 1995 and 1994, Together With Auditors'
Report
f. Financial Statements and Independent Auditors' Report
CRICO of Fountain Place Limited Partnership December 31,
1995
g. Financial Statements and Independent Auditors' Report
CRICO of James Street Crossing Limited Partnership
December 31, 1995
h. CRICO of Trailway Pond II Limited Partnership (A
Minnesota Limited Partnership) Financial Statements As of
December 31, 1995 and 1994, Together With Auditors' Report
i. Financial Statements and Independent Auditors' Report
CRICO of Royal Oaks Limited Partnership December 31, 1994
j. CRICO of Trailway Pond I Limited Partnership ( A
Minnesota Limited Partnership) Financial Statements As of
December 31, 1994 and 1993, Together With Auditors' Report
k. Financial Statements and Independent Auditors' Report
CRICO of Valley Creek I Limited Partnership December 31, 1994
6
<PAGE>
Exhibit Page
- ------- ----
l. Financial Statements and Independent Auditors' Report
CRICO of White Bear Woods I Limited Partnership
December 31, 1994
m. CRICO of Ethan's I Limited Partnership (A Missouri
Limited Partnership) Financial Statements As of
December 31, 1994 and 1993, Together With Auditors' Report
n. Financial Statements and Independent Auditors' Report
CRICO of Fountain Place Limited Partnership
December 31, 1994
o. Financial Statements and Independent Auditors' Report
CRICO of James Street Crossing Limited Partnership
December 31, 1994
p. CRICO of Trailway Pond II Limited Partnership (A
Minnesota Limited Partnership) Financial Statements As
of December 31, 1994 and 1993, Together With Auditors'
Report
7
<PAGE>
EXHIBIT 99.a
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF ROYAL OAKS
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Royal Oaks Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 4
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 5
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 7
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
[ LETTERHEAD OF REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Royal Oaks Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Royal Oaks Limited Partnership as of December 31,
1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Royal Oaks
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 3 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
INVESTMENT IN REAL ESTATE
Building $ 9,712,043
Personal property 1,115,504
-----------
10,827,547
Less accumulated depreciation 2,393,372
-----------
8,434,175
Land 837,295
-----------
9,271,470
Tenants' security deposits, separately
held in an interest-bearing account 72,132
Cash and investments held by bond
servicer 268,158
Favorable financing, less
accumulated amortization
of $906,710 604,475
-----------
10,216,235
OTHER ASSETS
Cash $82,419
Prepaid insurance 20,324
Subscriptions receivable 100
Tenant receivables 1,042 103,885
------- -----------
$10,320,120
==========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES APPLICABLE TO REAL
ESTATE
Mortgage payable $12,580,000
Accrued interest payable 1,593,265
----------
14,173,265
Tenants' security deposit
liability 67,050
Accrued real estate taxes 311,000
Accrued mortgage servicing fee 550,372
Accrued administration fee 2,620
----------
15,104,307
OTHER LIABILITY
Accounts payable 42,304
----------
Total liabilities 15,146,611
PARTNERS' DEFICIT (4,826,491)
-----------
$10,320,120
==========
</TABLE>
See notes to financial statements
- 4 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- - INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
- ------------------------------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending HUD Project No.:
January 1, 1995 December 31, 1995 CRICO of Royal Oaks Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 1,889,888
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $ 4,500
------- -----------
Stores and Commercial 5140 $
------- -----------
Garage and Parking Spaces 5170 $
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) 5190 $
------- -----------
Total Rent Revenue Potential at 100% Occupancy $ $1,894,388
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ 6,292
------- -----------
Furniture and Equipment 5230 $
------- -----------
Stores and Commercial 5240 $
------- -----------
Garage and Parking Spaces 5270 $
------- -----------
Miscellaneous (Specify) 5290 $
------- -----------
Total Vacancies $ $ (6,292)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $ $1,888,096
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $ $
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 2,862
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 8,706
------- -----------
Income from Investments - Escrows 5490 $ 5,730
------- -----------
Total Financial Revenue $ $ 17,298
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $
------- -----------
NSF and Late Charges 5920 $ 7,631
------- -----------
Damages and Cleaning Fees 5930 $ 7,200
------- -----------
Forfeited Tenant Security Deposits 5940 $ 3,358
------- -----------
Other Revenue (Specify) (See Note E) 5990 $ 14,750
------- -----------
Total Other Revenue $ $ 32,939
------- ----------- ----------
Total Revenue $ $1,938,333
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 40,251
------- -----------
Other Renting Expense (See Note G) 6250 $ 18,180
------- -----------
Office Salaries 6310 $ 39,344
------- -----------
Office Supplies 6311 $ 5,842
------- -----------
Office or Model Apartment Rent 6312 $ 9,060
------- -----------
Management Fee Inventive Management Fee $5,070 6320 $ 80,743
------- -----------
Manager or Superintendent Salaries 6330 $ 29,814
------- -----------
Manager or Superintendent Rent Free Unit 6331 $
------- -----------
Legal Expenses (Project) 6340 $ 35
------- -----------
Auditing Expenses (Project) 6350 $ 6,550
------- -----------
Computer Fees 6351 $ 624
------- -----------
Telephone and Answering Services 6360 $ 12,122
------- -----------
Bad Debts 6370 $ 5,703
------- -----------
Employee Relations 6390 $ 3,640
------- -----------
Total Administrative Expenses $ 251,000
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 27,608
------- -----------
Water 6451 $ 14,506
------- -----------
Gas 6452 $ 52,850
------- -----------
Sewer 6453 $ 25,190
------- -----------
Total Utilities Expense $ $ 120,154
------- ----------- ----------
</TABLE>
All amounts must be rounded to the nearest dollar; form HUD-02410 (7/91)
$.50 and over, round up - $.49 and below, round down. ref Handbook 4370.2
Page 1 of 2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 20,957
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,173
--------- ------------
Janitor and Cleaning Contract 6517 $ 6,365
--------- ------------
Exterminating Payroll/Contract 6519 $ 1,028
--------- ------------
Exterminating Supplies 6520 $
--------- ------------
Garbage and Trash Removal 6525 $ 18,107
--------- ------------
Security Payroll/Contract 6530 $
--------- ------------
Grounds Payroll 6535 $
--------- ------------
Grounds Supplies 6536 $ 1,684
--------- ------------
Grounds Contract 6537 $ 9,367
--------- ------------
Repairs Payroll 6540 $ 46,395
--------- ------------
Repairs Material 6541 $ 14,250
--------- ------------
Repairs Contract 6542 $ 48,265
--------- ------------
Elevator Maintenance/Contract 6545 $ 9,541
--------- ------------
Heating/Cooling Repairs and Maintenance 6546 $ 271
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 2,278
--------- ------------
Snow Removal 6548 $ 7,200
--------- ------------
Decorating Payroll/Contract 6560 $ 16,722
--------- ------------
Decorating Supplies 6561 $
--------- ------------
Other 6570 $
--------- ------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 495
--------- ------------
Total Operating and Maintenance Expenses $ 204,098
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes 6710 $ 295,614
--------- ------------
Payroll Taxes (FICA) 6711 $ 17,425
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,070
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 24,819
--------- ------------
Fidelity Bond Insurance 6721 $
--------- ------------
Workmen's Compensation 6722 $ 9,279
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 7,797
--------- ------------
Other Insurance (Specify) 6729 $
--------- ------------
Total Taxes and Insurance $ 357,004
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 1,069,300
--------- ------------
Interest on Mortgage Payable 6820 $
--------- ------------
Interest on Notes Payable (Long-Term) 6830 $
--------- ------------
Interest on Notes Payable (Short-Term) 6840 $
--------- ------------
Mortgage Servicing Fee 6850 $ 78,625
--------- -----------
Miscellaneous Financial Expenses - See Note F 6890 $ 17,935
--------- ------------
Total Financial Expenses $1,165,860
--------- ------------ ----------
Elderly and Congregate Service Expenses
Total Service Expenses - Schedule Attached 6900 $
--------- ------------
Total Cost of Operations before Depreciation $2,099,024
--------- ------------ ----------
Profit (Loss) before Depreciation $ (160,691)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ 456,366
--------- ------------
Operating Profit or (Loss) $ (617,057)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 $
--------- ------------
Legal Expenses (Entity) 7120 $
--------- ------------
Taxes (Federal-State-Entity) 7130-32 $
--------- ------------
Other Expenses (Entity) 7190 $
Amortization 7190 $ 201,491
--------- ------------
Total Corporate Expenses $ 201,491
--------- ------------ ----------
Net Profit or (Loss) $ (818,548)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802. Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
<S> <C>
Part II
1. Total principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss statement. $ N/A
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement. $ N/A
</TABLE>
Page 2 of 2
See Notes to financial statements
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(4,007,943)
Net loss (818,548)
----------
Partners' deficit, end $(4,826,491)
=========
See notes to financial statements
- 7 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $(818,548)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 456,366
Amortization 201,491
Increase in tenants' security deposits - net (2,944)
Increase in tenant receivables (258)
Increase in cash and investments
held by bond servicer (12,417)
Increase in prepaid expenses (2,280)
Increase in accrued interest payable 230,775
Increase in accrued mortgage servicing fee 78,625
Decrease in accounts payable (2,997)
---------
Net cash provided by operating activities 127,813
---------
Cash flows from investing activities
Increase in cash and investments
held by bond servicer (26,799)
Acquisition of fixed assets (85,644)
---------
Net cash used in investing activities (112,443)
---------
NET INCREASE IN CASH 15,370
Cash, beginning 67,049
---------
Cash, end $ 82,419
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $838,525 $ 840,735
=========
Detail of acquisition of fixed assets paid
Carpet $ 50,713
Boiler system 7,912
Garage lights 13,519
Doors 13,500
---------
$ 85,644
=========
</TABLE>
See notes to financial statements
- 8 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on April 29, 1991, for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 231 units located
in Eagan, Minnesota and operates under the name of Royal Oaks Circle Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized as income when collected, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate, Depreciation and Amortization
--------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Favorable financing is amortized over the remaining life of the bonds by use of
the straight-line method.
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.
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
- 9 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark Partners, L.P., may therefore pursue one of the following
scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Royal Oaks, Inc., a Delaware
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project. On January 1, 1992,
CRICO of Dakota assigned its limited partner interest in the partnership to
CRICO Minnesota Holdings, Inc., an affiliated entity.
- 10 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership. Effective July 1, 1995, CRIIMI Mae Services Limited
Partnership ("CMSLP") acquired the rights to service the mortgage from CRICO
Mortgage Company. On July 1, 1995, all of the unpaid mortgage servicing fees
accrued through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits of $4,449 to the reserve
for replacement account maintained by the servicer. The fund is to be used for
the replacement of project assets.
At December 31, 1995, cash and investments held by the bond servicer consisted
of the following:
<TABLE>
<CAPTION>
Mortgage Reserve
escrow for
deposits replacements Total
---------- ------------- ----------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 71,886 $157,056 $ 228,942
Deposits 329,400 53,388 382,788
Interest income 5,730 8,706 14,436
Withdrawals
Taxes (295,614) - (295,614)
Insurance (27,099) - (27,099)
Withdrawal - (35,295) (35,295)
--------- -------- ---------
Balance at December 31, 1995 $ 84,303 $183,855 $ 268,158
========= ======== =========
</TABLE>
- 11 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Eagan, Minnesota in the total amount of $12,580,000,
which are evidenced by a mortgage loan agreement with Capital Realty Investors
Tax Exempt Fund Limited Partnership (CRITEF), the bondowner, a related party.
The maturity date of the mortgage is February 21, 1998. Upon maturity all
outstanding principal and interest, including all deferred interest, is due and
payable.
The mortgage note provides for base interest payable at the rate of 8.5% through
the maturity date. Primary contingent interest is payable each quarter, at the
rate of 1.5% per annum, out of that quarter's net cash flow. In addition,
supplemental contingent interest is payable each quarter, at the rate of 6% per
annum, out of 50% of that quarter's net cash flow remaining after deduction of
primary contingent interest. Unpaid construction period deferred interest,
primary contingent interest and supplemental contingent interest is deferred
until the earlier of the sale or refinancing of the project or maturity. The
deferred interest has not been recorded on the books of the partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the earlier
of the sale or refinancing of the project or maturity. As of December 31, 1995,
accrued base interest was $1,593,265. Interest accrues on the unpaid interest at
a compounded rate of 8.5%.
- 12 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
During the year ended December 31, 1995, the partnership only recorded the base
interest and did not record interest accrued on the unpaid base interest of
$145,418, primary contingent interest of $188,700 and supplemental contingent
interest of $754,800. At December 31, 1995, interest accrued on the unpaid base
interest of $367,984, primary and supplemental contingent interest of $7,390,750
and construction period deferred base interest of $573,127 has not been
recorded. Total interest incurred on the mortgage for the year ended December
31, 1995 is as follows:
<TABLE>
<CAPTION>
Currently
Deferred payable Total
---------- ----------- ----------
<S> <C> <C> <C>
Base interest $ - $1,069,300 $1,069,300
Interest on interest 145,418 - 145,418
Primary contingent
interest 188,700 - 188,700
Supplemental contingent
interest 754,800 - 754,800
---------- ---------- ----------
Total interest incurred 1,088,918 1,069,300 $2,158,218
==========
Accrued interest,
beginning 7,242,943 1,362,490
Interest paid - (838,525)
---------- ----------
Accrued interest, ended $8,331,861 $1,593,265
========== ==========
</TABLE>
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20 percent of
the units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
- 13 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The liability of the partnership under the mortgage note is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the bondowner.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees are deferred until
cash flow on subsequent interest payment dates is sufficient for payment or
until the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1995, the amount payable to CRI, Inc. And CRIIMI Mae Services
Limited Partnership is $511,059 and $39,313, respectively. During 1995, $78,625
was charged to operations.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential Corporation
at the same rate and same terms as under the agreement with CRICO Management of
Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1995, management fees totalling $71,673 were charged to
operations. Incentive management fees of $756 and $8,314 were paid to CRICO
Management of Minnesota, Inc., and CAPREIT Resident Corporation, respectively.
At December 31, 1995, $6,125 is due for December management fees.
- 14 -
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - ADMINISTRATION FEE
The partnership is required to pay Dakota County Housing and Redevelopment
Authority an annual administration fee equal to 1/8 of 1% of the outstanding
loan balance. At December 31, 1995, $15,725 has been charged to operations, of
which $2,620 has been accrued.
NOTE E - OTHER REVENUE (ACCOUNT NO. 5990)
<TABLE>
<CAPTION>
Other revenue consists of the following:
<S> <C>
Garage and parking $ 433
Other 12,732
Bad debt recovery 1,585
-------
$14,750
======
</TABLE>
NOTE F - MISCELLANEOUS FINANCIAL EXPENSES (ACCOUNT NO. 6890)
Miscellaneous financial expenses consist of the following:
HRA administration fee $15,725
Security deposit interest 2,210
------
$17,935
======
NOTE G - OTHER RENTAL EXPENSES (ACCOUNT NO. 6250)
<TABLE>
<CAPTION>
Other rental expenses consist of the following:
<S> <C>
Credit report $ 6,985
Rental concessions 6,539
Resident retention 4,656
-------
$18,180
=======
</TABLE>
- 15 -
<PAGE>
EXHIBIT 99.b
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Trailway Pond I
Limited Partnership:
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Trailway Pond I Limited Partnership (a Minnesota limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedules 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.
As described in Note 3 to the financial statements, these financial statements
were prepared on the income tax basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Trailway Pond I
Limited Partnership as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, on the income tax basis
of accounting described in Note 3 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership was in default at December 31, 1995, with
regard to its mortgage loan agreement, due to its inability to generate
sufficient cash flow to meet its contractual obligations.
Additionally, the Partnership does not expect to be able to generate sufficient
cash flow to meet its contractual obligations under the mortgage loan agreement
in 1996. This issue raises substantial doubt about the Partnership's ability to
continue as a going concern. Management's plan in regard to this matter is
described in Note 2 to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss and Schedule I are presented for
purposes of additional analysis and are not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
January 31, 1996
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
FIXED ASSETS: ---- ----
Land $ 451,518 $ 451,518
Building and improvements 3,486,159 3,486,159
Furniture, fixtures and equipment 418,408 418,408
---------- ----------
4,356,085 4,356,085
Less- Accumulated depreciation (932,387) (768,811)
---------- ----------
Net fixed assets 3,423,698 3,587,274
---------- ----------
CURRENT ASSETS:
Cash 18,167 23,687
Tenants accounts receivable 148 -
Accounts receivable - other 1,106 -
Prepaid insurance 7,155 4,635
---------- ----------
Total current assets 26,576 28,322
---------- ----------
RESTRICTED CASH:
Tenants' security deposits,
separately held in an 22,736 21,980
interest-bearing account
Escrow deposits 118,261 97,097
---------- ----------
Total restricted cash 140,997 119,077
---------- ----------
OTHER ASSETS- Favorable financing, net
of accumulated amortization of
$450,315 and $360,252, respectively 300,213 390,276
---------- ----------
Total assets $3,891,484 $4,124,949
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
LIABILITIES AND PARTNERS' DEFICIT
1995 1994
CURRENT LIABILITIES: ---- ----
Accounts payable $ 13,281 $ 14,245
Accrued mortgage service fee 102,267 73,048
Accrued interest 852,472 636,832
Special assessments payable 8,325 8,324
Mortgage loan payable 4,675,000 4,675,000
Construction period deferred base
interest payable 296,740 296,740
---------- ----------
Total current liabilities 5,948,085 5,704,189
TENANTS' SECURITY DEPOSITS 20,216 20,909
SPECIAL ASSESSMENTS PAYABLE, net of
current portion 33,296 41,621
---------- ----------
Total liabilities 6,001,597 5,766,719
---------- ----------
PARTNERS' DEFICIT (2,110,113) (1,641,770)
Total liabilities and partners'
deficit $ 3,891,484 $ 4,124,949
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
OPERATING INCOME: ---- ----
Rental income $ 565,212 $ 539,199
Interest income 4,357 3,092
Other income 23,677 27,785
--------- ---------
Total operating income 593,246 570,076
--------- ---------
OPERATING EXPENSES:
Real estate taxes 105,422 90,575
Interest on special assessments 3,658 5,244
Repairs and maintenance 40,819 39,960
Salaries and related payroll costs 49,988 50,311
Mortgage servicing fees 35,063 35,064
Fuel and utilities 37,921 42,245
Management fee 24,374 20,928
Marketing 15,434 26,771
Insurance 13,036 8,938
Professional 5,861 6,131
Other 15,886 18,634
--------- ---------
Total operating expenses 347,462 344,801
--------- ---------
Income from operations 245,784 225,275
DEPRECIATION 163,576 180,462
AMORTIZATION OF FAVORABLE FINANCING 90,063 90,063
INTEREST ON MORTGAGE LOAN 460,488 460,488
--------- ---------
Net loss $(468,343) $(505,738)
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1993 $(16,330) $(1,119,702) $(1,136,032)
Net loss (4,540) (501,198) (505,738)
-------- ----------- ----------
PARTNERS' DEFICIT, December 31, 1994 (20,870) (1,620,900) (1,641,770)
Net loss (9,757) (458,586) (468,343)
-------- ----------- ----------
PARTNERS' DEFICIT, December 31, 1995 $(30,627) $(2,079,486) $(2,110,113)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ----
Net loss $(468,343) $(505,738)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities-
Depreciation and amortization 253,639 270,525
(Increase) decrease in assets and liabilities:
Accounts receivable (1,254) 14,530
Prepaid insurance (2,520) (59)
Escrow deposits (21,164) (7,906)
Accounts payable (964) 9,508
Accrued mortgage service fee 29,219 29,220
Accrued interest 215,640 208,320
Special assessments payable (8,324) (8,324)
Tenant security deposits - net (1,449) (1,071)
--------- ---------
Cash (used in) provided by
operating activities (5,520) 9,005
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment - (4,633)
--------- ---------
NET (DECREASE) INCREASE IN CASH (5,520) 4,372
CASH, beginning of the year 23,687 19,315
--------- ---------
CASH, end of the year $ 18,167 $ 23,687
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the year for interest $ 244,848 $ 252,168
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
1. ORGANIZATION:
CRICO of Trailway Pond I Limited Partnership (the "Partnership") was formed as a
limited partnership under the laws of the state of Minnesota on December 26,
1990, for the purpose of owning and operating a rental housing project.
According to the Partnership Agreement (the "Agreement"), the Partnership will
terminate on December 31, 2030, if not terminated sooner. The project consists
of 75 units located in the city of Burnsville, Minnesota, and operates under the
name of Trailway Pond Apartments (the "Project"). The financing for the Project
was obtained from Capital Realty Investors Tax Exempt Fund Limited Partnership
("CRITEF"), a publicly traded limited partnership. The general partner of
CRITEF is CRITEF Associates Limited Partnership, whose managing general partner
is CRI, Inc. and the shareholders of CRI, Inc. The general partner of the
Partnership, CRICO of Trailway Pond I, Inc., a Delaware Corporation, is
affiliated with CRI, Inc., and affiliated with all of the above mentioned
entities. On January 1, 1992, CRICO of Iona, Inc., an affiliate, assigned its
limited partner interest in the Partnership to CRICO Minnesota Holdings, Inc.,
also an affiliated entity.
Under the terms of the bonds issued to provide permanent financing for the
Project, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1995 and 1994, the Project
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. Consequently, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
that might result should the Partnership be unable to continue as a going
concern. The Partnership's lender, CRITEF, has not availed itself of any of its
contractual rights and remedies provided by the mortgage loan agreement and is
effectively treating this obligation as a cash flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties Inc., who is the general partner of
Watermark Partners LP, may therefore pursue one of the following scenarios with
respect to the Partnership:
<PAGE>
-2-
. the current Partnership structure would be preserved and all of the
Partnership interests would be transferred to CAPREIT Residential Properties
("CAPREIT"),
or
. the current Partnership structure would be preserved and CAPREIT would replace
the 1 percent general partner while leaving the 99 percent limited partner in
place,
or
. the current partnership structure would be collapsed and all of the assets and
liabilities of the partnership would be assumed by CAPREIT or one of its
subsidiaries.
3. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for income tax purposes, in accordance with the Agreement.
The principal differences between this basis and generally accepted accounting
principles ("GAAP") are that an intangible asset has been recognized for income
tax purposes representing the value to the Partnership of its favorable
financing and that assets were written up to their fair values at the time of
the transfer. Depreciation and amortization are also computed under tax
regulations which may differ from GAAP. (See separate notes below.)
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
RECLASSIFICATIONS
Certain amounts in the financial statements for 1994 have been reclassified to
conform with 1995 presentation.
FAVORABLE FINANCING
Assets, liabilities and operations of the former partnership, Trailway Pond I
Limited Partnership, were transferred on January 2, 1991, in full satisfaction
of the previous partnership's indebtedness. Upon transfer, assets and
liabilities were recorded at their respective fair values, and an intangible
asset was recognized representing the value to the Partnership of the favorable
financing provided by the Project's mortgage loan. According to Federal income
tax rules and regulations, the sales price equates to the face value of the
indebtedness assumed. According to Federal income tax rules and regulations,
this asset is being amortized on a straight-line basis over the remaining life
of the mortgage loan.
<PAGE>
-3-
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE (YEARS) BASIS
----------- ----------------
Building and improvements 27.5 or 31.5 Straight line
Furniture, fixtures and equipment 5-7 200% declining balance
Repairs and maintenance are expensed as incurred, while major improvements are
capitalized in the applicable asset accounts. Additions to building and
improvements in 1994 consist of $4,633 of cost capitalized for gutters.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the loss of the Partnership is included in the individual income tax
returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner and the limited partner have a 1 and 99 percent ownership
interest, respectively, in the Partnership. In accordance with the Agreement,
the general partner contributed $1 to the Partnership, and the limited partner
contributed $99.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities, and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENTS:
Prior to February 1994, the property was managed by CRICO Management of
Minnesota, Inc. ("CRICO of Minnesota"). CRICO of Minnesota earned a management
fee of 3.75 percent of gross revenues, as defined, payable monthly, with an
annual incentive fee of 0.5 percent of gross revenues.
Effective February 1, 1994, the property management contract was acquired by
CAPREIT Residential Corporation. Management fees are payable to CAPREIT
Residential Corporation at the same rate and terms as under the agreement with
CRICO of Minnesota. As of December 31, 1995 and 1994, management fees paid were
$21,604 and $20,671, respectively. Incentive management fees of $2,770 were
paid in 1995.
<PAGE>
-4-
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the project was provided through the issuance of tax-
exempt bonds by the city of Burnsville, Minnesota, in the total amount of
$4,675,000, which was evidenced by a mortgage loan agreement with CRITEF, a
related party and the bond owner. As further security on the obligation, the
Partnership assigned existing and future rents and leases to the mortgagee. The
maturity date of the mortgage is ten years from the construction completion
date, which was determined by CRITEF to be May 1, 1989. Upon maturity, all
outstanding principal and interest, including base interest and construction
period deferred base interest, is due and payable.
The mortgage loan, which is nonrecourse to the Partnership, provided for base
interest and construction period deferred base interest at a rate of 7.073 and
4.687 percent, respectively, through December 31, 1987, and 5.052 and 3.348
percent, respectively, through May 1, 1989. From May 1, 1989, through the
maturity date, base interest is payable at the rate of 9.85 percent per annum.
Primary contingent interest is payable each quarter at the rate of 1.5 percent
per annum, out of that quarter's net cash flow, as defined. In addition,
supplemental contingent interest is payable each quarter at the rate of 4.65
percent per annum, out of 50 percent of that quarter's net cash flow, as
defined, remaining after deduction of primary contingent interest. If quarterly
net cash flow is insufficient to pay contingent interest, primary contingent
interest and supplemental contingent interest are deferred without interest
until the earlier of the sale or refinancing of the Partnership occurs, as
defined, but only if sufficient cash flow is generated from the sale or
refinancing of the property. Because net cash flow in 1995 and 1994 was not
sufficient to cover primary and supplemental contingent interest, these amounts
were not accrued for, in accordance with Federal income tax rules and
regulations. The unpaid primary contingent interest balances at December 31,
1995 and 1994, were $467,500 and $397,375, respectively. The unpaid
supplemental contingent interest balances at December 31, 1995 and 1994, were
$1,449,250 and $1,231,863, respectively. Pursuant to terms of the Partnership
Agreement, interest is accrued on base interest payable, compounded at the base
interest rate. At December 31, 1995 and 1994, this unpaid interest was $172,414
and $89,487, respectively. Because this amount is payable out of available cash
flow after the payment of all current and accrued base interest and all current
and accrued servicing fees, it is not probable to be paid, and accordingly, it
is not recorded on the books of the Partnership.
<PAGE>
-5-
The following schedule presents interest deferred, interest paid, and accrued
interest for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
-------- --------- -----
<S> <C> <C> <C>
ACCRUED INTEREST AT DECEMBER 31, 1993 $1,374,995 $ 428,512
---------- ---------
Base interest - 460,488 $460,488
Primary contingent interest 70,125 - 70,125
Supplemental contingent interest 217,388 - 217,388
Interest on base interest 56,286 - 56,286
---------- --------- --------
Total 1994 interest incurred 343,799 460,488 $804,287
========
Interest paid from operations - (252,168)
---------- ---------
Accrued interest at December 31, 1994 1,718,794 636,832
---------- ---------
Base interest - 460,488 $460,488
Primary contingent interest 70,125 - 70,125
Supplemental contingent interest 217,318 - 217,318
Interest on base interest 82,927 - 82,927
---------- --------- --------
Total 1995 interest incurred 370,370 460,488 $830,858
========
Interest paid from operations - (244,848)
---------- ---------
Accrued interest at December 31, 1995 $2,089,164 $ 852,472
========== =========
</TABLE>
The Partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625 percent of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date from remaining cash available
after payment of debt service on the mortgage loan. In 1995 and 1994, all
amounts for these fees were accrued but not paid because there was insufficient
cash flow to pay full debt service due.
Effective July 1, 1995, CRIIMI MAE Services Limited Partnership ("CMSLP")
acquired the rights to service the mortgage from CRICO Mortgage Company. Also
on July 1, 1995, all of the unpaid mortgage servicing fees accrued through June
30, 1995 were transferred to CRI, Inc., an affiliate of the Partnership's
general partner. In addition, the owners of CRI, Inc. are the directors and are
officers of the general partner of CMSLP and CRIIMI MAE Management, Inc. (a
wholly owned subsidiary of CRIIMI MAE Inc., a publicly held corporation). At
December 31, 1995, mortgage servicing fees of $87,657 are payable to CRI, Inc.,
and $14,610 are payable to CMSLP.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1995.
7. REAL ESTATE TAXES AND SPECIAL ASSESSMENTS
PAYABLE:
During fiscal 1994, a real estate tax refund for $18,740 was received for
overpayment of 1993 and 1992 taxes. This refund, net of $5,702 of tax appeal
fees, is netted against 1994 real estate tax expense in the accompanying
statements of operations.
<PAGE>
-6-
A special assessment tax has been levied against the Partnership from an
assessment performed several years ago. The total amount outstanding from the
assessment at December 31, 1995 and 1994 was $41,621 and $49,945, respectively.
Of these amounts, $8,324 of principal was paid during fiscal 1995 and 1994,
respectively.
8. ESCROW DEPOSITS:
In 1995 and 1994, cash and investments held by the bond trustee consist of the
following.
<TABLE>
<CAPTION>
REAL ESTATE TAX RESERVE FOR
AND INSURANCE REPLACEMENTS
ESCROW ESCROW TOTAL
--------------- -------------- ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 35,918 $53,273 $ 89,191
Deposits 116,400 17,700 134,100
Withdrawals-
Insurance (6,180) - (6,180)
Taxes (103,614) - (103,614)
Special assessment (13,568) - (13,568)
Replacement funding - (4,633) (4,633)
Mortgage payments (8,500) - (8,500)
Service charges (91) (117) (208)
Tax refund 7,742 - 7,742
Interest earned 1,186 1,581 2,767
--------- ------- --------
Balance at December 31, 1994 29,293 67,804 97,097
Deposits 127,800 17,700 145,500
Withdrawals-
Insurance (9,540) - (9,540)
Taxes (104,189) - (104,189)
Special assessment (12,819) - (12,819)
Tax appeal fee (1,233) - (1,233)
Service charges (62) (93) (155)
Interest earned 1,168 2,432 3,600
--------- ------- --------
Balance at December 31, 1995 $ 30,418 $87,843 $ 118,261
========= ======= ========
</TABLE>
REAL ESTATE TAX AND INSURANCE ESCROW
Per the mortgage loan agreement (see Note 6), the Partnership is required to
deposit on a monthly basis an amount equal to one-twelfth of the aggregate
estimated annual amount of all real estate taxes, special assessments, and
insurance premiums into the real estate tax and insurance escrow account
maintained by the servicer. During 1995 and 1994, the Partnership made all
required deposits to this escrow.
<PAGE>
-7-
RESERVE FOR REPLACEMENTS ESCROW
The Partnership is also required to make monthly deposits into the reserve for
replacements escrow account maintained by the servicer, as specified in the
above-mentioned mortgage loan agreement. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacements account is $17,700, to be deposited in equal monthly installments
until such time as the balance in the reserve equals or exceeds $150,000.
Thereafter, no monthly deposits are required unless the balance falls below
$150,000.
9. RELATED-PARTY TRANSACTIONS:
CRICO of Trailway Pond II Limited Partnership is an affiliate of the Partnership
and owns a complex known as Trailway Pond Apartments, Phase II. Both the
Project and Trailway Pond Apartments, Phase II, are managed by the same
management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are
primarily allocated on a pro rata basis based on the number of dwelling units.
An account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. As of December 31,
1995 and 1994, receivables from the related entity were $1,106 and $0,
respectively.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1995 December 31, 1995 CRICO of Trailway Pond I
Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Acct. No.
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 575,414
------- -----------
Tenant Assistance Payments 5121
------- -----------
Furniture and Equipment 5130 -
------- -----------
Stores and Commercial 5140 -
------- -----------
Garage and Parking Spaces 5170
------- -----------
Flexible Subsidy Income 5180 -
------- -----------
Miscellaneous (specify) 5190 -
------- -----------
Total Rent Revenue Potential at 100% Occupancy $ 575,414
------- ----------- ----------
Vacancies - 5200
Apartments 5220 (10,202)
------- -----------
Furniture and Equipment 5230 -
------- -----------
Stores and Commercial 5240 -
------- -----------
Garage and Parking Spaces 5270 -
------- -----------
Miscellaneous (specify) 5290 -
------- -----------
Total Vacancies $ (10,202)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $ 565,212
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income 5300 $ -
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 757
------- -----------
Income from Investments - Residual Receipts 5430 -
------- -----------
Income from Investments - Reserve for Replacement 5440 2,432
------- -----------
Income from Investments - Miscellaneous (Escrows) 5490 1,168
------- -----------
Total Financial Revenue $ 4,357
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 10,390
------- -----------
NSF and Late Charges 5920 2,080
------- -----------
Damages and Cleaning Fees 5930 -
------- -----------
Forfeited Tenant Security Deposits 5940 720
------- -----------
Other Revenue (specify) Application Fees (see Schedule I) 5990 10,487
------- -----------
Total Other Revenue $ 23,677
------- ----------- ----------
Total Revenue $ 593,246
------- ----------- ----------
<CAPTION>
6000 - PROJECT EXPENSES
<S> <C> <C> <C>
Administrative Expenses - 6200/6300
Advertising 6210 13,054
------- -----------
Other Renting Expense (see Schedule I) 6250 4,243
------- -----------
Office Salaries 6310 12,504
------- -----------
Office Supplies 6311 757
------- -----------
Office or Model Apartment Rent 6312 2,415
------- -----------
Management Fee (incentive management fee $2,770) 6320 24,374
------- -----------
Manager or Superintendent Salaries 6330 7,706
------- -----------
Manager or Superintendent Rent Free Unit 6331 1,950
------- -----------
Legal Expenses (Project) 6340 111
------- -----------
Auditing Expenses (Project) 6350 5,750
------- -----------
Bookkeeping Fees/Accounting Services 6351 -
------- -----------
Telephone and Answering Service 6360 3,210
------- -----------
Bad Debts 6370 1,733
------- -----------
Miscellaneous Administrative Expenses (specify) (see
Schedule I) 6390 5,608
------- -----------
Total Administrative Expenses $ 83,415
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 -
------- -----------
Electricity 6450 8,835
------- -----------
Water 6451 4,644
------- -----------
Gas 6452 15,579
------- -----------
Sewer 6453 8,863
------- -----------
Total Utilities Expense $ 37,921
------- ----------- ----------
Total Expenses (Carry forward to page 2) $ 121,336
------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Balance from
Acct. No. Page 1 $ 121,336
--------- ------------ ----------
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 10,535
--------- ------------
Janitor and Cleaning Supplies 6515 790
--------- ------------
Janitor and Cleaning Contract 6517 3,049
--------- ------------
Exterminating Payroll/Contract 6519 259
--------- ------------
Exterminating Supplies 6520 -
--------- ------------
Garbage and Trash Removal 6525 5,069
--------- ------------
Security Payroll/Contract 6530 -
--------- ------------
Grounds Payroll 6535 -
--------- ------------
Grounds Supplies 6536 935
--------- ------------
Grounds Contracts 6537 2,821
--------- ------------
Repairs Payroll 6540 11,892
--------- ------------
Repairs Material 6541 3,288
--------- ------------
Repairs Contract 6542 1,661
--------- ------------
Elevator Maintenance/Contract 6545 1,244
--------- ------------
Heating/Cooling Repairs Maintenance 6546 661
--------- ------------
Swimming Pool Maintenance/Contract 6547 1,284
--------- ------------
Snow Removal 6548 1,059
--------- ------------
Decorating Payroll/Contract 6560 5,571
--------- ------------
Decorating Supplies 6561 -
--------- ------------
Vehicle & Maintenance Equipment Operation and Repairs 6570 485
--------- ------------
Miscellaneous Operating & Maintenance Expense (see
Schedule I) 6590 12,643
--------- ------------
Total Operating & Maintenance Expenses $ 63,246
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes (Tax appeal fee $1,233) 6710 105,422
--------- ------------
Payroll Taxes (FICA) 6711 5,401
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 300
--------- ------------
Property and Liability Insurance (Hazard) 6720 7,020
--------- ------------
Fidelity Bond Insurance 6721 -
--------- ------------
Workmen's Compensation 6722 3,346
--------- ------------
Health Insurance & Other Employee Benefits 6723 2,670
--------- ------------
Other Insurance (specify) 6729 -
--------- ------------
Total Taxes and Insurance $ 124,159
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 -
--------- ------------
Interest on Mortgage Payable 6820 460,488
--------- ------------
Interest on Notes Payable (Long-Term)(Special Assessment) 6830 3,658
--------- ------------
Interest on Notes Payable (Short-Term) 6840 -
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 29,219
--------- ------------
Miscellaneous Financial Expenses (Bond Issuer Fee) 6890 5,844
--------- ------------
Total Financial Expenses $499,209
--------- ------------ ----------
Elderly and Congregate Service Expenses
Total Service Expenses - Schedule Attached 6900 -
--------- ------------
Total Cost of Operations before Depreciation $ 807,950
--------- ------------ ----------
Profit (Loss) before Depreciation $ (214,704)
--------- ------------ ----------
Depreciation (Total) - 6600 (specify) and Amortization 6600 253,639
--------- ------------
Operating Profit or (Loss) $ (468,343)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 -
--------- ------------
Legal Expenses (Entity) 7120 -
--------- ------------
Taxes (Federal-State-Entity) 7130-32 -
--------- ------------
Other Expenses (Entity) 7190 -
--------- ------------
Total Corporate Expenses $ -
--------- ------------ ----------
Net Profit or (Loss) $ (468,343)
--------- ------------ ----------
</TABLE>
Miscellaneous or other Income & Expense Sub-account Groups. If
miscellaneous or other and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 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 principal payments required under the mortgage, even if payments
under a Workout Agreement are less or more than those required under the
mortgage.
$ 0
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$ 0
3. Replacement or Painting Reserve releases which are included as expense items
on this Profit and Loss Statement.
$ 0
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ 0
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCHEDULE I
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1995
ACCOUNT NO. 5990 - OTHER REVENUE:
Application fees $ 2,040
Furniture rental 1,730
Parking 767
Other 5,950
--------
Total other revenue $10,487
========
ACCOUNT NO. 6250 - OTHER RENTING EXPENSE:
Rental concessions $ 554
Resident retention 1,826
Credit report expense 1,863
--------
Total other renting expense $ 4,243
========
ACCOUNT NO. 6390 - MISCELLANEOUS ADMINISTRATIVE
EXPENSES:
Employee relations and $ 1,379
business expenses
Furniture rental 1,829
Security deposit interest 617
Other 1,783
--------
Total miscellaneous
administrative
expenses $ 5,608
========
ACCOUNT NO. 6590 - MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
Floor and wood $ 9,404
replacement
Other 3,239
--------
Total miscellaneous expense $12,643
========
The accompanying notes are an integral part of these financial statements.
<PAGE>
EXHIBIT 99.c
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF VALLEY CREEK I
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Valley Creek I Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 4
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 5
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 7
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
[ LETTER REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Valley Creek I Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Valley Creek I Limited Partnership as of December
31, 1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Valley Creek I
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 3 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
ASSETS
<TABLE>
<CAPTION>
INVESTMENT IN REAL ESTATE
<S> <C> <C>
Building $ 9,800,715
Personal property 981,809
-----------
10,782,524
Less accumulated depreciation 2,503,076
-----------
8,279,448
Land 693,909
-----------
8,973,357
Tenants' security deposits, separately
held in an interest-bearing account 54,823
Cash and investments held by
bond servicer 371,234
Favorable financing, less
accumulated amortization of
$651,674 397,492
-----------
9,796,906
OTHER ASSETS
Cash $77,728
Accounts receivable - tenants 815
Accounts receivable - other 116
Prepaid insurance 19,303 97,962
------- -----------
</TABLE>
$ 9,894,868
==========
LIABILITIES
<TABLE>
<CAPTION>
LIABILITIES APPLICABLE TO
<S> <C>
REAL ESTATE
Mortgage payable $12,815,000
Accrued interest payable 2,751,168
-----------
15,566,168
Tenants' security deposits 49,771
Accrued mortgage servicing fee 387,122
-----------
</TABLE>
16,003,061
OTHER LIABILITY
Accounts payable 23,844
----------
Total liabilities 16,026,905
PARTNERS' DEFICIT (6,132,037)
----------
$ 9,894,868
==========
See notes to financial statements
- 4 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
For Month/Period For Month/Period Project Number: Project Name:
Beginning: Ending: HUD Project No.:
1/1/95 12/31/95 CRICO of Valley Creek I
Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 1,776,850
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $ 3,147
------- -----------
Stores and Commercial 5140 $ 621
------- -----------
Garage and Parking Spaces 5170 $ 1,040
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) Corporate Units 5190 $ 1,950
------- ----------- ----------
Total Rent Revenue Potential at 100% Occupancy $1,783,608
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ (46,484)
------- -----------
Furniture and Equipment 5230 $
------- -----------
Stores and Commercial 5240 $
------- -----------
Garage and Parking Spaces 5270 $
------- -----------
Miscellaneous (Specify) 5290 $
------- ----------- ----------
Total Vacancies $ $ (45,484)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $ $1,737,124
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 2,180
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 16,154
------- -----------
Income from Investments - Escrows 5490 $ 6,564
------- ----------- ----------
Total Financial Revenue $ $ 24,898
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $ 26,908
------- -----------
NSF and Late Charges 5920 $ 3,080
------- -----------
Damages and Cleaning Fees 5930 $ 4,721
------- -----------
Forfeited Tenant Security Deposits 5940 $ 12,522
------- -----------
Other Revenue (Specify) Pat Fee $5,100; Storage $5,916;
Bad Debt Recovery $1,225; Application Fee $5,120 5990 $ 17,361
------- ----------- ----------
Total Other Revenue $ 64,592
------- ----------- ----------
Total Revenue $ $1,826,614
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 26,992
------- -----------
Other Renting Expenses (See Note E) 6250 $ 18,388
------- -----------
Office Salaries 6310 $ 31,892
------- -----------
Office Supplies 6311 $ 568
------- -----------
Office or Model Apartment Rent 6312 $ 4,637
------- -----------
Management Fee Incentive Management Fee $8,554 6320 $ 76,003
------- -----------
Manager or Superintendent Salaries 6330 $ 16,592
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 8,280
------- -----------
Legal Expenses (Project) 6340 $ 174
------- -----------
Auditing Expenses (Project) 6350 $ 6,550
------- -----------
Computer Fees 6351 $ 1,082
------- -----------
Telephone and Answering Services 6360 $ 5,132
------- -----------
Bad Debts 6370 $ 3,733
------- -----------
Miscellaneous Administrative Expenses (See Note D) 6390 $ 8,213
------- ----------- ----------
Total Administrative Expenses $ 208,236
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 23,959
------- -----------
Water 6451 $ 5,141
------- -----------
Gas 6452 $ 46,403
------- -----------
Sewer 6453 $ 13,165
------- ----------- ----------
Total Utilities Expense $ $ 88,668
------- ----------- ----------
</TABLE>
* All amounts must be rounded to the nearest dollar, $.50 and over round up,
$.49 and below round down.
Page 1 of 2 Form HUD-92410 (7/91)
-5-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 48,648
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,651
--------- ------------
Janitor and Cleaning Contract 6517 $ 4,058
--------- ------------
Exterminating Payroll/Contract 6519 $ 1,424
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 12,148
--------- ------------
Security Payroll/Contract 6530 $ 2,268
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536 $ 2,185
--------- ------------
Grounds Contract 6537 $ 9,260
--------- ------------
Repairs Payroll 6540 $ 22,283
--------- ------------
Repairs Material 6541 $ 6,179
--------- ------------
Repairs Contract 6542 $ 8,820
--------- ------------
Elevator Maintenance/Contract 6545 $ 4,526
--------- ------------
Heating/Cooling Repairs and Maintenance 6546
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 3,084
--------- ------------
Snow Removal 6548 $ 3,065
--------- ------------
Decorating Payroll/Contract 6560
--------- ------------
Decorating Supplies 6561 $ 14,055
--------- ------------
Other - Vehicle 6570 $ 718
--------- ------------
Miscellaneous Operating and Maintenance Expense 6590
--------- ------------
Total Operating and Maintenance Expenses $ 144,372
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes 6710 $ 297,908
--------- ------------
Payroll Taxes (FICA) 6711 $ 15,875
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,000
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 20,633
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 8,938
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 7,522
--------- ------------
Other Insurance (Specify) 6729
--------- ------------
Total Taxes and Insurance $ 352,876
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 1,326,353
--------- ------------
Interest on Mortgage Payable 6820
--------- ------------
Interest on Notes Payable (Long-Term) 6830
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 80,094
--------- ------------
Misc. Financial Expenses - Security Deposit Interest 6890 $ 1,979
--------- ------------
Total Financial Expenses $1,408,426
--------- ------------ ----------
Elderly and Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------
Total Cost of Operations Before Depreciation $2,202,578
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (375,964)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ 446,326
--------- ------------ ----------
Operating Profit or (Loss) $ (822,200)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
--------- ------------
Amortization 7190 131,146
--------- ------------
Total Corporate Expenses $ 131,146
--------- ------------ ----------
Net Profit or (Loss) $ (953,436)
--------- ------------ ----------
</TABLE>
Warning: HUD wil prosecute false claims and statements. Conviction may result in
criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802). Miscellaneous or other Income & Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 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 principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss Statement.
$ N/A
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ N/A
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 6 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(5,178,601)
Net loss (953,436)
-----------
Partners' deficit, end $(6,132,037)
===========
See notes to financial statements
- 7 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities
<S> <C>
Net loss $(953,436)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 446,326
Amortization 131,146
Decrease in tenants' security deposits - net (3,183)
Decrease in accounts receivable - tenants 179
Increase in accounts receivable - other (8)
Decrease in cash and investments held by bond
servicer 20,681
Increase in prepaid expenses (5,104)
Increase in accrued mortgage servicing fee 80,094
Increase in accrued interest payable 381,874
Decrease in accounts payable (3,426)
---------
Net cash provided by operating activities 95,143
---------
Cash flows from investing activities
Increase in cash and investments held
by bond servicer (61,348)
Acquisition of fixed assets (41,765)
---------
Net cash used in investing activities (103,113)
---------
NET DECREASE IN CASH (7,970)
Cash, beginning 85,698
---------
Cash, end $ 77,728
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $944,479 $ 946,458
=========
Detail of acquisition of fixed assets paid
Monitoring cameras $11,537
Carpet 30,228
------
$41,765
======
</TABLE>
See notes to financial statements
- 8 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on December 28, 1990 for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 225 units located
in the City of Woodbury, Minnesota and operates under the name of Valley Creek
Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized as income when collected, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate, Depreciation and Amortization
--------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Favorable financing is amortized over the remaining life of the bonds by use of
the straight-line method.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
- 9 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark Partners, L.P., may therefore pursue one of the following
scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
- 10 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN (Continued)
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Valley Creek I, Inc., a
Delaware corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage loan for the project. On January
1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in the
partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership. Effective July 1, 1995, CRIIMI Mae Services Limited
Partnership ("CMSLP") acquired the rights to service the mortgage from CRICO
Mortgage Company. On July 1, 1995, all of the unpaid mortgage servicing fees
accrued through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacements account maintained by the servicer. The required annual deposits
into the reserve for replacements account is $56,724 for 1995 and each year
thereafter until such time as the balance in the reserve equaled or exceeded
$340,000. Thereafter, no monthly deposits are required unless the balance falls
below $340,000.
- 11 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1995, cash and investments held by the bond servicer consisted
of the following:
<TABLE>
<CAPTION>
Mortgage Reserve for
escrow deposits replacements Total
---------------- ------------- ------------
<S> <C> <C> <C>
Balance at December
31, 1994 $ 92,800 $237,767 $ 330,567
Deposits 296,400 56,724 353,124
Interest income 6,564 16,154 22,718
Withdrawals
Taxes (297,908) - (297,908)
Insurance (25,737) - (25,737)
Other withdrawals - (11,530) (11,530)
--------- -------- ---------
Balance at December
31, 1995 $ 72,119 $299,115 $ 371,234
========= ======== =========
</TABLE>
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Washington County Housing and Redevelopment Authority in the
total amount of $12,815,000, which are evidenced by a mortgage loan agreement
with Capital Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is February 1,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 10.35%
through the maturity date. Primary contingent interest is payable each quarter,
at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 4.15% per annum, out of 50% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
- 12 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the earlier
of the sale or refinancing of the project or maturity. As of December 31, 1995,
accrued base interest was $2,751,168. Interest accrues on the unpaid base
interest at a compounded rate of 10.35%.
During the year ended December 31, 1995, the partnership only recorded the base
interest and did not record interest accrued on the unpaid base interest of
$330,118, primary contingent interest of $192,225 and supplemental contingent
interest of $531,822. At December 31, 1995, interest accrued on the unpaid base
interest of $884,831, primary and supplemental contingent interest of $5,007,995
and construction period deferred base interest of $1,986,957 has not been
recorded. Total interest incurred on the mortgage for the year ended December
31, 1995 is as follows:
<TABLE>
<CAPTION>
Currently
Deferred payable Total
---------- ----------- ----------
<S> <C> <C> <C>
Base interest $ - $1,326,353 $1,326,353
Interest on interest 330,118 - 330,118
Primary contingent interest 192,225 - 192,225
Supplemental contingent
interest 531,822 - 531,822
---------- ---------- ----------
Total interest incurred 1,054,165 1,326,353 $2,380,518
==========
Accrued interest, beginning 6,825,617 2,369,294
Interest paid - (944,479)
---------- ----------
Accrued interest, ended $7,879,782 $2,751,168
========== ==========
</TABLE>
- 13 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20 percent of
the units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the bondowner.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees are deferred until
cash flow on subsequent interest payment dates is sufficient for payment or
until the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $347,075 and $40,047, respectively. During 1995, $80,094
was charged to operations.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential Corporation
at the same rate and same terms as under the agreement with CRICO Management of
Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1995, management fees totalling $67,449 were charged to
operations. Incentive management fees of $7,841 and $713 were paid to Capreit
Residential Corporation and CRICO Management of Minnesota, Inc., respectively.
At December 31, 1995, $5,602 is due for December management fees.
- 14 -
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Other Payables
--------------
CRICO of Valley Creek II Limited Partnership is an affiliate of the partnership
and owns a complex known as Valley Creek Apartments, Phase II. Both the Project
and Valley Creek Apartments, Phase II, are managed by the same management
company. Certain expenses applicable to both are billed to the management
company and paid for collectively. These common charges are primarily allocated
on a pro rata basis based on the number of dwelling units. An account has been
established on the books of each partnership to record amounts payable to or
receivable from the related entity. At December 31, 1995, there was $363 amount
due to Phase II.
NOTE D - MISCELLANEOUS ADMINISTRATIVE EXPENSES
(ACCOUNT NO. 6390)
<TABLE>
<CAPTION>
Miscellaneous administrative expenses consists of the
following:
<S> <C>
Laundry and uniform $ 528
Employee relations 3,058
Furniture rental 3,973
City code requirements 60
Other 594
------
$8,213
======
NOTE E - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $5,247
Resident retention 7,136
Credit report 4,453
Corporate unit 1,552
------
</TABLE>
$18,388
======
- 15 -
<PAGE>
EXHIBIT 99.d
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF WHITE BEAR WOODS I
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of White Bear Woods I Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of White Bear Woods I
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of White Bear Woods I Limited Partnership as of
December 31, 1995, and the related statements of profit and loss - income tax
basis, partners' deficit - income tax basis and cash flows - income tax basis
for the year then ended. These financial statements are the responsi-bility 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
- 3 -
<PAGE>
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of White Bear
Woods I Limited Partnership as of December 31, 1995, and its profit and loss,
changes in partners' deficit and cash flows for the year then ended, on the
basis of accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 29, 1996
- 4 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
ASSETS
INVESTMENT IN REAL ESTATE
Building $10,831,939
Equipment 1,023,668
-----------
11,855,607
Less accumulated depreciation 2,231,663
-----------
9,623,944
Land 357,840
-----------
9,981,784
Tenants' security deposits,
separately held in an interest-
bearing account 74,918
Cash and investments held by
bond servicer 362,559
Favorable financing, less
accumulated amortization of
$104,604 80,589
-----------
10,499,850
OTHER ASSETS
Cash $88,548
Prepaid insurance 19,085
Accounts receivable - tenants 2,065
Other receivables 4,997 114,695
------- -----------
$10,614,545
==========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $12,485,000
Accrued interest payable 2,000,988
----------
14,485,988
Tenants' security deposit
liability $ 68,816
Accrued mortgage servicing fee 318,627 387,443
------- ----------
14,873,431
OTHER LIABILITY
Accounts payable 34,556
----------
Total liabilities 14,907,987
PARTNERS' DEFICIT (4,293,442)
----------
$10,614,545
==========
See notes to financial statements
- 5 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
- -------------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response,
including the time for reviewing instructions, searching existing data sources, gathering and maintaining the
data needed, and completing and reviewing the collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information, including suggestions for reducing this burden,
to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and
Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork Reduction
Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
- ---------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending HUD Crico of White Bear Woods II
January 1, 1995 December 31, 1995 Project No.: Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Acct. No. Amount*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 1,799,622
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $
------- -----------
Stores and Commercial 5140 $
------- -----------
Garage and Parking Spaces 5170 $
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) 5190 $
------- -----------
Total Rent Revenue Potential at 100% Occupancy $ $1,799,622
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ ( 21,692)
------- -----------
Furniture and Equipment 5230 $
------- -----------
Stores and Commercial 5240 $
------- -----------
Garage and Parking Spaces 5270 $
------- -----------
Miscellaneous (Specify) 5290 $
------- -----------
Total Vacancies $ $ (21,692)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $1,777,930
------- ----------- ----------
Elderly and Congregate Services Income - 5300
(Schedule Attached)
Total Service Income 5300 $ $
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 2,935
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 15,720
------- -----------
Income from Investments - Escrows 5490 $ 8,212
------- -----------
Total Financial Revenue $ 26,867
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $ 31,862
------- -----------
NSF and Late Charges 5920 $ 3,596
------- -----------
Damages and Cleaning Fees 5930 $
------- -----------
Forfeited Tenant Security Deposits 5940 $ 19,753
------- -----------
Other Revenue (Specify) (See Note D) 5990 $ 42,323
------- -----------
Total Other Revenue $ $ 97,534
------- ----------- ----------
Total Revenue $1,902,331
------- ----------- ----------
<CAPTION>
<S> <C> <C> <C>
Administrative Expenses - 6200/6300
Advertising 6210 $ 15,413
------- -----------
Other Renting Expense (See Note F) 6250 $ 10,715
------- -----------
Office Salaries 6310 $ 32,048
------- -----------
Office Supplies 6311 $ 2,143
------- -----------
Office or Model Apartment Rent 6312 $ 4,705
------- -----------
Management Fee/Incentive Management Fee 6320 $ 80,331
------- -----------
Manager or Superintendent Salaries 6330 $ 22,512
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 8,286
------- -----------
Legal Expenses (Project) 6340 $ 489
------- -----------
Auditing Expenses (Project) 6350 $ 5,750
------- -----------
Computer Fees 6351 $ 710
------- -----------
Telephone and Answering Service 6360 $ 8,566
------- -----------
Bad Debts 6370 $ 5,945
------- -----------
Miscellaneous Administrative Expenses (See Note E) 6390 $ 14,923
------- -----------
Total Administrative Expenses $ 212,536
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 21,950
------- -----------
Water 6451 $ 11,646
------- -----------
Gas 6452 $ 47,016
------- -----------
Sewer 6453 $ 23,958
------- -----------
Total Utilities Expense $ 104,570
------- ----------- ----------
</TABLE>
All amounts must be rounded to the nearest dollar;
$0.50 and over, round up - $.49 and below, round down.
Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 44,261
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,924
--------- ------------
Janitor and Cleaning Contract 6517 $ 13,411
--------- ------------
Exterminating Payroll/Contract 6519 $
--------- ------------
Exterminating Supplies 6520 $ 1,036
--------- ------------
Garbage and Trash Removal 6525 $ 8,084
--------- ------------
Security Payroll/Contract 6530 $ 945
--------- ------------
Grounds Payroll 6535 $
--------- ------------
Grounds Supplies 6536 $ 1,447
--------- ------------
Grounds Contract 6537 $ 7,720
--------- ------------
Repairs Payroll 6540 $ 31,228
--------- ------------
Repairs Material 6541 $ 25,289
--------- ------------
Repairs Contract 6542 $ 67,142
--------- ------------
Elevator Maintenance/Contract 6545 $ 5,295
--------- ------------
Heating/Cooling Repairs Maintenance 6546 $ 1,006
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 4,745
--------- ------------
Snow Removal 6548 $ 4,201
--------- ------------
Decorating Payroll/Contract 6560 $ 16,801
--------- ------------
Decorating Supplies 6561 $
--------- ------------
Other 6570 $
--------- ------------
Miscellaneous Operating and Maintenance Expense 6590 $ 1,675
--------- ------------
Total Operating and Maintenance Expenses $ 236,210
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes - includes tax appeal fee $13,389 6710 $ 349,629
--------- ------------
Payroll Taxes (FICA) 6711 $ 13,828
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,000
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 20,232
--------- ------------
Fidelity Bond Insurance 6721 $
--------- ------------
Workmen's Compensation 6722 $ 8,868
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 3,567
--------- ------------
Other Insurance (Specify) 6729 $
--------- ------------
Total Taxes and Insurance $ 398,124
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 1,310,925
--------- ------------
Interest on Mortgage Payable 6820 $
--------- ------------
Interest on Notes Payable (Long-Term) 6830 $
--------- ------------
Interest on Notes Payable (Short-Term) 6840 $
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 78,031
--------- ------------
Miscellaneous Financial Expenses Security Deposit Interest 6890 $ 1,956
--------- ------------
Total Financial Expenses $1,390,912
--------- ------------ ----------
Elderly & Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900 $
--------- ------------
Total Cost of Operations Before Depreciation $2,342,352
--------- ------------ ----------
Profit (Loss) Before Depreciation $ $ (440,021)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ $ 522,739
--------- ------------
Operating Profit or (Loss) $ $ (962,760)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 $
--------- ------------
Legal Expenses (Entity) 7120 $
--------- ------------
Taxes (Federal-State-Entity) 7130-32 $
--------- ------------
Other Expenses (Entity) 7190 $
--------- ------------
Amortization 7190 $ 26,157
Total Corporate Expenses $ 26,157
--------- ------------ ----------
Net Profit or (Loss) $ $ (988,917)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements.
Convictions may result in criminal and/or civil penalties
(18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)
Miscellaneous or other Income & Expense Sub-account Groups. If
miscellaneous or other and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 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 principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss statement.
$ N/A
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss statement.
$ N/A
Page 2 of 2
See notes to financial statements
- 7 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(3,304,525)
Net loss (988,917)
----------
Partners' deficit, end $(4,293,442)
==========
See notes to financial statements
- 8 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
Cash flows from operating activities
Net loss $(988,917)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 522,739
Amortization 26,157
Tenants' security deposits - net (3,014)
Increase in accounts receivable - tenants (302)
Increase in prepaid insurance (5,215)
Increase in accrued interest 362,994
Increase in accrued mortgage servicing fee 78,031
Decrease in accounts payable (1,864)
Decrease in cash and investments held by
bond servicer 28,464
---------
Net cash provided by operating activities 19,073
---------
Cash flows from investing activities
Increase in cash and investments held by bond
servicer (6,184)
Increase in other receivables (735)
Acquisition of fixed assets (57,447)
--------
Net cash used in investing activities (64,366)
--------
NET DECREASE IN CASH (45,293)
Cash, beginning 133,841
--------
Cash, end $ 88,548
========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $947,931 $949,887
========
Detail of acquisition of fixed assets paid
Monitoring cameras $ 11,615
Carpet 45,832
--------
$57,447
======
See notes to financial statements
- 9 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on December 26, 1990 for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 225 units located
in the City of White Bear Lake, Minnesota and operates under the name of White
Bear Woods Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized as income when collected, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
-----------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Favorable financing is amortized over the remaining life of the bonds by use of
the straight-line method.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible; they will be charged to operations when that determination is
made.
- 10 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark Partners, L.P., may therefore pursue one of the following
scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
- 11 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN (Continued)
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of White Bear Woods, Inc., a
Delaware corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage loan for the project. On January
1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in the
partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership. Effective July 1, 1995, CRIIMI Mae Services Limited Partnership
("CMSLP") acquired the rights to service the mortgage from CRICO Mortgage
Company. On July 1, 1995, all of the unpaid mortgage servicing fees accrued
through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacement account is $54,000 for 1995 and each year thereafter until such time
as the balance in the reserve equals or exceeds $340,000. Thereafter, no monthly
deposits are required unless the balance falls below $340,000.
- 12 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1995, cash and investments held by the bond servicer consist of
the following:
<TABLE>
<CAPTION>
Mortgage Reserve
escrow for
deposits replacements Total
---------- ------------- ----------
<S> <C> <C> <C>
Balance at December
31, 1994 $ 117,910 $266,929 $ 384,839
Deposits 338,400 54,000 392,400
Interest income 8,212 15,720 23,932
Withdrawals
Taxes (336,240) - (336,240)
Insurance (25,447) - (25,447)
Other withdrawal (13,389) (63,536) (76,925)
--------- -------- ---------
Balance at December
31, 1995 $ 89,446 $273,113 $ 362,559
========= ======== =========
During 1995, the partnership paid a tax appeal fee of $13,389.
</TABLE>
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of White Bear Lake, Minnesota, in the total amount of
$12,485,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the bondowner, a
related party. The maturity date of the mortgage is February 1, 1999. Upon
maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
- 13 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The mortgage note provides for base interest payable at the rate of 10.5% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 4% per annum, out of 50% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. Total deferred interest has not been recorded on the books of the
partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the earlier
of the sale or refinancing of the project or maturity. As of December 31, 1995,
accrued base interest was $2,000,988. Interest accrues on the unpaid base
interest at a compounded rate of 10.5%.
During the year ended December 31, 1995, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$225,889, primary contingent interest of $187,275 and supplemental contingent
interest of $499,400. At December 31, 1995, interest accrued on the unpaid base
interest of $516,243, primary and supplemental contingent interest of $4,749,502
and construction period deferred base interest of $2,074,565 has not been
recorded. Total interest incurred on the mortgage for the year ended December
31, 1995, is as follows:
- 14 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
Mortgage Payable (continued)
- ----------------------------
Currently
Deferred payable Total
---------- ----------- ----------
<S> <C> <C> <C>
Base interest $ - $1,310,925 $1,310,925
Interest on interest 225,289 - 225,289
Primary contingent interest 187,275 - 187,275
Supplemental contingent interest 499,400 - 499,400
---------- ---------- ----------
Total interest incurred 911,964 1,310,925 $2,222,889
==========
Accrued interest, beginning 6,428,346 1,637,994
Interest paid - (947,931)
---------- ----------
Accrued interest, ended $7,340,310 $2,000,988
========== ==========
</TABLE>
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees are deferred until
cash flow on subsequent interest payment dates is sufficient for payment or
until the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $279,611 and $39,016, respectively. During 1995, $78,031
has been charged to operations.
- 15 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential Corporation
at the same rate and same terms as under the agreement with CRICO Management of
Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1995, management fees totalling $71,154 were charged to
operations. Incentive management fees of $8,413 and $764 were paid to CAPREIT
Residential Corporation and CRICO Management of Minnesota, Inc., respectively.
At December 31, 1995, $6,083 is included in accounts payable for management
fees.
Other Receivables
-----------------
The Project and White Bear Woods Apartments, Phase II, are managed by the same
management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are primarily
allocated on a pro rata basis based on the number of dwelling units. An account
has been established on the books of each partnership to record amounts payable
to or receivable from the related entity. At December 31, 1995, $4,997 was due
from this affiliate.
- 16 -
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - OTHER REVENUE (ACCOUNT NO. 5990)
Other revenue consists of the following:
Corporate unit $12,338
Garage/parking 2,316
Storage 7,625
Application fees 5,940
Furniture rental 6,423
Other 5,979
Bad debt recovery 1,702
-------
$42,323
=======
NOTE E - MISCELLANEOUS ADMINISTRATIVE EXPENSES
(ACCOUNT NO. 6390)
Miscellaneous administrative expenses consists of the
following:
Corporate unit expense $10,624
Employee relations 3,539
Other 760
-------
$14,923
======
NOTE F - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $ 331
Resident retention 4,851
Credit report check 5,533
------
$10,715
======
- 17 -
<PAGE>
EXHIBIT 99.e
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Ethan's I Limited Partnership
(A Missouri Limited Partnership):
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Ethan's I Limited Partnership (a Missouri limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedules 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.
As described in Note 3 to the financial statements, these financial statements
were prepared on the income tax basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Ethan's I Limited
Partnership as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended, on the income tax basis of
accounting described in Note 3 to the financial statements.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership was in default at December 31, 1995, with
regard to the mortgage loan agreements, due to its inability to generate
sufficient cash flow to meet its contractual obligations. Additionally, the
Partnership does not expect to be able to generate sufficient cash flow to meet
its contractual obligations under the mortgage loan agreements in 1996. This
issue raises substantial doubt about the Partnership's ability to continue as a
going concern. Management's plan in regard to this matter is described in Note
2 to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Losses and Schedule I are presented for
purposes of additional analysis and are not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
January 31, 1996
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
FIXED ASSETS: ---- ----
<S> <C> <C>
Land $ 1,168,712 $ 1,168,712
Building and improvements 13,701,142 13,679,132
Furniture, fixtures and equipment 613,499 562,681
---------- -----------
15,483,353 15,410,525
Less- Accumulated depreciation (3,318,854) (2,763,553)
---------- -----------
Net fixed assets 12,164,499 12,646,972
---------- -----------
CURRENT ASSETS:
Cash 112,356 104,447
Prepaid insurance 28,176 20,807
Accounts receivable-other 706 -
Deposits 4,993 4,993
Other assets 5,487 2,755
---------- -----------
Total current assets 151,718 133,002
---------- -----------
RESTRICTED CASH:
Tenants' security deposits, separately
held in an interest-bearing account 35,564 34,645
Escrow deposits 291,461 161,259
---------- -----------
Total restricted cash 327,025 195,904
---------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of 680,662 1,003,116
---------- -----------
$1,775,557 and $1,453,103,
respectively
Total assets $13,323,904 $13,978,994
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1995 1994
CURRENT LIABILITIES: ---- ----
<S> <C> <C>
Accrued interest $ 2,002,192 $ 1,698,524
Accounts payable 50,409 44,416
Accrued mortgage service fee 587,870 303,665
Mortgage loans payable 17,800,000 17,800,000
Construction Period
deferred base interest payable 818,341 818,341
---------- -----------
Total current liabilities 21,258,812 20,664,946
---------- -----------
TENANTS' SECURITY DEPOSITS 34,223 33,880
---------- -----------
Total liabilities 21,293,035 20,698,826
---------- -----------
PARTNERS' DEFICIT (7,969,131) (6,719,832)
---------- -----------
Total liabilities and
partners' deficit $13,323,904 $13,978,994
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
OPERATING INCOME: ---- ----
<S> <C> <C>
Rental income $ 2,155,792 $ 2,078,300
Interest income 15,027 10,771
Other income 89,966 81,737
----------- -----------
Total operating income 2,260,785 2,170,808
----------- -----------
OPERATING EXPENSES:
Real estate taxes 108,205 200,932
Mortgage servicing fees 284,205 111,250
Salaries and related 180,933 205,488
payroll costs
Repairs and maintenance 182,852 315,713
Fuel and utilities 124,623 137,900
Marketing 53,822 79,706
Management fees 83,692 83,055
Insurance 45,210 38,413
Professional fees 7,537 7,701
Other 42,501 41,909
----------- -----------
Total operating expenses 1,113,580 1,222,067
----------- -----------
Income from operations 1,147,205 948,741
DEPRECIATION 555,301 548,115
AMORTIZATION OF FAVORABLE FINANCING 322,454 322,454
INTEREST ON MORTGAGE LOAN 1,518,749 1,521,989
----------- -----------
Net loss $(1,249,299) $(1,443,817)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
GENERAL LIMITED
PARTNER PARTNER TOTAL
--------- ----------- ----------
PARTNERS' DEFICIT, December 31, 1993 $(110,577) $(5,165,438) $(5,276,015)
Net loss (156,529) (1,287,288) (1,443,817)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1994 (267,106) (6,452,726) (6,719,832)
Net loss (151,776) (1,097,523) (1,249,299)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1995 $(418,882) $(7,550,249) $(7,969,131)
========= =========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: ---- ----
Net loss $(1,249,299) $(1,443,817)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities-
Depreciation and amortization 877,755 870,569
(Increase) decrease in assets and liabilities:
Tenant security deposits - net (576) -
Prepaid insurance (7,369) (374)
Accounts receivable- other (706) -
Other assets (2,732) 8,488
Escrow deposits (130,202) 101,364
Accounts payable 5,993 25,798
Accrued mortgage service fee 284,205 111,250
Accrued interest 303,668 308,533
---------- ----------
Cash provided by (used in) operating
activities 80,737 (18,189)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment (72,828) (4,110)
---------- ----------
Cash used in investing activities (72,828) (4,110)
---------- ----------
NET (DECREASE) IN CASH 7,909 (22,299)
CASH, beginning of year 104,447 126,746
---------- ----------
CASH, end of year $ 112,356 $ 104,447
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the year for interest $ 1,215,081 $ 1,213,457
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
1. ORGANIZATION:
CRICO of Ethan's I Limited Partnership (the "Partnership") was formed April 15,
1990, for the purpose of acquiring interests in and/or investing in real and
personal property, including owning and operating two apartment complexes in
Kansas City, Missouri. According to the provisions of the First Amended and
Restated Partnership Agreement (the "Agreement"), CRICO of Ethan's I, Inc., is
the general partner and CRICO Minnesota Holdings, Inc., David A. Sislen, P.
Richard Zitelman, and Sislen Housing Partners are the limited partners. The
financing for the apartment complexes was obtained from Capital Realty Investors
Tax Exempt Fund Limited Partnership ("CRITEF"), a publicly traded limited
partnership. The general partner of CRITEF is CRITEF Associates Limited
Partnership, whose managing general partner is CRI, Inc. and the shareholders of
CRI, Inc. The general partner of the Partnership, CRICO of Ethan's I Inc., a
Delaware Corporation, is affiliated with CRI, Inc. and affiliated with all of
the above mentioned entities. According to the Agreement, the Partnership will
terminate on December 31, 2030, if not terminated sooner.
The Partnership owns a 316-unit apartment complex known as Ethan's Ridge ("Phase
I") and a 48-unit apartment complex known as Ethan's Glen ("Phase IIB"). Both
of these complexes (collectively, the "Projects") are part of a two-phase
project involving three apartment complexes, collectively known as Ethan's
Ridge. The third complex, known as Ethan's Glen ("Phase IIA"), is owned by
CRICO of Ethan's II Limited Partnership, an affiliated entity.
Construction of Phase I commenced in 1986 and was completed in April 1, 1988.
Construction of Phase IIB commenced in 1988 and was completed on March 31, 1990.
Under the terms of the bonds issued to provide permanent financing for the
Projects, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1995 and 1994, the Projects
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the Partnership was in default with regard to the mortgage
loan agreements due to its inability to generate sufficient cash flow to meet
its contractual obligations under these agreements. Consequently, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
that might result should the Partnership be unable to continue as a going
concern. The Partnership's lender, CRITEF, has
<PAGE>
-2-
not availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreements and is effectively treating this obligation as a cash
flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc., who is the general partner of
Watermark Partners LP, may therefore pursue one of the following scenarios with
respect to the Partnership:
. THE CURRENT PARTNERSHIP STRUCTURE WOULD BE PRESERVED AND ALL OF THE
PARTNERSHIP INTERESTS WOULD BE TRANSFERRED TO CAPREIT RESIDENTIAL PROPERTIES
("CAPREIT"),
OR
. THE CURRENT PARTNERSHIP STRUCTURE WOULD BE PRESERVED AND CAPREIT WOULD REPLACE
THE 1 PERCENT GENERAL PARTNER WHILE LEAVING THE 99 PERCENT LIMITED PARTNER IN
PLACE,
OR
. THE CURRENT PARTNERSHIP STRUCTURE WOULD BE COLLAPSED AND ALL OF THE ASSETS AND
LIABILITIES OF THE PARTNERSHIP WOULD BE ASSUMED BY CAPREIT OR ONE OF ITS
SUBSIDIARIES.
3. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Partnership in preparing its financial statements.
BASIS OF PRESENTATION
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for Federal income tax purposes, as required by the
Agreement. The principal differences between the income tax basis and generally
accepted accounting principles ("GAAP") are that an intangible asset has been
recognized for income tax purposes representing the value to the Partnership of
its favorable financing and that certain assets were written up to their fair
market values when they were transferred to the Partnership. The intangible
asset is being amortized for income tax purposes on a straight-line basis over
the remaining life of the related mortgage loans. Depreciation and amortization
are also computed under tax regulations which may differ from GAAP. (See
separate note below.)
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
<PAGE>
-3-
RECLASSIFICATIONS
Certain amounts in the financial statements for 1994 have been reclassified to
conform with 1995 presentation.
FAVORABLE FINANCING
On April 15, 1990, certain assets, liabilities, and operations were transferred
from the Projects' previous owners to the Partnership in full satisfaction of
the related bonds' indebtedness. Upon transfer, assets and liabilities were
recorded at their respective fair values, and an intangible asset was
recognized, representing the value to the Partnership of the favorable financing
provided by the mortgage loans. According to Federal income tax rules and
regulations, the sale price equates to the face value of the indebtedness
assumed. Under tax guidelines, the intangible asset is being amortized on a
straight-line basis over the remaining life of the related mortgage loans.
<TABLE>
<CAPTION>
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE
(YEARS) BASIS
------ -----
<S> <C> <C>
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
</TABLE>
Repairs and maintenance are charged to expense when incurred, while major
improvements are capitalized in the applicable asset accounts. Additions to
building and improvement in 1995 consist of $22,010 of cost capitalized for
replacement of trash enclosures of $12,939 and additional exterior light
fixtures of $9,071. Additions to furniture, fixtures and equipment in 1995
consist of clubhouse, office and exercise equipment of $12,488 and carpet of
$38,330. Additions to furniture, fixtures and equipment in 1994 consist of
$4,110 of costs capitalized for replacement of a sprinkler system.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the income or loss of the Partnership is included in the individual income
tax returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner has a 1 percent ownership interest, and the limited partners
together have a 99 percent ownership interest, in the Partnership. In
accordance with the original Partnership Agreement, the general partner
contributed $1, and the original limited partner, CRICO of Iona, Inc.,
contributed $99 to the Partnership.
<PAGE>
-4-
On July 6, 1990, two additional limited partners joined the Partnership with a
contribution of $14,768 each. On November 1, 1991, the two additional limited
partners each increased his contributed capital by $6,285 to $21,053,
respectively, to acquire a total limited partner interest of 24.995 percent
each. Also on that date, a third additional limited partner joined the
Partnership with a contribution of $12,570 and acquired a 49 percent limited
partner interest. The Partnership was expanded to admit these new limited
partners in consideration of their commitment to make additional capital
contributions, as set forth in the first amendment to the Agreement.
Notwithstanding the additional capital contribution obligations, the general
partner retains the right to remove these limited partners from the Partnership
at any time after April 15, 1992. As of December 31, 1995, this right has not
been exercised.
Pursuant to the terms of the Agreement, all profits and losses, as defined, are
allocated to the partners, pro rata, in accordance with their percentage
interests after giving effect to certain allocations specified in the Agreement.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENT:
Prior to February 1994, CRICO Management of Minnesota, Inc. ("CRICO of
Minnesota"), a related party to the general partner, was manager of the
property, with management fees payable monthly at 3.75 percent of gross revenues
with an annual incentive fee of 0.5 percent of gross revenues, as defined by the
agreement.
Effective February 1, 1994, the property management contract was acquired by
CAPREIT Residential Corporation. Management fees are payable to CAPREIT
Residential Corporation at the same rate and terms as under the agreement with
CRICO of Minnesota. As of December 31, 1995 and 1994, management fees paid were
$83,692 and $83,319, respectively. Of the 1994 management fee amount paid,
management fees of $11,227 were paid to CRICO of Minnesota. In addition, during
1994, incentive fees of $10,283 were paid for 1993.
6. MORTGAGE LOANS PAYABLE:
Permanent financing for the Projects was provided through Multifamily Housing
Revenues Bonds issued by the Industrial Development Authority of the city of
Kansas City, Missouri ("Authority"), and purchased by CRITEF, an affiliate and
the bond owner. The permanent financing for the Projects totals $17,800,000;
$15,500,000 for Phase I is due on April 1, 1998, and $2,300,000 for Phase IIB is
due on March 31, 2000. Upon maturity, all outstanding principal and interest,
including base interest and construction period deferred base interest, is due
and payable. The bonds are collateralized by the apartment complexes and
assignments of rents.
<PAGE>
-5-
The bonds for Phase I bear a base annual interest rate of 8.5 percent, a primary
contingent interest rate of 2 percent per annum to be paid each quarter from the
net cash flow, as defined, and a supplemental contingent interest rate of 5.5
percent per annum to be paid each quarter from 60 percent of net cash flow, as
defined, remaining after deduction of primary contingent interest. With respect
to Phase IIB, the bonds bear a base annual interest rate of 8.75 percent, a
primary contingent interest rate of 1.75 percent per annum to be paid each
quarter from the net cash flow, as defined, and a supplemental contingent
interest rate of 5.5 percent per annum to be paid each quarter from 60 percent
of net cash flow, as defined, remaining after deduction of primary contingent
interest. For both Phase I and Phase IIB, if the quarterly net cash flow is
insufficient, primary and supplemental contingent interest are deferred without
interest until the earlier of sale or refinancing of the Projects or maturity,
to the extent excess net proceeds or fair value, as defined, exist. Because net
cash flow for the years ended December 31, 1995 and 1994, was insufficient, no
provision has been recorded for primary or supplemental contingent interest in
the accompanying financial statements. The unpaid primary contingent interest
balances at December 31, 1995 and December 31, 1994, were $2,402,500 and
$2,092,500, respectively, for Phase I and $231,438 and $191,188, respectively,
for Phase IIB. The unpaid supplemental contingent interest balances at December
31, 1995, and December 31, 1994, were $6,606,878 and $5,754,375, respectively,
for Phase I and $727,375 and $600,875, respectively, for Phase IIB. Pursuant to
terms of the Partnership Agreement, interest is also accrued on base interest
payable, compounded at the base interest rate. Because this amount is payable
out of available cash flow after the payment of all current and accrued base
interest and all current and accrued servicing fees, it is not recorded on the
books of the Partnership.
During the first month of the construction period, the loan for Phase I accrued
interest at the rate of 6.05 percent, which was paid currently. During the
remaining construction period for the Projects, the loans accrued interest at a
rate of 8.50 percent for Phase I and 11.4 percent for Phase IIB, of which 2.91
and 8.371 percent, respectively, were paid currently, while the remaining
interest was deferred and will be unconditionally due and payable upon sale,
refinancing or maturity. As of December 31, 1995 and 1994, the construction
period deferred base interest payable was $818,341.
<PAGE>
-6-
The following schedule presents interest deferred, interest paid and accrued
interest for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
-------- -------- -----
<S> <C> <C> <C>
Accrued interest at December 31, 1993 $ 7,468,454 $ 1,389,991
----------- -----------
Base interest - 1,521,989 $1,521,989
Primary contingent interest 350,250 - 350,250
Supplemental contingent interest 979,000 - 979,000
Interest on base interest 143,657 - 143,657
----------- ---------- ----------
Total 1994 interest incurred 1,472,907 1,521,989 $2,994,896
==========
Interest paid from operations - (1,185,956)
Interest paid from reserves - (27,500)
----------- ----------
Accrued interest at December 31, 1994 8,941,361 1,698,524
Base interest 1,518,749 $1,518,749
Primary contingent interest 350,250 - 350,250
Supplemental contingent interest 979,000 - 979,000
Interest on base interest 182,185 - 182,185
----------- ---------- ----------
Total 1995 interest incurred 1,511,435 1,518,749 $3,030,184
==========
Interest paid from operations - (1,215,081)
Interest paid from reserves - -
----------- ----------
Accrued interest at December 31, 1995 $10,452,796 $ 2,002,192
=========== ==========
</TABLE>
Interest on the bonds is intended to be exempt from Federal income tax pursuant
to the Internal Revenue Code. In connection with obtaining the bonds, certain
regulatory agreements were executed which provide, among other things, that
substantially all of the proceeds of the bonds issued must be utilized to
finance multifamily housing in which 20 percent or more of the completed units
in the Projects will be occupied on a continuous basis by individuals or
families of low or moderate income, as determined under certain sections of the
Internal Revenue Code. In the event that the underlying bonds do not maintain
their tax-exempt status, whether by a change in law or by noncompliance with the
rules and regulations related thereto, repayment of the bonds may be
accelerated.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreements at December 31, 1995.
Effective July 1, 1995, CRIIMI MAE Services Limited Partnership ("CMSLP")
acquired the rights to service the mortgage from CRICO Mortgage Company. Also
on July 1, 1995, all of the unpaid mortgage servicing fees accrued through June
30, 1995 were transferred to CRI, Inc., an affiliate of the Partnership's
general partner. In addition, the owners of CRI, Inc. are the directors and are
officers of the general partner of CMSLP and CRIIMI MAE Management, Inc. (a
wholly owned subsidiary of CRIIMI MAE Inc., a publicly held corporation). At
December 31, 1995, mortgage servicing fees of $532,245 are payable to CRI, Inc.
and $55,625 are payable to CMSLP.
<PAGE>
-7-
7. ESCROW DEPOSITS:
In 1995 and 1994, escrow deposits consist of the following.
<TABLE>
<CAPTION>
REPLACEMENT TAX AND
RESERVE INSURANCE
ESCROW ESCROW TOTAL
------------ --------- --------
<S> <C> <C> <C>
Balance, December 31, 1993 $ 229,322 $ 33,301 $ 262,623
Deposits 59,576 236,370 295,946
Withdrawals:
Insurance - (27,742) (27,742)
Taxes - (200,932) (200,932)
Applied to bond interest - (13,000) (13,000)
Replacement reserve expenditures (166,084) - (166,084)
Service charges (211) - (211)
Interest earned 5,476 5,183 10,659
--------- --------- ---------
Balance, December 31, 1994 128,079 33,180 161,259
Deposits 59,576 238,800 298,376
Withdrawals:
Insurance - (37,568) (37,568)
Taxes - (108,205) (108,205)
Replacement reserves expenditures (36,213) - (36,213)
Interest earned 6,405 7,553 13,958
Service charges (138) (8) (146)
--------- --------- ---------
Balance, December 31, 1995 $ 157,709 $ 133,752 $ 291,461
========= ========= =========
</TABLE>
The replacement reserve and tax and insurance escrow accounts were established
to fund future capital improvements and real estate taxes and insurance
premiums, respectively. The Partnership is required to deposit $59,576 in the
replacement reserve until the balance of this reserve is $413,000. The
Partnership is required to make monthly payments into the tax and insurance
escrow, each equaling one-twelfth of the Projects' estimated annual real estate
taxes and insurance premiums. During 1995 and 1994, the Partnership made all
required payments into this escrow.
8. RELATED-PARTY TRANSACTIONS:
Certain expenditures applicable to both the Projects and Phase IIA are billed to
and paid by the property management company or by another affiliate. Amounts
are reimbursable and are maintained in the due to/from affiliate account on the
Projects' books. These common charges are allocated to each of the projects on
a pro rata basis based on the number of dwelling units in each apartment
complex. As of December 31, 1995, amounts due from affiliates were $706.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1995 December 31, 1995 CRICO of Ethan's I Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Acct. No.
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 2,295,973
------- -----------
Tenant Assistance Payments 5121 -
------- -----------
Furniture and Equipment 5130 -
------- -----------
Stores and Commercial 5140 -
------- -----------
Garage and Parking Spaces 5170 -
------- -----------
Flexible Subsidy Income 5180 -
------- -----------
Miscellaneous (specify) 5190 -
------- -----------
Total Rent Revenue Potential at 100% Occupancy $2,295,973
------- ----------- ----------
Vacancies - 5200
Apartments 5220 (140,181)
------- -----------
Furniture and Equipment 5230 -
------- -----------
Stores and Commercial 5240 -
------- -----------
Garage and Parking Spaces 5270 -
------- -----------
Miscellaneous (specify) 5290 -
------- -----------
Total Vacancies $ (140,181)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $2,155,792
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income 5300 - $ -
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 1,069
------- -----------
Income from Investments - Residual Receipts 5430 -
------- -----------
Income from Investments - Reserve for Replacement 5440 6,405
------- -----------
Income from Investments - Miscellaneous (Escrows) 5490 7,553
------- -----------
Total Financial Revenue $ 15,027
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 3,987
------- -----------
NSF and Late Charges 5920 6,515
------- -----------
Damages and Cleaning Fees 5930 -
------- -----------
Forfeited Tenant Security Deposits 5940 5,337
------- -----------
Other Revenue (specify) Application Fees (see Schedule I) 5990 74,127
------- -----------
Total Other Revenue $ 89,966
------- ----------- ----------
Total Revenue $2,260,785
------- ----------- ----------
<CAPTION>
6000 - PROJECT EXPENSES
<S> <C> <C> <C>
Administrative Expenses - 6200/6300
Advertising 6210 34,037
------- -----------
Other Renting Expense (see Schedule I) 6250 25,030
------- -----------
Office Salaries 6310 57,597
------- -----------
Office Supplies 6311 3,077
------- -----------
Office or Model Apartment Rent 6312 79
------- -----------
Management Fee 6320 83,692
------- -----------
Manager or Superintendent Salaries 6330 33,609
------- -----------
Manager or Superintendent Rent Free Unit 6331 5,625
------- -----------
Legal Expenses (Project) 6340 287
------- -----------
Auditing Expenses (Project) 6350 7,250
------- -----------
Bookkeeping Fees/Accounting Services 6351 -
------- -----------
Telephone and Answering Service 6360 5,959
------- -----------
Bad Debts 6370 1,005
------- -----------
Miscellaneous Administrative Expenses (specify) (see
Schedule I) 6390 7,386
------- -----------
Total Administrative Expenses $ 264,633
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 -
------- -----------
Electricity 6450 42,350
------- -----------
Water 6451 52,157
------- -----------
Gas 6452 -
------- -----------
Sewer 6453 30,116
------- -----------
Total Utilities Expense $ 124,623
------- ----------- ----------
Total Expenses (Carry forward to page 2) $ 389,256
------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Balance from
Acct. No. Page 1 $ 389,256
--------- ------------ ----------
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 23,187
--------- ------------
Janitor and Cleaning Supplies 6515 1,142
--------- ------------
Janitor and Cleaning Contract 6517 17,827
--------- ------------
Exterminating Payroll/Contract 6519 4,015
--------- ------------
Exterminating Supplies 6520 -
--------- ------------
Garbage and Trash Removal 6525 3,102
--------- ------------
Security Payroll/Contract 6530 -
--------- ------------
Grounds Payroll 6535 -
--------- ------------
Grounds Supplies 6536 25,890
--------- ------------
Grounds Contracts 6537 29,012
--------- ------------
Repairs Payroll 6540 46,295
--------- ------------
Repairs Material 6541 45,559
--------- ------------
Repairs Contract 6542 12,268
--------- ------------
Elevator Maintenance/Contract 6545 -
--------- ------------
Heating/Cooling Repairs Maintenance 6546 7,736
--------- ------------
Swimming Pool Maintenance/Contract 6547 11,526
--------- ------------
Snow Removal 6548 7,056
--------- ------------
Decorating Payroll/Contract 6560 -
--------- ------------
Decorating Supplies 6561 17,419
--------- ------------
Vehicle & Maintenance Equipment Operation and Repairs 6570 -
--------- ------------
Miscellaneous Operating & Maintenance Expense (see
Schedule I) 6590 6,154
--------- ------------
Total Operating & Maintenance Expenses $ 258,188
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes 6710 108,205
--------- ------------
Payroll Taxes (FICA) 6711 20,246
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 270
--------- ------------
Property and Liability Insurance (Hazard) 6720 30,199
--------- ------------
Fidelity Bond Insurance 6721 -
--------- ------------
Workmen's Compensation 6722 7,828
--------- ------------
Health Insurance & Other Employee Benefits 6723 7,183
--------- ------------
Other Insurance (specify) 6729 -
--------- ------------
Total Taxes and Insurance $ 173,931
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 -
--------- ------------
Interest on Mortgage Payable 6820 1,518,749
--------- ------------
Interest on Notes Payable (Long-Term) 6830 -
--------- ------------
Interest on Notes Payable (Short-Term) 6840 -
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 284,205
--------- ------------
Miscellaneous Financial Expenses (Trustee Fees) 6890 8,000
--------- ------------
Total Financial Expenses $1,810,954
--------- ------------ ----------
Elderly and Congregate Service Expenses
Total Service Expenses - Schedule Attached 6900 -
--------- ------------
Total Cost of Operations before Depreciation $2,632,329
--------- ------------ ----------
Profit (Loss) before Depreciation $ (371,544)
--------- ------------ ----------
Depreciation (Total) - 6600 (specify) and Amortization 6600 877,755
--------- ------------
Operating Profit or (Loss) $(1,249,299)
--------- ------------ -----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 -
--------- ------------
Legal Expenses (Entity) 7120 -
--------- ------------
Taxes (Federal-State-Entity) 7130-32 -
--------- ------------
Other Expenses (Entity) 7190 -
--------- ------------
Total Corporate Expenses $ -
--------- ------------ ----------
Net Profit or (Loss) $(1,249,299)
--------- ------------ -----------
</TABLE>
Miscellaneous or other Income & Expense Sub-account Groups. If
miscellaneous or other and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 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 principal payments required under the mortgage, even if payments
under a Workout Agreement are less or more than those required under the
mortgage.
$ -
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$ 36,300
3. Replacement or Painting Reserve releases which are included as expense items
on this Profit and Loss Statement.
$ -
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCHEDULE I
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1995
ACCOUNT NO. 5990 - OTHER REVENUE:
Pet fees $ 9,436
Application fees 5,644
Nonrefundable fees 13,199
Bad debt collections 5,567
Cancellation fees 1,610
Parking income 18,307
Insurance proceeds - 5,662
hailstorm
Other 14,702
-------
Total other revenue $74,127
=======
ACCOUNT NO. 6250 - OTHER
RENTING EXPENSES:
Rental concessions $16,905
Resident retention 180
Resident referrals 2,700
Credit report 5,245
-------
Total other renting expense $25,030
=======
ACCOUNT NO. 6390 - MISCELLANEOUS ADMINISTRATIVE
EXPENSE:
Employee relations $ 3,012
Computer expense 880
Postage/delivery 2,654
Other 840
-------
Total miscellaneous administrative expense $ 7,386
=======
ACCOUNT NO. 6590 - MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
City code requirements $ 300
Hail Storm-Insurance claim 5,854
-------
Total miscellaneous operating and
maintenance expense $ 6,154
=======
The accompanying notes are an integral part of this schedule.
<PAGE>
EXHIBIT 99.f
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF FOUNTAIN PLACE
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Fountain Place Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 4
STATEMENT OF REVENUE AND EXPENSES - INCOME TAX BASIS 5
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 7
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
[ LETTERHEAD OF REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Fountain Place Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Fountain Place Limited Partnership as of December
31, 1995, and the related statements of revenue and expenses - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Fountain Place
Limited Partnership as of December 31, 1995, and its revenue and expenses,
changes in partners' deficit and cash flows for the year then ended, on the
basis of accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 3 -
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
INVESTMENT IN REAL ESTATE
Building $17,202,650
Personal property 1,114,062
-----------
18,316,712
Less accumulated depreciation 3,945,400
-----------
14,371,312
Land 1,515,239
-----------
15,886,551
Tenants' security deposits, separately
held in an interest bearing account 111,480
Cash and investments held by bond
servicer 642,241
Favorable financing, less accumulated
amortization of $1,310,450 917,318
-----------
17,557,590
OTHER ASSETS
Cash $75,298
Accounts receivable -
tenants 2,598
Other receivables 1,266
Utility deposits 900
Prepaid insurance 30,748 110,810
------- -----------
</TABLE>
$17,668,400
==========
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES APPLICABLE TO REAL
ESTATE
Mortgage payable $20,900,000
Accrued interest payable -
mortgage 5,063,498
-----------
25,963,498
Tenants' security deposits 83,550
Accrued mortgage servicing 663,990
Accrued administration fee 26,125
Assessments payable 65,927
-----------
26,803,090
OTHER LIABILITY
Accounts payable 55,702
----------
Total liabilities 26,858,792
PARTNERS' DEFICIT (9,190,392)
-----------
$17,668,400
==========
</TABLE>
See notes to financial statements
- 4 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF REVENUE AND EXPENSES U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, an completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
For Month/Period Project Number: Project Name:
Beginning: Ending: HUD Project No.:
1/1/95 12/31/95 CRICO of Fountain Place
Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account. No. Amount
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 2,937,305
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $
------- -----------
Stores and Commercial 5140 $
------- -----------
Garage and Parking Spaces 5170 $ 2,715
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) 5190 $
------- -----------
Total Rent Revenue Potential at 100% Occupancy $2,940,020
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ (122,346)
------- -----------
Furniture and Equipment 5230 $( )
------- -----------
Stores and Commercial 5240 $( )
------- -----------
Garage and Parking Spaces 5270 $( )
------- -----------
Miscellaneous (Specify) 5290 $( )
------- -----------
Total Vacancies $ $ (122,346)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $ $2,817,674
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $ $
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 4,444
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 22,980
------- -----------
Income from Investments - Escrows 5490 $ 11,771
------- -----------
Total Financial Revenue $ $ 39,195
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $ 360
------- -----------
NSF and Late Charges 5920 $ 7,754
------- -----------
Damages and Cleaning Fees 5930 $ 22,225
------- -----------
Forfeited Tenant Security Deposits 5940 $ 22,012
------- -----------
Other Revenue (Specify) See Note D 5990 $ 43,689
------- -----------
Total Other Revenue $ $ 96,040
------- ----------- ----------
Total Revenue $ $2,952,909
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 20,489
------- -----------
Other Renting Expense -- See Note D 6250 $ 41,118
------- -----------
Office Salaries 6310 $ 31,865
------- -----------
Office Supplies 6311 $ 3,015
------- -----------
Office or Model Apartment Rent 6312 $ 770
------- -----------
Management Fee 6320 $ 116,480
------- -----------
Manager or Superintendent Salaries 6330 $ 23,522
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 4,305
------- -----------
Legal Expenses (Project) 6340 $ 3,939
------- -----------
Auditing Expenses (Project) 6350 $ 6,550
------- -----------
Bookkeeping Fees/Accounting Services 6351 $
------- -----------
Telephone and Answering Services 6360 $ 5,238
------- -----------
Bad Debts 6370 $ 7,504
------- -----------
Misc. Administrative Expenses (Specify) See
Note D 6390 $ 10,789
------- -----------
Total Administrative Expenses $ 275,584
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 36,193
------- -----------
Water 6451 $ 66,589
------- -----------
Gas 6452 $ 36,638
------- -----------
Sewer 6453 $
------- -----------
Total Utilities Expense $ 139,420
------- ----------- ----------
</TABLE>
*All amounts must be rounded to the nearest dollar, $50 and over, round up -
$.49 and below, round down.
Page 1 of 2 Form HUD-92410 (7/91)
ref. Handbook 4370
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 30,033
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,077
--------- ------------
Janitor and Cleaning Contract 6517 $ 4,703
--------- ------------
Exterminating Payroll/Contract 6519 $
--------- ------------
Exterminating Supplies 6520 $ 88
--------- ------------
Garbage and Trash Removal 6525 $ 36,546
--------- ------------
Security Payroll/Contract 6530 $ 7,637
--------- ------------
Grounds Payroll 6535 $
--------- ------------
Grounds Supplies 6536 $ 1,750
--------- ------------
Grounds Contract 6537 $ 10,419
--------- ------------
Repairs Payroll and rent free units 6540 $ 124,737
--------- ------------
Repairs Material 6541 $ 61,029
--------- ------------
Repairs Contract 6542 $ 31,576
--------- ------------
Elevator Maintenance/Contract 6545 $ 7,804
--------- ------------
Heating/Cooling Repairs and Maintenance 6546 $ 733
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 2,796
--------- ------------
Snow Removal 6548 $ 5,235
--------- ------------
Decorating Payroll/Contract 6560 $
--------- ------------
Decorating Supplies 6561 $
--------- ------------
Other 6570 $
--------- ------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 490
--------- ------------
Total Operating and Maintenance Expenses $ 326,653
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes-Net of refund $30,379 6710 $ 487,637
--------- ------------
Payroll Taxes (FICA) 6711 $ 3,768
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 5,463
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 37,507
--------- ------------
Fidelity Bond Insurance 6721 $
--------- ------------
Workmen's Compensation 6722 $
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 1,216
--------- ------------
Other Insurance (Specify) 6729 $
--------- ------------
Total Taxes and Insurance $ 535,591
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $
--------- ------------
Interest on Mortgage Payable 6820 $ 1,985,500
--------- ------------
Interest on Notes Payable (Long-Term) 6830 $ 3,775
--------- ------------
Interest on Notes Payable (Short-Term) 6840 $
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 141,487
--------- ------------
Miscellaneous Financial Expenses - See Note D 6890 $ 29,596
--------- ------------
Total Financial Expenses $ $2,160,358
--------- ------------ ----------
Elderly & Congregate Service Expenses 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------ ----------
Total Cost of Operations Before Depreciation $3,437,606
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (484,697)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 726,337
--------- ------------ ----------
Operating Profit or (Loss) $(1,211,034)
--------- ------------ -----------
Corporate or Mortgagor Entity
Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
--------- ------------
Amortization 7190 $ 262,090
--------- ------------
Total Corporate Expenses $ 262,090
--------- ------------ ----------
Net Profit or (Loss) $(1,473,124)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802). Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
<S> <C>
Part II
1. Total principal payments required under the mortgage, even if payments under a
Workout Agreement are less or more than those required under the mortgage.
$
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss statement.
$
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss statement.
$
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 6 -
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(7,717,268)
Net loss (1,473,124)
-----------
Partners' deficit, end $(9,190,392)
===========
See notes to financial statements
- 7 -
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $(1,473,124)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 726,337
Amortization 262,090
Changes in assets and liabilities
Tenants' security deposits - net (27,865)
Increase in prepaid insurance (3,490)
Increase in accounts payable 35,957
Increase in accrued mortgage servicing fee 141,487
Increase in other receivables (1,266)
Increase in accrued interest payable 569,131
Funds deposited to cash and investments
held by bond servicer (60,336)
Decrease in accounts receivable - tenants 5,659
Decrease in subscription receivable 100
-----------
Net cash provided by operating activities 174,680
-----------
Cash flows from investing activities
Funds deposited to cash and investments held
by bond servicer (59,630)
Acquisition of fixed assets (48,257)
-----------
Net cash used in investing activities (107,887)
-----------
Cash flows from financing activities
Payments of assessments payable (20,944)
-----------
Net cash used in financing activities (20,944)
-----------
NET INCREASE IN CASH 45,849
Cash, beginning 29,449
-----------
Cash, end $ 75,298
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $1,416,369 $1,423,615
==========
Detail of acquisition of fixed assets paid
Gutters $ 22,791
Carpet 25,466
----------
$48,257
======
</TABLE>
See notes to financial statements
- 8 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on December 27, 1990 for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 332 units located
in the City of Eden Prairie, Minnesota and operates under the name of Fountain
Place Apartments.
Income Tax Basis of Accounting
- ------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when collected, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
- -----------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Favorable financing is amortized over the remaining life of the bonds by use of
the straight-line method.
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.
Provision for Doubtful Accounts
- -------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts became
uncollectible, they will be charged to operations when that determination is
made.
- 9 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
- -------------
Rental income is recognized as rentals become due. Rents received in advance
are recognized when collected. All leases between the partnership and the
tenants of the property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark Partners, L.P., may therefore pursue one of the following
scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
- 10 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN (Continued)
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Fountain Place, Inc., a
Delaware corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage loan for the project. On January
1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in the
partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
- ------------------------------------------
1. Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership. Effective July 1, 1995, CRIIMI Mae Services Limited Partnership
("CMSLP") acquired the rights to service the mortgage from CRICO Mortgage
Company. On July 1, 1995, all of the unpaid mortgage servicing fees accrued
through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
2. Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The required annual deposits
into the reserve for replacement account is $93,232 for 1995 and each year
thereafter until such time as the balance in the reserve equals or exceeds
$500,000. There-after, no monthly deposits are required unless the balance
falls below $500,000.
- 11 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
2. Reserve for Replacements (Continued)
------------------------
At December 31, 1995, cash and investments held by the bond servicer consisted
of the following:
<TABLE>
<CAPTION>
Mortgage
Escrow Reserve for
Deposits Replacements Total
---------- ------------- ----------
<S> <C> <C> <C>
Balance at
December 31, 1994 $ 140,436 $381,839 $ 522,275
Deposits 577,200 93,232 670,432
Interest income 11,771 22,980 34,751
Tax refund 48,771 - 48,771
Withdrawals
Real estate taxes (518,016) - (518,016)
Insurance (40,998) - (40,998)
Tax appeal fee (18,392) - (18,392)
Withdrawals - (56,582) (56,582)
--------- -------- ---------
Balance at
December 31, 1995 $ 200,772 $441,469 $ 642,241
========= ======== =========
</TABLE>
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Eden Prairie, Minnesota in the total amount of
$20,900,000, which are evidenced by a mortgage loan agreement with CRITEF, the
bondowner, a related party. The maturity date of the mortgage is July 1, 1999.
Upon maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.5% through
the maturity date. Primary contingent interest is payable each quarter, at the
rate of 1.5% per annum, out of that quarter's net cash flow. In addition,
supplemental contingent interest is payable each quarter, at the rate of 5% per
annum, out of 55% of that quarter's net cash flow remaining after deduction of
primary contingent interest. Unpaid construction period deferred interest,
primary contingent interest and supplemental contingent interest is deferred
until
- 12 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
the earlier of the sale or refinancing of the project or maturity. The deferred
interest has not been recorded on the books of the partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash flow
on subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1995, accrued base interest was $5,063,498. Interest is accrued on the
unpaid base interest at a compounded rate of 9.5%.
During the year ended December 31, 1995, the partnership only recorded the base
interest and did not record interest accrued on the unpaid base interest of
$559,815, primary contingent interest of $313,500, and supplemental contingent
interest of $1,045,000. At December 31, 1995, interest accrued on the unpaid
base interest of $1,562,717, primary and supplemental contingent interest of
$8,830,200 and construction period deferred base interest of $4,223,106 has not
been recorded. Total interest incurred on the mortgage for the year ended
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Currently
Deferred payable Total
----------- ------------ ----------
<S> <C> <C> <C>
Base interest $ - $ 1,985,500 $1,985,500
Interest on interest 559,815 - 559,815
Primary contingent interest 313,500 - 313,500
Supplemental contingent
interest 1,045,000 - 1,045,000
----------- ----------- ----------
Total interest incurred 1,918,315 1,985,500 $3,903,815
==========
Accrued interest, beginning 12,697,708 4,494,367
Interest paid - (1,416,369)
-----------
Accrued interest, ending $14,616,023 $ 5,063,498
=========== ===========
</TABLE>
- 13 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the bondowner.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity. As
of December 31, 1995, $663,990 has been accrued. The amount payable to CRIIMI
Mae Services Limited Partnership and CRI, Inc. is $65,312 and $598,678,
respectively. During 1995, $130,625 was charged to operations.
Other Receivables
-----------------
The Project and Fountain Place Apartments, Phase II, are managed by the same
management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are primarily
allocated on a pro rata basis based on the number of dwelling units. An account
has been established on the books of each partnership to record amounts payable
to or receivable from the related entity. At December 31, 1995, there was $1,266
due from Fountain Place Apartments, Phase II.
- 14 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - SCHEDULE TO SUPPORT FORM HUD-92410
Other Revenue (Account 5990)
Other revenue consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Key $ 1,748
Storage locker 13,179
Application 10,655
Bad debt recovery 13,071
Other 5,036
-------
$43,689
=======
Miscellaneous Financial Expenses (Account 6890)
Miscellaneous financial expenses consists of the following:
Interest paid on security deposits $ 3,471
Administration fee 26,125
-------
$29,596
=======
Miscellaneous Administrative Expenses (Account 6390)
Miscellaneous administrative expenses consists of the following:
Employee relations $ 3,842
Miscellaneous 702
Corporate unit 1,355
Furniture rental 4,890
-------
$10,789
=======
Other renting expenses (Account 6250)
Other renting expenses consists of the following:
Resident retention $ 3,889
Credit report check 10,244
Referral fees 26,985
------
$41,118
======
</TABLE>
- 15 -
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE E - ASSESSMENTS PAYABLE
Amounts payable to CSM Corporation are for assessments imposed by the taxing
authority. The amount is repayable in monthly installments with interest
accrued at prime which was 8.75% at December 31, 1995. The balance is due in
full on February 1999. The amount paid during 1995 was $24,719, of which $20,994
was applied to principal and $3,775 to interest.
NOTE F - MANAGEMENT AGREEMENT
The property is managed by CSM Corporation pursuant to a management agreement
renewable annually. Management fees are equal to 3.75% of rental income
collected. Effective November 1, 1995, the property management responsibilities
were assigned from CSM Corporation to CAPREIT Residential Corporation.
Management fees are payable to CAPREIT Residential Corporation at the same rate
and same terms as under the agreement with CSM Corporation. For the year ended
December 31, 1995, $116,480 has been charged to operations.
- 16 -
<PAGE>
EXHIBIT 99.g
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF JAMES STREET CROSSING
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of James Street Crossing Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 4
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 5
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 7
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 8
NOTES TO FINANCIAL STATEMENTS 9
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of James Street Crossing Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of James Street Crossing Limited Partnership as of
December 31, 1995, and the related statements of profit and loss - income tax
basis, partners' deficit - income tax basis and cash flows - income tax basis
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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of James Street
Crossing Limited Partnership as of December 31, 1995, and its profit and loss,
changes in partners' deficit and cash flows for the year then ended, on the
basis of accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 29, 1996
-3-
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
ASSETS
INVESTMENT IN REAL ESTATE
Building $12,304,688
Personal property 702,903
----------
13,007,591
Less accumulated
depreciation 1,594,260
----------
11,413,331
Land 1,661,834
----------
13,075,165
Tenants' security deposits, separately
held in a noninterest-bearing account 48,565
Cash and investments held by
bond servicer 423,744
----------
13,547,474
OTHER ASSETS
Cash $69,999
Accounts receivable - tenants 2,887
Prepaid insurance 23,819
Subscriptions receivable 100 96,805
------- -----------
$13,644,279
==========
LIABILITIES
LIABILITIES APPLICABLE TO REAL
ESTATE
Mortgage payable $13,878,001
Accrued interest payable 1,695,171
----------
15,573,172
Tenants' security deposits
liability 49,226
Assessments payable, including
accrued interest of $5,347 122,098
Accrued mortgage servicing fee 498,742
----------
16,243,238
OTHER LIABILITY
Accounts payable 35,949
-----------
Total liabilities 16,279,187
CONTINGENCY -
PARTNERS' DEFICIT (2,634,908)
----------
$13,644,279
==========
See notes to financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
- -------------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response,
including the time for reviewing instructions, searching existing data sources, gathering and maintaining the
data needed, and completing and reviewing the collection of information. Send comments regarding this burden
estimate or any other aspect of this collection of information, including suggestions for reducing this burden,
to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and
Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork Reduction
Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
- ---------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name: CRICO of James Street Crossing
Beginning: 1/1/95 Ending: 12/31/95 HUD Project No.: Limited Partnership
- ---------------------------------------------------------------------------------------------------------------------
Part I Description of Account Account No. Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 2,184,228
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $ 5,448
------- -----------
Stores and Commercial 5140 $
------- -----------
Garage and Parking Spaces 5170 $ 48,309
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) 5190 $
------- ----------- -----------
Total Rent Revenue Potential at 100% Occupancy $ $ 2,237,985
------- ----------- -----------
Vacancies - 5200
Apartments 5220 $( 86,015)
------- -----------
Furniture and Equipment 5230 $( )
------- -----------
Stores and Commercial 5240 $( )
------- -----------
Garage and Parking Spaces 5270 $( )
------- -----------
Miscellaneous (Specify) 5290 $( )
------- ----------- -----------
Total Vacancies $ (86,015)
------- ----------- -----------
Net Rental Revenue Rent Revenue Less Vacancies $ 2,151,970
------- ----------- -----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $
------- ----------- -----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 149
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 14,002
------- -----------
Income from Investments - Misc. Mortgage Escrows 5490 $ 3,950
------- ----------- -----------
Total Financial Revenue $ 18,101
------- ----------- -----------
Other Revenue - 5900
Laundry and Vending 5910 $ 345
------- -----------
NSF and Late Charges 5920 $ 10,263
------- -----------
Damages and Cleaning Fees 5930
------- -----------
Forfeited Tenant Security Deposits 5940 $ 37,892
------- -----------
Other Revenue (Specify) (See Note G) 5990 $ 18,926
------- ----------- -----------
Total Other Revenue $ 67,426
------- ----------- -----------
Total Revenue $ 2,237,497
------- ----------- ----------
<CAPTION>
<S> <C> <C> <C>
Administrative Expenses - 6200/6300
Advertising 6210 $ 33,684
------- -----------
Other Renting Expenses (See Note G) 6250 $ 72,525
------- -----------
Office Salaries 6310 $ 50,107
------- -----------
Office Supplies 6311 $ 4,988
------- -----------
Office or Model Apartment Rent 6312 $ 989
------- -----------
Management Fee 6320 $ 76,161
------- -----------
Manager or Superintendent Salaries 6330 $ 34,958
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 10,471
------- -----------
Legal Expenses (Project) 6340 $
------- -----------
Auditing Expenses (Project) 6350 $ 6,044
------- -----------
Computer Fees 6351 $ 1,578
------- -----------
Telephone and Answering Services 6360 $ 9,070
------- -----------
Bad Debts 6370 $ 12,805
------- -----------
Miscellaneous Administrative Expenses (See Note G)
6390 $ 8,890
------- -----------
Total Administrative Expenses $ 322,270
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 17,150
------- -----------
Water 6451 $ 40,503
------- -----------
Gas 6452 $ 1,935
------- -----------
Sewer 6453 $ 83,943
------- -----------
Total Utilities Expense $ 143,531
------- ----------- ----------
</TABLE>
All amounts must be rounded to the nearest dollar; form HUD-92410 (7/91)
$.50 and over, round up - $.49 and below, round down.
Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 24,291
--------- ------------
Janitor and Cleaning Supplies 6515 $ 3,065
--------- ------------
Janitor and Cleaning Contract 6517 $ 24,152
--------- ------------
Exterminating Payroll/Contract 6519 $ 4,400
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 21,720
--------- ------------
Security Payroll/Contract 6530 $ 4,040
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536 $ 19,281
--------- ------------
Grounds Contract 6537 $ 38,580
--------- ------------
Repairs Payroll 6540 $ 45,881
--------- ------------
Repairs Material 6541 $ 65,543
--------- ------------
Repairs Contract 6542
--------- ------------
Elevator Maintenance/Contract 6545
--------- ------------
Heating/Cooling Repairs and Maintenance 6546 $ 428
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 7,683
--------- ------------
Snow Removal 6548
--------- ------------
Decorating Payroll/Contract 6560 $ 11,636
--------- ------------
Decorating Supplies 6561
--------- ------------
Other - TV Cable 6570 $ 43,214
--------- ------------
Miscellaneous Operating and Maintenance Expenses 6590
--------- ------------ -----------
Total Operating and Maintenance Expenses $ 313,894
--------- ------------ -----------
Taxes and Insurance - 6700
Real Estate Taxes incl. tax appeal fee $9,797 6710 $ 204,416
--------- ------------
Payroll Taxes (FICA) 6711 $ 16,038
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 500
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 26,543
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 3,214
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 6,617
--------- ------------
Other Insurance (Specify) 6729
--------- ------------ -----------
Total Taxes and Insurance $ 257,328
--------- ------------ -----------
Financial Expenses - 6800
Interest on Bonds Payable 6810
--------- ------------
Interest on Mortgage Payable 6820 $ 1,336,758
--------- ------------
Interest on Notes Payable (Long-Term) 6830 $ 9,548
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 86,738
--------- ------------
Miscellaneous Financial Expenses (See Note G) 6890 $ 45,595
--------- ------------ -----------
Total Financial Expenses $ 1,478,639
--------- ------------ -----------
Elderly and Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------ ----------
Total Cost of Operations Before Depreciation $ 2,515,662
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (278,165)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 569,347
--------- ------------ ----------
Operating Profit or (Loss) $ (847,512)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 $
--------- ------------
Legal Expenses (Entity) 7120 $
--------- ------------
Taxes (Federal-State-Entity) 7130-32 $
--------- ------------
Other Expenses (Entity) 7190 $
--------- ------------
Amortization 7190 $
--------- ------------
Total Corporate Expenses $ $
--------- ------------ ----------
Net Profit or (Loss) $ (847,512)
--------- ------------ ----------
Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil
penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expenses
Sub-account Groups. If miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490, 5990,
6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule
describing or explaining the miscellaneous income or expense.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Part II
1. Total principal payments required under the mortgage, even if payments under a
Workout Agreement are less or more than those required under the mortgage. $ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived. $ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss statement. $ N/A
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss statement. $ N/A
</TABLE>
Page 2 of 2
See notes to financial statements
-6-
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(1,787,396)
Net loss (847,512)
---------
Partners' deficit, end $(2,634,908)
=========
See notes to financial statements
-7-
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
Cash flows from operating activities $(847,512)
Net Loss
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 569,347
Tenants' security deposits - net 5,282
Decrease in accounts receivable - tenants 314
Increase in prepaid insurance (5,216)
Decrease in cash and investments held by
bond servicer 6,896
Increase in accrued interest 265,442
Decrease in accounts payable - operations (7,150)
Increase in accrued mortgage servicing fee 86,738
---------
Net cash provided by operating activities 74,141
---------
Cash flows from investing activities
Increase in cash and investments held
by bond servicer (77,992)
Acquisition of fixed assets (30,894)
---------
Net cash used in investing activities (108,886)
---------
Cash flows from financing activities
Payments of special assessments payable (12,209)
---------
Net cash used in financing activities (12,209)
---------
NET DECREASE IN CASH (46,954)
Cash, beginning 116,953
---------
Cash, end $ 69,999
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $1,071,316 $1,081,397
==========
Detail of acquisition of fixed assets paid
Carpet $30,894
=========
See notes to financial statements
-8-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Washington on March 24, 1993, for the purpose of constructing, owning and
operating a rental housing project. The project consists of 300 units located
in the City of Kent, Washington and operates under the name of James Street
Crossing Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized when received.
Investment in Real Estate and Depreciation
------------------------------------------
Investment in real estate is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives by use of
the straight-line and declining-balance methods.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance are
included in rental income. All leases between the partnership and tenants of the
property are operating leases.
-9-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark Partners, L.P., may therefore pursue one of the following
scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of its
subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of James Street, Inc., a Maryland
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project.
-10-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
- ---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes, special
assessments and insurance premiums to the mortgage escrow account maintained by
CRICO Mortgage Company, Inc. (the servicer). The servicer is a related party of
the general partner. Effective July 1, 1995, CRIIMI Mae Services Limited
Partnership ("CMSLP") acquired the rights to service the mortgage from CRICO
Mortgage Company. On July 1, 1995, all of the unpaid mortgage servicing fees
accrued through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
- ------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposits into the reserve for
replacement account is $64,000 for 1995 and each year thereafter.
At December 31, 1995, cash and investments held by the bond servicer consist of
the following:
Mortgage Reserve for
escrows replacements Total
---------- ------------- ----------
Balance at
December 31, 1994 $ 76,204 $276,444 $ 352,648
Deposits 247,200 63,998 311,198
Interest income 3,950 14,002 17,952
Withdrawals:
Taxes (204,415) - (204,415)
Special assessments (21,757) - (21,757)
Insurance (31,758) - (31,758)
Service charges (116) (8) (124)
--------- -------- ---------
Balance at
December 31, 1995 $ 69,308 $354,436 $ 423,744
========= ======== =========
-11-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable
- ----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Washington State Housing Finance Commission in the total
amount of $13,878,001, which are evidenced by a mortgage loan agreement with
Capital Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is November 15,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.625% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 2% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 4.375% per annum, out of 60% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1995, accrued base interest was $1,695,171. Interest accrues on the unpaid
base interest at a compounded rate of 9.625%.
-12-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
- ----------------
During year ended December 31, 1995, the partnership recorded the base interest
and did not record interest accrued on the unpaid base interest of $167,925,
primary contingent interest of $227,560 and supplemental contingent interest of
$607,163. At December 31, 1995, interest accrued on the unpaid base interest,
primary and supplemental contingent interest and construction period base
interest of $8,297,789 has not been recorded. Total interest incurred on the
mortgage for the year ended December 31, 1995 is as follows:
Currently
Deferred payable Total
---------- ------------ ----------
Base interest $ - $ 1,336,758 $1,336,758
Interest on interest 167,925 - 167,925
Primary contingent interest 277,560 - 277,560
Supplemental contingent
interest 607,163 - 607,163
---------- ----------- ----------
Total interest incurred 1,052,648 1,336,758 $2,389,406
==========
Accrued interest, beginning 7,245,141 1,429,729
Interest paid - (1,071,316)
---------- ---------
Accrued interest, ending $8,297,789 $ 1,695,171
========== ===========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
-13-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity. As
of December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $455,373 and $43,369, respectively During 1995, $86,738
was charged to operations.
NOTE D - ASSESSMENTS PAYABLE
The assessments payable is due to the City of Kent, Washington. Principal
payments of $11,675 plus accrued interest of $10,082 was paid in 1995. The
assessment accrues interest at 7.85% per annum. The loan is due in full on June
20, 2005.
NOTE E - CONTINGENCY
The original owners of the property entered into an Off-Site Wetland Mitigation
Plan when constructing the property. The work required under the plan, which the
partnership has estimated to cost approximately $150,000, was never performed.
The U.S. Army Corps of Engineers has asserted that the partnership became liable
under the Plan by taking title to the property. The partnership has disputed
this assertion and requested the Corps to cite legal authority for its position.
To date, the Corps has failed to cite any such authority. Therefore, the effect
of this claim has not been recognized in the accompanying financial statements.
NOTE F - MANAGEMENT AGREEMENT
The property is managed by CAPREIT Residential Corporation pursuant to a
management agreement renewable annually. Management fees are equal to 3.5% of
rental income collected. For the year ended December 31, 1995, $76,161 has been
charged to operations.
-14-
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE G - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
Miscellaneous other revenue - Account No. 5990:
Storage locker fee $1,558
Bad debt collections 1,720
Pet fees 2,800
Application fees 3,945
Other 8,903
------
$18,926
======
Other renting expenses - Account No. 6250:
Rental concessions $59,530
Resident retention 7,607
Resident referrals 1,950
Credit reports 3,438
-------
$72,525
=======
Miscellaneous administrative expenses -
Account No. 6390:
Postage and delivery $ 2,422
Employee relations 4,066
Furniture rental 1,605
Miscellaneous 797
-------
$ 8,890
=======
Miscellaneous financial expenses -
Account No. 6890:
Annual trust fees $ 2,000
State agency fee 43,595
-------
$45,595
=======
-15-
<PAGE>
EXHIBIT 99.h
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Trailway Pond II Limited Partnership
(A Minnesota Limited Partnership):
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Trailway Pond II Limited Partnership (a Minnesota limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedules 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.
As described in Note 3 to the financial statements, these financial statements
were prepared on the income tax basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Trailway Pond II
Limited Partnership as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, on the income tax basis
of accounting described in Note 3 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership was in default at December 31, 1995, with
regard to the mortgage loan agreement, due to its inability to generate
sufficient cash flow to meet its contractual obligations. Additionally, the
Partnership does not expect to be able to generate sufficient cash flow to meet
its contractual obligations under the mortgage loan agreement in 1996. This
issue raises substantial doubt about the Partnership's ability to continue as a
going concern. Management's plan in regard to this matter is described in Note
2 to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss and Schedule I are presented for
purposes of additional analysis and are not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.,
January 31, 1996
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
FIXED ASSETS:
Land $ 1,113,662 $ 1,113,662
Building and improvements 8,959,385 8,959,385
Furniture, fixtures and equipment 815,658 805,312
----------- -----------
Total 10,888,705 10,878,359
----------- -----------
LESS- Accumulated depreciation (2,189,364) (1,791,872)
----------- -----------
Net fixed assets 8,699,341 9,086,487
----------- -----------
CURRENT ASSETS:
Cash 45,271 58,952
Prepaid insurance 14,836 10,739
Other prepaids 7,315 6,983
----------- -----------
Total current assets 67,422 76,674
----------- -----------
RESTRICTED CASH:
Tenants' security deposits, separately
held in an interest-bearing account 53,202 46,799
Escrow deposits 278,408 234,966
----------- -----------
Total restricted cash 331,610 281,765
----------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of $921,448 614,294 798,586
and $737,156, respectively
----------- -----------
Total assets $ 9,712,667 $10,243,512
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
1995 1994
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 29,095 $ 28,635
Accrued mortgage service fee 292,544 188,064
Accrued interest 2,568,706 2,140,876
Special assessment payable 12,041 7,616
Mortgage loan payable 10,030,000 10,030,000
Construction period deferred
base interest payable 1,358,359 1,358,359
----------- -----------
Total current liabilities 14,290,745 13,753,550
TENANTS' SECURITY DEPOSITS 48,678 46,799
SPECIAL ASSESSMENTS PAYABLE, net of
current portion 48,613 65,079
----------- -----------
Total liabilities 14,388,036 13,865,428
----------- -----------
PARTNERS' DEFICIT (4,675,369) (3,621,916)
----------- -----------
Total liabilities and $ 9,712,667 $10,243,512
partners' deficit =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
OPERATING INCOME:
<S> <C> <C>
Rental income $ 1,251,638 $ 1,168,548
Interest income 18,414 8,741
Other income 48,389 61,779
----------- -----------
Total operating income 1,318,441 1,239,068
----------- -----------
OPERATING EXPENSES:
Real estate taxes 232,098 199,934
Mortgage servicing fees 117,017 75,225
Interest on special assessments 6,534 7,616
Repairs and maintenance 84,003 97,511
Salaries and related payroll costs 107,186 118,030
Fuel and utilities 84,408 96,872
Management fee 56,878 45,420
Marketing 37,629 63,755
Insurance 24,409 13,190
Professional fees 6,098 12,915
Other 30,853 44,702
----------- -----------
Total operating expenses 787,113 775,170
----------- -----------
Income from operations 531,328 463,898
DEPRECIATION 397,492 428,419
AMORTIZATION OF FAVORABLE FINANCING 184,289 184,289
INTEREST ON MORTGAGE LOAN 1,003,000 1,003,000
----------- -----------
Net loss $(1,053,453) $(1,151,810)
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1993 $(35,358) $(2,434,748) $(2,470,106)
Net loss (11,047) (1,140,763) (1,151,810)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1994 (46,405) (3,575,511) (3,621,916)
Net loss (41,616) (1,011,837) (1,053,453)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1995 $(88,021) $(4,587,348) $(4,675,369)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,053,453) $(1,151,810)
Adjustments to reconcile net loss
to net cash provided by (used in)
provided by operating activities-
Depreciation and amortization 581,781 612,708
(Increase) decrease in assets and
liabilities:
Accounts receivable - 2,232
Prepaid insurance (4,097) (8,185)
Other prepaids (332) 330
Escrow deposits (43,442) (22,146)
Accounts payable 460 10,829
Accrued mortgage service fee 104,480 62,688
Accrued interest 427,830 542,613
Tenants' security deposits (4,521) -
Special assessments payable (12,041) (12,041)
----------- -----------
Cash (used in) provided by
operating activities (3,335) 37,218
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of fixed assets (10,346) (18,000)
----------- -----------
NET (DECREASE) INCREASE IN CASH (13,681) 19,218
CASH, beginning of year 58,952 39,734
----------- -----------
CASH, end of year $ 45,271 $ 58,952
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid during the year for $ 575,170 $ 460,387
interest =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
1. ORGANIZATION:
CRICO of Trailway Pond II Limited Partnership (the "Partnership") was formed as
a limited partnership under the laws of the state of Minnesota on December 26,
1990, for the purpose of owning and operating a rental housing project.
According to the Partnership Agreement (the "Agreement"), the Partnership will
terminate on December 31, 2030, if not terminated sooner. The project consists
of 165 units located in the city of Burnsville, Minnesota, and operates under
the name of Trailway Pond Apartments, Phase II (the "Project"). The financing
for the Project was obtained from Capital Realty Investors Tax Exempt Fund
Limited Partnership ("CRITEF"), a publicly traded limited partnership. The
general partner of CRITEF is CRITEF Associates Limited Partnership, whose
managing general partner is CRI, Inc. and the shareholders of CRI, Inc. The
general partner of the Partnership, CRICO of Trailway Pond II, Inc., a Delaware
Corporation, is affiliated with CRI, Inc. and affiliated with all of the above
mentioned entities. On January 1, 1992, CRICO of Iona, Inc., an affiliate,
assigned its 99 percent limited partner interest in the Partnership to CRICO
Minnesota Holdings, Inc., also an affiliated entity.
Under the terms of the bonds issued to provide permanent financing for the
Project, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1995 and 1994, the Project
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. Consequently, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
that might result should the Partnership be unable to continue as a going
concern. The Partnership's lender, CRITEF, has not availed itself of any of its
contractual rights and remedies provided by the mortgage loan agreement and is
effectively treating this obligation as a cash flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc., who is the general partner of
Watermark Partners LP, may therefore pursue one of the following scenarios with
respect to the Partnership:
<PAGE>
- 2 -
. the current Partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT Residential Properties
("CAPREIT"),
or
. the current Partnership structure would be preserved and CAPREIT would replace
the 1 percent general partner while leaving the 99 percent limited partner in
place,
or
. the current partnership structure would be collapsed and all of the assets and
liabilities of the partnership would be assumed by capreit or one of its
subsidiaries.
3. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Partnership in preparing its financial statements.
BASIS OF ACCOUNTING
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for income tax purposes, in accordance with the Agreement.
The principal differences between this basis and generally accepted accounting
principles ("GAAP") are that an intangible asset has been recognized for income
tax purposes representing the value to the Partnership of its favorable
financing and that assets were written up to their fair values at the time of
the transfer. The favorable financing asset is being amortized for income tax
purposes on a straight-line basis over the remaining life of the mortgage loan.
Depreciation and amortization are also computed under tax regulations which may
differ from GAAP. (See separate notes below.)
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
RECLASSIFICATIONS
Certain amounts in the financial statements for 1994 have been reclassified to
conform with 1995 presentation.
<PAGE>
- 3 -
FAVORABLE FINANCING
Assets, liabilities and operations of the former partnership, Trailway Pond II
Limited Partnership, were transferred on January 2, 1991, in full satisfaction
of the previous partnership's indebtedness. Upon transfer, assets and
liabilities were recorded at their respective fair values, and an intangible
asset was recognized representing the value to the Partnership of the favorable
financing provided by the Project's mortgage loan. According to Federal income
tax rules and regulations, the sales price equates to the face value of the
indebtedness assumed. According to Federal income tax rules and regulations,
the favorable financing asset is being amortized on a straight-line basis over
the remaining life of the mortgage loan.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
<TABLE>
<CAPTION>
LIFE
(YEARS) BASIS
------- -----------------------
<S> <C> <C>
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
</TABLE>
Repairs and maintenance are expensed as incurred, while major improvements are
capitalized in the applicable asset accounts. Additions to furniture, fixtures
and equipment in 1995 consist of costs capitalized for floor and carpet
replacement of $10,346. Additions to buildings and improvements in 1994 totaled
$18,000. This amount consisted of $9,267 of costs capitalized for gutters and
$8,733 of costs capitalized for drain tile for erosion control.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the loss of the Partnership is included in the individual income tax
returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner and the limited partner, CRICO Minnesota Holdings, Inc.,
have a 1 and 99 percent ownership interest, respectively, in the Partnership.
In accordance with the Agreement, the general partner contributed $1 to the
Partnership, and the limited partner contributed $99.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities, and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
<PAGE>
- 4 -
5. MANAGEMENT AGREEMENTS:
Prior to February 1994, CRICO Management of Minnesota, Inc. ("CRICO of
Minnesota"), a related party to the general partner, was manager of the
property, with management fees payable monthly at 3.75 percent of gross revenues
with an annual incentive fee of 0.5 percent of gross revenues, as defined by the
agreement.
Effective February 1, 1994, the property management contract was acquired by
CAPREIT Residential Corporation. Management fees are payable to CAPREIT
Residential Corporation at the same rate and terms as under the agreement with
CRICO of Minnesota. As of December 31, 1995 and 1994, management fees paid were
$48,869 and $44,849, respectively. Of the 1994 management fee amount paid,
management fees of $7,226 were paid to CRICO of Minnesota. During 1995,
incentive fees of $8,009 were paid.
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the project was provided through the issuance of tax-
exempt bonds by the city of Burnsville, Minnesota, in the total amount of
$10,030,000, which was evidenced by a mortgage loan agreement with CRITEF, a
related party and the bond owner. As further security on the obligation, the
Partnership assigned existing and future rents and leases to the mortgagee. The
maturity date of the mortgage is ten years from the construction completion
date, which was determined by CRITEF to be May 1, 1989. Upon maturity, all
outstanding principal and interest, including base interest and construction
period deferred base interest, is due and payable.
The mortgage loan, which is nonrecourse to the Partnership, provided for base
interest and construction period deferred base interest at a rate of 2.195 and
7.805 percent, respectively, through May 1, 1989. From May 1, 1989, through the
maturity date, base interest is payable at the rate of 10 percent per annum.
Primary contingent interest is payable each quarter at the rate of 1.5 percent
per annum, out of that quarter's net cash flow, as defined. In addition,
supplemental contingent interest is payable each quarter, at the rate of 4.5
percent per annum, out of 50 percent of that quarter's net cash flow, as
defined, remaining after deduction of primary contingent interest. If quarterly
net cash flow is insufficient to pay contingent interest, primary contingent
interest and supplemental contingent interest are deferred without interest
until the earlier of the sale or refinancing of the Partnership occurs, as
defined, but only if sufficient cash flow is generated from the sale or
refinancing of the property. Because net cash flow in 1995 and 1994 was not
sufficient to cover primary contingent interest, these amounts were not accrued
for, in accordance with Federal income tax rules and regulations. The unpaid
primary contingent interest balances at December 31, 1995 and 1994, were
$1,003,000 and $852,550, respectively. The unpaid supplemental contingent
interest balances at December 31, 1995 and 1994, were $3,009,000 and $2,557,650,
respectively. Pursuant to terms of the Partnership Agreement, interest is also
accrued on base interest payable, compounded at the base interest rate. As of
December 31, 1995, the balance is $2,568,706. Because this amount is payable
out of available cash flow after the payment of all current and accrued base
interest and all current and accrued servicing fees, it is not recorded on the
books of the Partnership.
<PAGE>
- 5 -
The following schedule presents interest deferred, interest paid, and accrued
interest for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
---------- ---------- -----------
<S> <C> <C> <C>
ACCRUED INTEREST AT DECEMBER 31, 1993 $3,043,786 $1,598,263
---------- ----------
Base interest - 1,003,000 $1,003,000
Primary contingent interest 150,450 - 150,450
Supplemental contingent interest 451,350 - 451,350
Interest on base interest 215,480 - 215,480
---------- ---------- -----------
Total 1994 interest incurred 817,280 1,003,000 $1,820,280
===========
Interest paid from operations - (450,387)
Interest paid from reserves - (10,000)
---------- ----------
ACCRUED INTEREST AT DECEMBER 31, 1994 3,861,066 2,140,876
Base interest - 1,003,000 $1,003,000
Primary contingent interest 150,450 - 150,450
Supplemental contingent interest 451,350 - 451,350
Interest on base interest 287,903 - 287,903
---------- ---------- -----------
Total 1995 interest incurred 889,703 1,003,000 $1,892,703
===========
Interest paid from operations - (575,170)
---------- ----------
ACCRUED INTEREST AT DECEMBER 31, 1995 $4,750,769 $2,568,706
========== ==========
</TABLE>
The Partnership was required to pay the servicer a mortgage servicing fee equal
to 0.625 percent of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date, after payment of debt
service on the mortgage loan. In 1995 and 1994, all amounts for these fees were
accrued but not paid because there was insufficient cash flow to pay full debt
service due.
Effective July 1, 1995, CRIIMI MAE Services Limited Partnership ("CMSLP")
acquired the rights to service the mortgage from CRICO Mortgage Company. Also
on July 1, 1995, all of the unpaid mortgage servicing fees accrued through June
30, 1995 were transferred to CRI, Inc., an affiliate of the Partnership's
general partner. In addition, the owners of CRI, Inc. are the directors and are
officers of the general partner of CMSLP and CRIIMI MAE Management, Inc. (a
wholly owned subsidiary of CRIIMI MAE Inc., a publicly held corporation). At
December 31, 1995, mortgage servicing fees of $261,200 are payable to CRI, Inc.
and $31,344 are payable to CMSLP.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1995.
7. REAL ESTATE TAXES AND SPECIAL ASSESSMENTS PAYABLE:
During fiscal 1994, a real estate tax refund for $40,895 was received for
overpayment of 1993 and 1992 taxes. This refund, net of $12,349 of tax appeal
fees, is netted against 1994 real estate tax expense in the accompanying
statement of operations.
<PAGE>
- 6 -
A special assessment tax has been levied against the Partnership from an
assessment performed several years ago. The total amount outstanding from the
assessment at December 31, 1995 and 1994, was $60,654 and $72,695, respectively.
Of these amounts, $12,041 of principal was paid during fiscal 1995 and 1994,
respectively.
8. ESCROW DEPOSITS:
<TABLE>
<CAPTION>
In 1995 and 1994, cash and investments held by the bond trustee consist of the
following.
REAL ESTATE
TAX AND RESERVE FOR
INSURANCE REPLACEMENTS
ESCROW ESCROW TOTAL
----------- ------------ ----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 74,002 $138,818 $ 212,820
Deposits 249,271 47,173 296,444
Withdrawals:
Insurance (14,319) - (14,319)
Taxes (248,137) - (248,137)
Debt service (10,000) - (10,000)
Replacement funding - (25,716) (25,716)
Interest earned 3,048 4,462 7,510
Tax refund 16,364 - 16,364
--------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 70,229 164,737 234,966
Deposits 261,600 48,450 310,050
Withdrawals:
Insurance (19,781) - (19,781)
Taxes (229,221) - (229,221)
Tax appeal fee (2,877) - (2,877)
Special assessment (18,575) - (18,575)
Replacement funding - (12,550) (12,550)
Interest earned 4,914 11,482 16,396
--------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 $ 66,289 $212,119 $ 278,408
========== ========== ==========
</TABLE>
REAL ESTATE TAX AND INSURANCE ESCROW
Per the mortgage loan agreement (see Note 6), the Partnership is required to
deposit on a monthly basis an amount equal to one-twelfth of the aggregate
estimated annual amount of all real estate taxes, special assessments, and
insurance premiums into the real estate tax and insurance escrow account
maintained by the servicer. During 1995 and 1994, the Partnership made all
required deposits into this escrow.
<PAGE>
- 7 -
RESERVE FOR REPLACEMENTS ESCROW
The Partnership is also required to make monthly deposits into the reserve for
replacements escrow account maintained by the servicer, as specified in the
above-mentioned mortgage loan agreement. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacements account is $44,400, to be deposited in equal monthly installments
until such time as the balance in the reserve equals or exceeds $250,000.
Thereafter, no monthly deposits are required unless the balance falls below
$250,000.
9. RELATED-PARTY TRANSACTIONS:
CRICO of Trailway Pond I Limited Partnership is an affiliate of the Partnership
and owns a complex known as Trailway Pond Apartments. Both the Project and
Trailway Pond Apartments are managed by the same management company. Certain
expenses applicable to both are billed to the management company and paid for
collectively. These common charges are primarily allocated on a pro rata basis
based on the number of dwelling units. An account has been established on the
books of each partnership to record amounts payable to or receivable from the
related entity. As of December 31, 1995, there are no receivables or payables
from the related entity.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1995 December 31, 1995 CRICO of Trailway Pond II
Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Acct. No.
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 1,273,749
------- -----------
Tenant Assistance Payments 5121 -
------- -----------
Furniture and Equipment 5130 -
------- -----------
Stores and Commercial 5140 -
------- -----------
Garage and Parking Spaces 5170 -
------- -----------
Flexible Subsidy Income 5180 -
------- -----------
Miscellaneous (specify) 5190 -
------- -----------
Total Rent Revenue Potential at 100% Occupancy $1,273,749
------- ----------- ----------
Vacancies - 5200
Apartments 5220 (22,111)
------- -----------
Furniture and Equipment 5230 -
------- -----------
Stores and Commercial 5240 -
------- -----------
Garage and Parking Spaces 5270 -
------- -----------
Miscellaneous (specify) 5290 -
------- -----------
Total Vacancies $ (22,111)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $1,251,638
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income 5300 $ -
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 2,018
------- -----------
Income from Investments - Residual Receipts 5430 -
------- -----------
Income from Investments - Reserve for Replacement 5440 11,482
------- -----------
Income from Investments - Miscellaneous (Escrows) 5490 4,914
------- -----------
Total Financial Revenue $ 18,414
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 19,469
------- -----------
NSF and Late Charges 5920 3,471
------- -----------
Damages and Cleaning Fees 5930 -
------- -----------
Forfeited Tenant Security Deposits 5940 726
------- -----------
Other Revenue (specify) (see Schedule I) 5990 24,723
------- -----------
Total Other Revenue $ 48,389
------- ----------- ----------
Total Revenue $1,318,441
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 31,990
------- -----------
Other Renting Expense (see Schedule I) 6250 9,675
------- -----------
Office Salaries 6310 26,703
------- -----------
Office Supplies 6311 1,672
------- -----------
Office or Model Apartment Rent 6312 5,313
------- -----------
Management Fee (incentive management fee $8,009) 6320 56,878
------- -----------
Manager or Superintendent Salaries 6330 16,953
------- -----------
Manager or Superintendent Rent Free Unit 6331 4,290
------- -----------
Legal Expenses (Project) 6340 348
------- -----------
Auditing Expenses (Project) 6350 5,750
------- -----------
Bookkeeping Fees/Accounting Services 6351 -
------- -----------
Telephone and Answering Service 6360 6,848
------- -----------
Bad Debts 6370 2,532
------- -----------
Miscellaneous Administrative Expenses (specify) (see
Schedule I) 6390 8,450
------- -----------
Total Administrative Expenses $ 177,402
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 -
------- -----------
Electricity 6450 18,665
------- -----------
Water 6451 9,328
------- -----------
Gas 6452 36,909
------- -----------
Sewer 6453 19,506
------- -----------
Total Utilities Expense $ 84,408
------- ----------- ----------
Total Expenses (Carry forward to page 2) $ 261,810
------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Balance from
Acct. No. Page 1 $ 261,810
--------- ------------ ----------
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 21,123
--------- ------------
Janitor and Cleaning Supplies 6515 1,774
--------- ------------
Janitor and Cleaning Contract 6517 6,865
--------- ------------
Exterminating Payroll/Contract 6519 856
--------- ------------
Exterminating Supplies 6520 -
--------- ------------
Garbage and Trash Removal 6525 10,996
--------- ------------
Security Payroll/Contract 6530 -
--------- ------------
Grounds Payroll 6535 -
--------- ------------
Grounds Supplies 6536 2,081
--------- ------------
Grounds Contracts 6537 6,279
--------- ------------
Repairs Payroll 6540 26,645
--------- ------------
Repairs Material 6541 7,243
--------- ------------
Repairs Contract 6542 3,692
--------- ------------
Elevator Maintenance/Contract 6545 2,963
--------- ------------
Heating/Cooling Repairs Maintenance 6546 1,300
--------- ------------
Swimming Pool Maintenance/Contract 6547 2,858
--------- ------------
Snow Removal 6548 2,358
--------- ------------
Decorating Payroll/Contract 6560 12,256
--------- ------------
Decorating Supplies 6561 -
--------- ------------
Vehicle & Maintenance Equipment Operation and Repairs 6570 1,084
--------- ------------
Miscellaneous Operating & Maintenance Expense (see
Schedule I) 6590 21,400
--------- ------------
Total Operating & Maintenance Expenses $ 131,773
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes (tax appeal fee $2,877) 6710 232,098
--------- ------------
Payroll Taxes (FICA) 6711 11,472
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 2,000
--------- ------------
Property and Liability Insurance (Hazard) 6720 15,683
--------- ------------
Fidelity Bond Insurance 6721 -
--------- ------------
Workmen's Compensation 6722 2,852
--------- ------------
Health Insurance & Other Employee Benefits 6723 5,874
--------- ------------
Other Insurance (specify) 6729 -
--------- ------------
Total Taxes and Insurance $ 269,979
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 -
--------- ------------
Interest on Mortgage Payable 6820 1,003,000
--------- ------------
Interest on Notes Payable (Long-Term) 6830 6,534
--------- ------------
Interest on Notes Payable (Short-Term) 6840 -
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 104,480
--------- ------------
Miscellaneous Financial Expenses (Bond Issue Fee) 6890 12,537
--------- ------------
Total Financial Expenses $1,126,551
--------- ------------ ----------
Elderly and Congregate Service Expenses
Total Service Expenses - Schedule Attached 6900
--------- ------------
Total Cost of Operations before Depreciation $1,790,113
--------- ------------ ----------
Profit (Loss) before Depreciation $ (471,672)
--------- ------------ ----------
Depreciation (Total) - 6600 (specify) and Amortization 6600 581,781
--------- ------------
Operating Profit or (Loss) $(1,053,453)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 -
--------- ------------
Legal Expenses (Entity) 7120 -
--------- ------------
Taxes (Federal-State-Entity) 7130-32 -
--------- ------------
Other Expenses (Entity) 7190 -
--------- ------------
Total Corporate Expenses $ -
--------- ------------ ----------
Net Profit or (Loss) $(1,053,453)
--------- ------------ ----------
</TABLE>
Miscellaneous or other Income & Expense Sub-account Groups. If
miscellaneous or other and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 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 principal payments required under the mortgage, even if payments
under a Workout Agreement are less or more than those required under the
mortgage.
$ -
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$ 44,400
3. Replacement or Painting Reserve releases which are included as expense items
on this Profit and Loss Statement.
$ -
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCHEDULE I
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACCOUNT NO. 5990 - OTHER REVENUE:
<S> <C> <C>
Application fees $ 4,290
Bad debt collections 1,359
Forfeitures 7,343
Pet fee 2,440
Storage locker 1,652
Parking income 1,580
Other 6,059
-------
Total other revenue $24,723
=======
ACCOUNT NO. 6250 - OTHER RENTING EXPENSE:
Rental concessions $ 2,176
Resident retention 3,463
Credit report expense 4,036
-------
Total other renting expense $ 9,675
=======
ACCOUNT NO. 6390 - MISCELLANEOUS ADMINISTRATIVE EXPENSE:
Employee relations and business expenses $ 2,996
Computer expense 476
Security deposit interest expense 1,488
Other 3,490
-------
Total miscellaneous administrative expense $ 8,450
=======
ACCOUNT NO. 6590 - OPERATING AND MAINTENANCE EXPENSE:
Exterior painting $ 8,954
Grounds and landscaping 880
Roof 4,345
Plumbing 1,413
Appliances 4,785
Other 1,023
-------
Total operating and maintenance miscellaneous
expense $21,400
=======
The accompanying notes are an integral part of this schedule.
</TABLE>
<PAGE>
EXHIBIT 99.i
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF ROYAL OAKS
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Royal Oaks Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Royal Oaks
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Royal Oaks Limited Partnership as of December 31,
1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Royal Oaks
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
-3-
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate plans
to foreclose on the property subsequent to that date, the partnership does not
expect to be able to cure the default at that time. Therefore, there can be no
assurance that the lender will not exercise its rights under the loan agreement
subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 24, 1995
-4-
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $ 9,698,543
Personal property 1,043,360
-----------
10,741,903
Less accumulated depreciation 1,937,006
-----------
8,804,897
Land 837,295
-----------
9,642,192
Tenants' security deposits, separately
held in an interest-bearing account 67,727
Cash and investments held by bond
servicer 228,942
Favorable financing, less
accumulated amortization
of $705,219 805,966
-----------
10,744,827
OTHER ASSETS
Cash $67,049
Prepaid insurance 18,044
Subscriptions receivable 100
Tenant receivables 784 85,977
------- -----------
$10,830,804
===========
LIABILITIES
LIABILITIES APPLICABLE TO REAL
ESTATE
Mortgage payable $12,580,000
Accrued interest payable 1,362,490
-----------
13,942,490
Tenants' security deposit
liability 65,589
Accrued real estate taxes 311,000
Accrued mortgage servicing fee 471,747
Accrued administration fee 2,620
-----------
14,793,446
OTHER LIABILITY
Accounts payable 45,301
----------
Total liabilities 14,838,747
PARTNERS' DEFICIT (4,007,943)
----------
$10,830,804
==========
See notes to financial statements
-5-
<PAGE>
Statement of U.S. DEPARTMENT
Profit and Loss - Income Tax Basis OF HOUSING
AND URBAN DEVELOPMENT
Office of Housing
Federal Housing
Commissioner
OMB Approval No. 2502-0052 (exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 CRICO of Royal Oaks Limited Partnership
- ----------------------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $1,840,112
-------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
-------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 3,986
INCOME -------------------------------------------------------------------------------
5100 Stores and Commercial 5140 $ 3
-------------------------------------------------------------------------------
Garage and Parking Spaces 5170 $
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5190 $
-------------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $1,844,101
- -----------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 58,320)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
5200 --------------------------------------------------------------------------------
Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
--------------------------------------------------------------------------------
TOTAL VACANCIES $ (58,320)
------------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $1,785,781
- -----------------------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 1,928
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 4,078
5400 Income from Investments-Escrows 5490 $ 3,760
-------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 9,766
- ------------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 4,655
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security 5940 $ 3,448
Deposits
--------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) (See 5990 $ 20,022
Note E)
------------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 28,125
------------------------------------------------------------------------------------------------------
TOTAL REVENUE $1,823,672
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 51,316
--------------------------------------------------------------------------------
Other - Rental Concessions 6250 $ 35,022
$30,451; Resident Retention
$4,571
--------------------------------------------------------------------------------
Office Salaries 6310 $ 37,690
--------------------------------------------------------------------------------
Office Supplies 6311 $ 13,639
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 67,152
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent 6330 $ 26,381
Salaries
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent 6331 $
Free Unit
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 398
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,750
--------------------------------------------------------------------------------
Computer Fees 6351 $ 430
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 11,657
--------------------------------------------------------------------------------
Bad Debts 6370 $ 2,383
--------------------------------------------------------------------------------
Employee Relations 6390 $ 4,157
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 255,975
- ------------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 37,013
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 15,604
--------------------------------------------------------------------------------
6400 Gas 6452 $ 74,481
--------------------------------------------------------------------------------
Sewer 6453 $ 24,975
------------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 152,073
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be rounded Page 1 of 2 form HUD-92410 (7/91)
to the nearest dollar, $.50 ref Handbook 4370.2
and over, round up - $.49
and below round down.
- 6 -
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 74,418
------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 870
------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 7,913
------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 1,189
------------------------------------------------------------------------------
Exterminating Supplies 6520 $
------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 22,069
------------------------------------------------------------------------------
Security Payroll/Contract 6530 $
------------------------------------------------------------------------------
Grounds Payroll 6535 $
------------------------------------------------------------------------------
Grounds Supplies 6536 $ 2,216
------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 8,500
------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $
------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 23,532
------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 57,473
------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 12,946
------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $ 1,750
------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 1,471
------------------------------------------------------------------------------
Snow Removal 6548 $ 7,732
------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $ 20,656
------------------------------------------------------------------------------
Decorating Supplies 6561 $
------------------------------------------------------------------------------
Other 6570 $
------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 552
------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES 234,485.00 $ 243,287
- ------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 301,229
------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 12,819
------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,085
------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 23,585
------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 5,150
------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 7,627
------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
----------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 352,495
- --------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 1,065,466
------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
------------------------------------------------------------------------------
6800 Mortgage Servicing Fee 6850 $ 78,625
------------------------------------------------------------------------------
Miscellaneous Financial Expenses (See Note F) 6890 $ 19,650
----------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,163,741
- ---------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
----------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 2,167,571
----------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (343,899)
----------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 482,955
---------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $ (826,854)
- --------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
------------------------------------------------------------------------------
Amortization 7190 $ 201,491
---------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $ 201,491
---------------------------------------------------------------------------------------------
7100 NET PROFIT OR (LOSS) $(1,028,345)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PART II
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if
payments under a Workout Agreement are less or more than those
required under the mortgage. $ N/A
- ----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement
or Amendments thereto, even if payments may be temporarily suspended
or waived. $ N/A
- ----------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense
items on the Profit and Loss statement. $ N/A
- ----------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program
that are included as expense items on this Profit and Loss statement. $ N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Page 2 of 2 Form HUD-92410
</TABLE>
See notes to financial statements
-7-
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning
as originally reported $(2,901,221)
Prior period adjustment (78,377)
----------
Partners' deficit, beginning
as restated (2,979,598)
Net loss (1,028,345)
----------
Partners' deficit, end $(4,007,943)
==========
See notes to financial statements
-8-
<PAGE>
CRICO of Royal Oaks Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,028,345)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 482,955
Amortization 201,491
Decrease in tenants' security deposits - net 2,184
Increase in tenant receivables (784)
Decrease in cash and investments
held by bond servicer 8,238
Increase in prepaid expenses (474)
Increase in accrued interest payable 310,948
Increase in accrued mortgage servicing fee 78,625
Increase in accounts payable 22,903
-----------
Net cash provided by operating activities 77,741
-----------
Cash flows from investing activities
Increase in cash and investments
held by bond servicer (49,799)
-----------
Net cash used in investing activities (49,799)
-----------
NET INCREASE IN CASH 27,942
Cash, beginning 39,107
-----------
Cash, end $ 67,049
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $754,518
=======
See notes to financial statements
-9-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on April 29, 1991, for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 231 units located
in Eagan, Minnesota and operates under the name of Royal Oaks Circle
Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when collected, as opposed to when earned
as required by generally accepted accounting principles.
Investment in Real Estate, Depreciation and Amortization
--------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-
balance methods.
Favorable financing is amortized over the remaining life of the bonds by use
of the straight-line method.
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.
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
-10-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Royal Oaks, Inc., a Delaware
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project. On January 1,
1992, CRICO of Dakota assigned its limited partner interest in the partnership
to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership. As of December 31, 1994, real estate taxes of
$311,000 have been accrued and are payable in semiannual payments due May 15th
and October 15th of the following year.
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits of $4,449 to the reserve
for replacement account maintained by the servicer. The fund is to be used
for the replacement of project assets.
At December 31, 1994, cash and investments held by the bond servicer consisted
of the following:
Mortgage Reserve
escrow for
deposits replacements Total
---------- ------------- ----------
Balance at December
31, 1993 $ 80,124 $107,257 $ 187,381
Deposits 313,289 53,386 366,675
Interest income 3,760 4,078 7,838
Withdrawals
Taxes (301,229) - (301,229)
Insurance (24,058) - (24,058)
Withdrawal - (7,665) (7,665)
--------- -------- ---------
Balance at December
31, 1994 $ 71,886 $157,056 $ 228,942
========= ======== =========
-11-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Eagan, Minnesota in the total amount of
$12,580,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the bondowner,
a related party. The maturity date of the mortgage is February 21, 1998.
Upon maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 8.5%
through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 6% per annum, out of 50% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until the earlier of the sale or refinancing of the
project or maturity. The deferred interest has not been recorded on the books
of the partnership.
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1994, accrued base interest was $1,362,490. Interest accrues on the unpaid
interest at a compounded rate of 8.5%.
-12-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
During the year ended December 31, 1994, the partnership only recorded the
base interest and did not record interest accrued on the unpaid base interest
of $119,217, primary contingent interest of $188,700 and supplemental
contingent interest of $754,800. At December 31, 1994, interest accrued on
the unpaid base interest of $222,566, primary and supplemental contingent
interest of $6,447,250 and construction period deferred base interest of
$573,127 has not been recorded. Total interest incurred on the mortgage for
the year ended December 31, 1994 is as follows:
Currently
Deferred payable Total
---------- ----------- ----------
Base interest $ - $1,065,466 $1,065,466
Interest on interest 119,217 - 119,217
Primary contingent
interest 188,700 - 188,700
Supplemental contingent
interest 754,800 - 754,800
---------- ---------- ----------
Total interest incurred 1,062,717 1,065,466 $2,128,183
==========
Accrued interest, beginning 6,180,226 1,051,542
Interest paid - (754,518)
---------- ----------
Accrued interest, ended $7,242,943 $1,362,490
========== ==========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20 percent
of the units in the project are to be occupied by individuals of low or
moderate income, as defined in the Internal Revenue Code. In the event that
the underlying bonds do not maintain their tax exempt status, whether by
change in law or by noncompliance with the regulatory agreement, repayment of
the bonds may be accelerated.
-13-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The liability of the partnership under the mortgage note is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the bondowner.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date. Any unpaid fees are
deferred until cash flow on subsequent interest payment dates is sufficient
for payment or until the earlier of the sale or refinancing of the project or
maturity. As of December 31, 1994, $471,747 has been accrued.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management of Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1994, management fees totalling $67,152 were charged to
operations. Management fees paid to CRICO Management of Minnesota, Inc. of
$5,097 were charged to operations during 1994. At December 31, 1994, $5,849 is
due for December management fees.
-14-
<PAGE>
CRICO of Royal Oaks Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - ADMINISTRATION FEE
The partnership is required to pay Dakota County Housing and Redevelopment
Authority an annual administration fee equal to 1/8 of 1% of the outstanding
loan balance. At December 31, 1994, $15,725 has been charged to operations, of
which $2,620 has been accrued.
NOTE D - PRIOR PERIOD ADJUSTMENT
During 1993, goodwill was reclassified to investment in real estate due to
changes in current tax laws. Accordingly, prior year tax returns were amended
to adjust depreciation expense.
The cumulative effect to accumulated depreciation and partners' deficit is
$78,377 and has been reflected in the accompanying financial statements as a
prior period adjustment.
NOTE E - OTHER REVENUE (ACCOUNT NO. 5990)
Other revenue consists of the following:
Applications $ 6,466
Garage and parking 1,914
Other 9,470
Bad debt recovery 2,172
-------
$20,022
=======
NOTE F - MISCELLANEOUS FINANCIAL EXPENSES (ACCOUNT NO. 6890)
Miscellaneous financial expenses consist of the following:
HRA administration fee $15,725
Security deposit interest 1,942
Other 1,983
-------
$19,650
=======
-15-
<PAGE>
EXHIBIT 99.j
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Trailway Pond I
Limited Partnership:
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Trailway Pond I Limited Partnership (a Minnesota limited partnership, the
"Partnership") as of December 31, 1994 and 1993, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared on the income
tax basis of accounting, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Trailway Pond I
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended, on the income tax basis
of accounting described in Note 3.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2, the
Partnership was in default at December 31, 1994, with regard to its mortgage
loan agreement, due to its inability to generate sufficient cash flow to meet
its contractual obligations. Additionally, the Partnership does not expect to
be able to generate sufficient cash flow to meet its contractual obligations
under the mortgage loan agreement in 1995. The Partnership's lender, an
affiliated entity, has represented that it will not foreclose on the
Partnership's defaulted loan prior to January 2, 1996. However, the Partnership
does not expect to be able to cure the default at that time. While the lender
has no plans to foreclose on the property in 1996, there can be no assurance
<PAGE>
Page 2
that the lender will not sell or assign its rights under the mortgage loan
agreement in 1995 or exercise its rights subsequent to January 2, 1996. This
issue raises substantial doubt about the Partnership's ability to continue as a
going concern. Management's plan in regard to this matter is also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss (Schedule I) is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.,
January 30, 1995
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
FIXED ASSETS:
Land $ 451,518 $ 451,518
Building and improvements 3,486,159 3,481,526
Furniture, fixtures and equipment 418,408 418,408
---------- ----------
4,356,085 4,351,452
Less- Accumulated depreciation (768,811) (588,349)
---------- ----------
Net fixed assets 3,587,274 3,763,103
---------- ----------
CURRENT ASSETS:
Cash 23,687 19,315
Accounts receivable - 14,530
Prepaid insurance 4,635 4,576
---------- ----------
Total current assets 28,322 38,421
---------- ----------
RESTRICTED CASH:
Tenants' security deposits,
separately held in an 21,980 17,589
interest-bearing account
Escrow deposits 97,097 89,191
---------- ----------
Total restricted cash 119,077 106,780
---------- ----------
OTHER ASSETS- Favorable financing, net
of accumulated amortization of
$270,189 and $360,252, respectively 390,276 480,339
---------- ----------
Total assets $4,124,949 $4,388,643
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 14,245 $ 4,737
Accrued mortgage service
fee 73,048 43,828
Accrued interest 636,832 428,512
Special assessments
payable 8,324 8,324
Mortgage loan payable 4,675,000 4,675,000
----------- -----------
Total current
liabilities 5,407,449 5,160,401
TENANTS' SECURITY DEPOSITS 20,909 17,589
SPECIAL ASSESSMENTS
PAYABLE, net of current 41,621 49,945
portion
CONSTRUCTION PERIOD 296,740 296,740
----------- -----------
DEFERRED BASE INTEREST
PAYABLE
Total liabilities 5,766,719 5,524,675
----------- -----------
PARTNERS' DEFICIT (1,641,770) (1,136,032)
----------- -----------
Total
liabilities and
partners'
deficit $ 4,124,949 $ 4,388,643
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING INCOME:
Rental income $ 539,199 $ 523,573
Interest income 3,092 2,841
Other income 27,785 21,881
--------- ---------
Total operating
income 570,076 548,295
--------- ---------
OPERATING EXPENSES:
Real estate taxes 90,575 98,401
Repairs and maintenance 39,960 60,865
Salaries and related 50,311 46,567
payroll costs
Fuel and utilities 42,245 37,712
Management fee 20,928 22,773
Marketing 26,771 19,688
Insurance 8,938 16,377
Professional 6,131 7,586
Other 18,634 10,310
--------- ---------
Total operating
expenses 304,493 320,279
--------- ---------
Income from
operations 265,583 228,016
DEPRECIATION 180,462 205,177
AMORTIZATION OF FAVORABLE
FINANCING 90,063 90,063
INTEREST ON MORTGAGE LOAN 460,488 460,488
FEES ON MORTGAGE LOAN 35,064 35,063
INTEREST ON SPECIAL
ASSESSMENTS 5,244 5,993
--------- ---------
Net loss $(505,738) $(568,768)
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNER
TOTAL
<S> <C> <C> <C>
PARTNERS' DEFICIT,
December 31, 1992 $(10,643) $ (556,621) $ (567,264)
Net loss (5,687) (563,081) (568,768)
-------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1993 (16,330) (1,119,702) (1,136,032)
Net loss (4,540) (501,198) (505,738)
-------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1994 $(20,870) $(1,620,900) $(1,641,770)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(505,738) $(568,768)
Adjustments to reconcile
net loss to net cash
provided by operating
activities-
Depreciation and
amortization 270,525 295,240
Payments made to
restricted funds held
by bond trustee (134,100) (128,751)
Proceeds received in
escrow for tax refund (7,742) (6,657)
Disbursements made
from insurance and
tax escrow 123,362 143,300
Disbursements made
from fixed asset
reserve 4,633 -
Disbursements made
from debt service
reserve 8,500 -
Interest earned on
restricted funds, net
of service charges (2,559) (2,273)
Increase/decrease in
assets and
liabilities:
Accounts receivable 14,530 (14,453)
Prepaid insurance (59) 5,574
Due from affiliates - 6,434
Tenant security (4,391) -
deposits in
interest-bearing
account
Accounts payable 9,508 (318)
Accrued mortgage
service fee 29,220 29,219
Accrued interest 208,320 250,128
Special assessments
payable (8,324) (8,324)
Tenant security
deposits 3,320 -
--------- ---------
Cash provided by
operating
activities 9,005 351
--------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES-
Purchase of equipment (4,633) -
--------- ---------
NET INCREASE IN CASH 4,372 351
CASH, beginning of the year 19,315 18,964
--------- ---------
CASH, end of the year $ 23,687 $ 19,315
========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION-
Cash paid during the
year for interest $ 252,168 $ 210,360
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
1. ORGANIZATION:
CRICO of Trailway Pond I Limited Partnership (the "Partnership") was formed as a
limited partnership under the laws of the state of Minnesota on December 26,
1990, for the purpose of owning and operating a rental housing project.
According to the Partnership Agreement (the "Agreement"), the Partnership will
terminate on December 31, 2030, if not terminated sooner. The project consists
of 75 units located in the city of Burnsville, Minnesota, and operates under the
name of Trailway Pond Apartments (the "Project"). The general partner, CRICO of
Trailway Pond I, Inc., a Delaware corporation, is affiliated with the managing
general partner of the general partner of the entity that holds the mortgage
loan which provided financing for the Project (Note 6). On January 1, 1992,
CRICO of Iona, Inc., assigned its limited partner interest in the Partnership to
CRICO Minnesota Holdings, Inc., an affiliated entity.
Under the terms of the bonds issued to provide permanent financing for the
Project, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1994 and 1993, the Project
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1994, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The Partnership's lender, Capital
Realty Investors Tax Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage. CRITEF has indicated that it will not foreclose on the Project
through January 2, 1996, however; it has not represented that it will not sell
or assign its rights under the mortgage loan agreement in 1995 or exercise its
rights subsequent to January 2, 1996. Consequently, there is substantial doubt
about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result should the Partnership be unable to continue as a going concern.
Should CRITEF sell or assign its rights under the mortgage loan agreement,
management plans to consider its options.
<PAGE>
-2-
3. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for income tax purposes, in accordance with the Agreement.
The principal differences between this basis and generally accepted accounting
principles ("GAAP") are that an intangible asset has been recognized for income
tax purposes representing the value to the Partnership of its favorable
financing and that assets were written up to their fair values at the time of
the transfer.
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
FAVORABLE FINANCING
Assets, liabilities and operations of the former partnership, Trailway Pond I
Limited Partnership, were transferred on January 2, 1991, in full satisfaction
of the previous partnership's indebtedness. Upon transfer, assets and
liabilities were recorded at their respective fair values, and an intangible
asset was recognized representing the value to the Partnership of the favorable
financing provided by the Project's mortgage loan. According to Federal income
tax rules and regulations, the sales price equates to the face value of the
indebtedness assumed. According to Federal income tax rules and regulations,
this asset is being amortized on a straight-line basis over the remaining life
of the mortgage loan.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE (YEARS) BASIS
------------ -----
Building and improvements 27.5 or 31.5 Straight line
Furniture, fixtures and equipment 5-7 200% declining balance
Repairs and maintenance are expensed as incurred, while major improvements are
capitalized in the applicable asset accounts. Additions to building and
improvements in 1994 consist of $4,633 of costs capitalized for gutters.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the loss of the Partnership is included in the individual income tax
returns of the respective partners.
<PAGE>
-3-
4. PARTNERSHIP AGREEMENT:
The general partner and the limited partner have a 1 and 99 percent ownership
interest, respectively, in the Partnership. In accordance with the Agreement,
the general partner contributed $1 to the Partnership, and the limited partner
contributed $99.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities, and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENTS:
During fiscal 1993, the property was managed by CRICO Management of Minnesota,
Inc. ("CRICO"). CRICO earned a management fee of 3.75 percent of gross
revenues, as defined, payable monthly, with an annual incentive fee of .5
percent of gross revenues. During 1993, an incentive fee of $2,680 was paid for
the prior year.
Effective February 1, 1994, the property management responsibilities were
assigned from CRICO to CAPREIT Residential Corporation ("CAPREIT"), an unrelated
entity. Management fees are payable to CAPREIT at the same rate and terms as
under the agreement with CRICO. As of December 31, 1994 and 1993, management
fees paid were $20,671 and $22,692, respectively. Of the 1994 management fee
amount paid, management fees of $3,350 were paid to CRICO. In addition, during
1994, no incentive fees were paid.
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the project was provided through the issuance of tax-
exempt bonds by the city of Burnsville, Minnesota, in the total amount of
$4,675,000, which was evidenced by a mortgage loan agreement with Capital Realty
Investors Tax-Exempt Fund Limited Partnership ("CRITEF"), a related party and
the bond owner. As further security on the obligation, the Partnership assigned
existing and future rents and leases to the mortgagee. The maturity date of the
mortgage is ten years from the construction completion date, which was
determined by CRITEF to be May 1, 1989. Upon maturity, all outstanding
principal and interest, including base interest and construction period deferred
base interest, is due and payable.
The mortgage loan, which is nonrecourse to the Partnership, provided for base
interest and construction period deferred base interest at a rate of 7.073 and
4.687 percent, respectively, through December 31, 1987, and 5.052 and 3.348
percent, respectively, through May 1, 1989.
<PAGE>
-4-
From May 1, 1989, through the maturity date, base interest is payable at the
rate of 9.85 percent per annum. Primary contingent interest is payable each
quarter at the rate of 1.5 percent per annum, out of that quarter's net cash
flow, as defined. In addition, supplemental contingent interest is payable each
quarter at the rate of 4.65 percent per annum, out of 50 percent of that
quarter's net cash flow, as defined, remaining after deduction of primary
contingent interest. If quarterly net cash flow is insufficient to pay
contingent interest, primary contingent interest and supplemental contingent
interest are deferred without interest until the earlier of the sale or
refinancing of the Partnership occurs, as defined, but only if sufficient cash
flow is generated from the sale or refinancing of the property. Because net
cash flow in 1994 and 1993 was not sufficient to cover primary and supplemental
contingent interest, these amounts were not accrued for, in accordance with
Federal income tax rules and regulations. The unpaid primary contingent
interest balances at December 31, 1994 and 1993, were $397,375 and $327,250,
respectively. The unpaid supplemental contingent interest balances at December
31, 1994 and 1993, were $1,231,863 and $1,014,475, respectively. Pursuant to
terms of the Partnership Agreement, interest is also accrued on base interest
payable, compounded at the base interest rate. This amount is $89,556 at
December 31, 1994. Because this amount is payable out of available cash flow
after the payment of all current and accrued base interest and all current and
accrued servicing fees, it is not probable to be paid, and accordingly, it is
not recorded on the books of the Partnership.
The following schedule presents interest deferred, interest paid, and accrued
interest for the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
<S> <C> <C> <C>
ACCRUED INTEREST AT DECEMBER 31, 1992 $1,058,599 $ 178,384
---------- ---------
Base interest - 460,488 $460,488
Primary contingent interest 70,125 - 70,125
Supplemental contingent interest 217,388 - 217,388
Interest on base interest 28,883 - 28,883
---------- --------- --------
Total 1993 interest incurred 316,396 460,488 $776,884
========
Interest paid from operations - (210,360)
---------- ---------
ACCRUED INTEREST AT DECEMBER 31, 1993 1,374,995 428,512
---------- ---------
Base interest - 460,488 $460,488
Primary contingent interest 70,125 - 70,125
Supplemental contingent interest 217,388 - 217,388
Interest on base interest 56,286 - 56,286
---------- --------- --------
Total 1994 interest incurred 343,799 460,488 $804,287
========
Interest paid from operations - (252,168)
---------- ---------
ACCRUED INTEREST AT DECEMBER 31, 1994 $1,718,794 $ 636,832
========== =========
</TABLE>
The Partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625 percent of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date from remaining cash available
after payment of debt service on the mortgage loan. In 1994, all amounts for
these fees were accrued but not paid because there was insufficient cash flow to
pay full debt service due.
<PAGE>
-5-
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1994.
7. REAL ESTATE TAXES AND SPECIAL ASSESSMENTS PAYABLE:
During fiscal 1994, a real estate tax refund for $18,740 was received for
overpayment of 1993 and 1992 taxes. This refund, net of $5,702 of tax appeal
fees, is netted against 1994 real estate tax expense in the accompanying
statements of operations.
A special assessment tax has been levied against the Partnership from an
assessment performed several years ago. The total amount outstanding from the
assessment at December 31, 1994 and 1993 was $49,945 and $58,269, respectively.
Of these amounts, $8,324 of principal was paid during fiscal 1994 and 1993,
respectively.
8. ESCROW DEPOSITS:
<TABLE>
<CAPTION>
In 1994 and 1993, cash and investments held by the bond trustee consist of the following.
REAL ESTATE TAX RESERVE FOR
AND INSURANCE REPLACEMENTS
ESCROW ESCROW TOTAL
--------------- ------------ -----
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ 44,884 $ 49,926 $ 94,810
Deposits 111,051 17,700 128,751
Withdrawals:
Insurance (8,355) - (8,355)
Taxes (105,058) - (105,058)
Special assessment (14,317) - (14,317)
Replacement funding - (15,570) (15,570)
Tax refund 6,657 - 6,657
Interest earned 1,056 1,217 2,273
--------- -------- ---------
BALANCE AT DECEMBER 31, 1993 $ 35,918 $ 53,273 $ 89,191
Deposits 116,400 17,700 134,100
Withdrawals:
Insurance (6,180) - (6,180)
Taxes (103,614) - (103,614)
Special assessment (13,568) - (13,568)
Replacement funding - (4,633) (4,633)
Mortgage payments (8,500) - (8,500)
Service charges (91) (117) (208)
Tax refund 7,742 - 7,742
Interest earned 1,186 1,581 2,767
--------- -------- ---------
BALANCE AT DECEMBER 31, 1994 $ 29,293 $ 67,804 $ 97,097
========= ======== =========
</TABLE>
<PAGE>
-6-
REAL ESTATE TAX AND INSURANCE ESCROW
Per the mortgage loan agreement (see Note 6), the Partnership is required to
deposit on a monthly basis an amount equal to one-twelfth of the aggregate
annual amount of all real estate taxes, special assessments, and insurance
premiums into the real estate tax and insurance escrow account maintained by the
servicer. During 1994 and 1993, the Partnership made all required deposits to
this escrow.
RESERVE FOR REPLACEMENTS ESCROW
The Partnership is also required to make monthly deposits into the reserve for
replacements escrow account maintained by the servicer, as specified in the
above-mentioned mortgage loan agreement. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacements account is $17,700, to be deposited in equal monthly installments
until such time as the balance in the reserve equals or exceeds $150,000.
Thereafter, no monthly deposits are required unless the balance falls below
$150,000.
9. RELATED-PARTY TRANSACTIONS:
CRICO of Trailway Pond II Limited Partnership is an affiliate of the Partnership
and owns a complex known as Trailway Pond Apartments, Phase II. Both the
Project and Trailway Pond Apartments, Phase II, are managed by the same
management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are
primarily allocated on a pro rata basis based on the number of dwelling units.
An account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. As of December 31,
1994, there are no receivables or payables from the related entity.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1994 December 31, 1994 CRICO of Trailway Pond II Limited Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $561,019
--------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121
--------------------------------------------------------------------------------------------------
Furniture and Equipment 5130
--------------------------------------------------------------------------------------------------
Stores and Commercial 5140 $514
--------------------------------------------------------------------------------------------------
Garage and Parking Spaces 5170 $1,341
--------------------------------------------------------------------------------------------------
5 Flexible Subsidy Income 5180
--------------------------------------------------------------------------------------------------
0 Miscellaneous (specify) 5190
--------------------------------------------------------------------------------------------------
0 Total Rent Revenue Potential at 100% Occupancy $562,874
--------------------------------------------------------------------------------------------------------------------------
0 Vacancies - 5200
Apartments 5220 ($23,675)
--------------------------------------------------------------------------------------------------
R Furniture and Equipment 5230
--------------------------------------------------------------------------------------------------
e Stores and Commercial 5240
--------------------------------------------------------------------------------------------------
v Garage and Parking Spaces 5270
--------------------------------------------------------------------------------------------------
e Miscellaneous (specify) 5290
--------------------------------------------------------------------------------------------------
n Total Vacancies ($23,675)
-------------------------------------------------------------------------------------------------------------------------
u Net Rental Revenue (Rent Revenue Less Vacancies) $539,199
-------------------------------------------------------------------------------------------------------------------------
e Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $0
-------------------------------------------------------------------------------------------------------------------------
A Financial Revenue - 5400
c Interest Income - Project Operations 5410
--------------------------------------------------------------------------------------------------
c Income from Investments - Residual Receipts 5430
--------------------------------------------------------------------------------------------------
o Income from Investments - Reserve for Replacement 5440 $1,581
--------------------------------------------------------------------------------------------------
u Income from Investments - Miscellaneous (Escrows) 5490 $1,511
--------------------------------------------------------------------------------------------------
n Total Financial Revenue $3,092
-------------------------------------------------------------------------------------------------------------------------
t Other Revenue - 5900
--------------------------------------------------------------------------------------------------
s Laundry and Vending 5910 $14,549
--------------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $1,275
--------------------------------------------------------------------------------------------------
Damages and Cleaning Fees 5930 $1,064
--------------------------------------------------------------------------------------------------
Forfeited Tenant Security Deposits 5940 $750
--------------------------------------------------------------------------------------------------
Other Revenue (specify) Application Fees, Forfeitures & Reimbursements 5990 $10,147
--------------------------------------------------------------------------------------------------
Total Other Revenue $27,785
-------------------------------------------------------------------------------------------------------------------------
Total Revenue $570,076
- -----------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses - 6200/6300
6 Advertising 6210 $18,327
--------------------------------------------------------------------------------------------------
0 Other Renting Expense 6250 $9,146
--------------------------------------------------------------------------------------------------
0 Office Salaries 6310 $14,072
--------------------------------------------------------------------------------------------------
0 Office Supplies 6311 $1,161
--------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $2,348
--------------------------------------------------------------------------------------------------
P Management Fee 6320 $20,928
--------------------------------------------------------------------------------------------------
r Manager or Superintendent Salaries 6330 $6,757
--------------------------------------------------------------------------------------------------
o Manager or Superintendent Rent Free Unit 6331 $813
--------------------------------------------------------------------------------------------------
j Legal Expenses (Project) 6340 $231
--------------------------------------------------------------------------------------------------
e Auditing Expenses (Project) 6350 $5,900
--------------------------------------------------------------------------------------------------
c Bookkeeping Fees/Accounting Services 6351
--------------------------------------------------------------------------------------------------
t Telephone and Answering Service 6360 $3,157
--------------------------------------------------------------------------------------------------
Bad Debts 6370
--------------------------------------------------------------------------------------------------
E Miscellaneous Administrative Expenses (specify) Business Expenses 6390 $9,639
--------------------------------------------------------------------------------------------------
x Total Administrative Expenses $92,479
-------------------------------------------------------------------------------------------------------------------------
p Utilities Expense - 6400
e Fuel Oil/Coal 6420
--------------------------------------------------------------------------------------------------
n Electricity 6450 $10,172
--------------------------------------------------------------------------------------------------
s Water 6451 $4,475
--------------------------------------------------------------------------------------------------
e Gas 6452 $18,025
--------------------------------------------------------------------------------------------------
s Sewer 6453 $9,574
--------------------------------------------------------------------------------------------------
Total Utilities Expense $42,246
-------------------------------------------------------------------------------------------------------------------------
Total Expenses ( Carry forward to page 2) $134,725
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance from
Acct. No Page 1 $134,725
- -----------------------------------------------------------------------------------------------------------------------------------
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $10,111
-------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $428
-------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $4,811
-------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $292
-------------------------------------------------------------------------------------------
6 Exterminating Supplies 6520
-------------------------------------------------------------------------------------------
0 Garbage and Trash Removal 6525 $5,483
-------------------------------------------------------------------------------------------
0 Security Payroll/Contract 6530
-------------------------------------------------------------------------------------------
0 Grounds Payroll 6535
-------------------------------------------------------------------------------------------
Grounds Supplies 6536 $706
-------------------------------------------------------------------------------------------
P Grounds Contracts 6537 $2,908
-------------------------------------------------------------------------------------------
r Repairs Payroll 6540 $11,948
-------------------------------------------------------------------------------------------
o Repairs Material 6541 $8,845
-------------------------------------------------------------------------------------------
j Repairs Contract 6542 $3,264
-------------------------------------------------------------------------------------------
e Elevator Maintenance/Contract 6545 $1,653
-------------------------------------------------------------------------------------------
c Heating/Cooling Repairs Maintenance 6546 $680
-------------------------------------------------------------------------------------------
t Swimming Pool Maintenance/Contract 6547 $822
-------------------------------------------------------------------------------------------
Snow Removal 6548 $1,181
-------------------------------------------------------------------------------------------
E Decorating Payroll/Contract 6560
-------------------------------------------------------------------------------------------
x Decorating Supplies 6561
-------------------------------------------------------------------------------------------
p Vehicle & Maintenance Equipment Operation and Repairs 6570 $326
-------------------------------------------------------------------------------------------
e Miscellaneous Operating & Maintenance Expense 6590 $8,421
-------------------------------------------------------------------------------------------
n Total Operating & Maintenance Expenses $61,879
---------------------------------------------------------------------------------------------------------------------------
s Taxes and Insurance - 6700
e Real Estate Taxes-Net of Refund of $13,038 6710 $90,575
-------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $6,299
-------------------------------------------------------------------------------------------
A Miscellaneous Taxes, Licenses, and Permits 6719 $300
-------------------------------------------------------------------------------------------
c Property and Liability Insurance (Hazard) 6720 $6,122
-------------------------------------------------------------------------------------------
c Fidelity Bond Insurance 6721
-------------------------------------------------------------------------------------------
o Workmen's Compensation 6722 $2,433
-------------------------------------------------------------------------------------------
u Health Insurance & Other Employee Benefits 6723 $2,160
-------------------------------------------------------------------------------------------
n Other Insurance (specify) 6729 $0
-------------------------------------------------------------------------------------------
t Total Taxes and Insurance $107,889
---------------------------------------------------------------------------------------------------------------------------
s Financial Expenses - 6800
Interest on Bonds Payable 6810
-------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $460,488
-------------------------------------------------------------------------------------------
Interest on Notes Payable (Long-Term)-Special Assessment 6830 $5,244
-------------------------------------------------------------------------------------------
c Interest on Notes Payable (Short-Term) 6840
-------------------------------------------------------------------------------------------
o Mortgage Insurance Premium/Service Charge 6850 $29,220
-------------------------------------------------------------------------------------------
n Miscellaneous Financial Expense- Bond Issue Fee 6890 $5,844
-------------------------------------------------------------------------------------------
t Total Financial Expenses $500,796
---------------------------------------------------------------------------------------------------------------------------
i Elderly and Congregate Service Expenses
n Total Service Expenses - Schedule Attached 6900
--------------------------------------------------------------------------------------------------------------------------
u Total Cost of Operations before Depreciation $805,289
--------------------------------------------------------------------------------------------------------------------------
e Profit (Loss) before Depreciation ($235,213)
--------------------------------------------------------------------------------------------------------------------------
d Depreciation (Total) - 6600 (specify) and Amortization 6600 $270,525
--------------------------------------------------------------------------------------------------------------------------
Operating Profit or (Loss) $(505,738)
--------------------------------------------------------------------------------------------------------------------------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
-------------------------------------------------------------------------------------------
Legal Expenses (Entity) 7120
-------------------------------------------------------------------------------------------
Taxes (Federal-State-Entity) 7130-32
-------------------------------------------------------------------------------------------
Other Expenses (Entity) 7190
-------------------------------------------------------------------------------------------
Total Corporate Expenses $0
--------------------------------------------------------------------------------------------------------------------------
Net Profit or (Loss) ($505,738)
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous or other Income & Expense Sub-account Groups. If miscellaneous or other and/or expense sub-accounts
(5190, 5290, 5490, 5990, 6390, 6590, 6729, 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 principal payments required under the mortgage,
even if payments under a Workout Agreement are less
or more than those required under the mortgage.
$0
- -----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the
Regulatory Agreement or Amendment thereto, even if
payments may be temporarily suspended or waived. $17,700
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are
included as expense items on this Profit and Loss
Statement. $0
- -----------------------------------------------------------------------------------------------------------------------------------
4. Project improvement Reserve Releases under the
Flexible Subsidy Program that are included as
expense items on this Profit and Loss Statement. $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE I
CRICO OF TRAILWAY POND I LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACCOUNT NO. 6250 - OTHER RENTING
EXPENSE:
<S> <C>
Rental concessions $ 5,827
Resident retention 1,510
Credit report expense 1,809
-------
Total other
renting expense $ 9,146
=======
ACCOUNT NO. 6390 -
MISCELLANEOUS
ADMINISTRATIVE EXPENSES:
Employee relations and
business expenses $ 3,937
Furniture rental 1,232
Security deposit interest 2,361
Other 2,109
-------
Total
miscellaneous
administrative
expenses $ 9,639
=======
ACCOUNT NO. 5990 - OTHER
REVENUE:
Application fees $ 1,830
Corporate unit 3,221
Furniture rental 1,586
Parking 1,341
Other 2,169
-------
Total other
revenue $10,147
=======
ACCOUNT NO. 6590 -
MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
Floor and wood
replacement $ 6,953
Other 1,468
-------
Total
miscellaneous
expense $ 8,421
=======
</TABLE>
<PAGE>
EXHIBIT 99.k
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF VALLEY CREEK I
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Valley Creek I Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Valley Creek I Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Valley Creek I Limited Partnership as of December
31, 1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Valley Creek I
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
-3-
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not exercise its rights under the loan
agreement subsequent to that date.
/s/ Resnick Fedder & Silverman
Bethesda, Maryland
January 23, 1995
-4-
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $ 9,800,715
Personal property 940,044
-----------
10,740,759
Less accumulated depreciation 2,056,750
-----------
8,684,009
Land 693,909
-----------
9,377,918
Tenants' security deposits, separately
held in an interest-bearing account 51,275
Cash and investments held by
bond servicer 330,567
Favorable financing, less
accumulated amortization of
$520,528 528,638
-----------
10,288,398
OTHER ASSETS
Cash $85,698
Accounts receivable - tenants 994
Accounts receivable - other 108
Prepaid expenses 14,199 100,999
------- -----------
$10,389,397
==========
LIABILITIES
LIABILITIES APPLICABLE TO
REAL ESTATE
Mortgage payable $12,815,000
Accrued interest payable 2,369,294
-----------
15,184,294
Tenants' security deposits 49,406
Accrued mortgage servicing fee 307,028
-----------
15,540,728
OTHER LIABILITY
Accounts payable 27,270
----------
Total liabilities 15,567,998
PARTNERS' DEFICIT (5,178,601)
----------
$10,389,397
==========
See notes to financial statements
-5-
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax Basis AND URBAN DEVELOPMENT
Office of Housing
Federal Housing
Commissioner
OMB Approval No. 2502-0052 (exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 CRICO of Valley Creek I Limited Partnership
- ----------------------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Apartments or Member Carrying 5120 $1,728,883
Charges (Coops)
-----------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
-----------------------------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 2,478
-----------------------------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
-----------------------------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 2,524
-----------------------------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
-----------------------------------------------------------------------------------------------------
Misc. (Specify) Corporate 5190 $ 5,071
Units $5,061; Storage $10
-----------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $1,738,956
- ----------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 97,022)
-----------------------------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
-----------------------------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
-----------------------------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
-----------------------------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
-----------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (97,022)
-----------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $1,641,934
- ----------------------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE
SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE 5300 $ $
ATTACHED)
-----------------------------------------------------------------------------------------------------
Interest Income-Project 5410 $ 1,424
Operations
-----------------------------------------------------------------------------------------------------
FINANCIAL Income from 5430 $
Investments-Residual Receipts
-----------------------------------------------------------------------------------------------------
REVENUE Income from 5440 $ 5,891
Investments-Reserve for
Replacement
-----------------------------------------------------------------------------------------------------
5400 Income from Investments-Escrows 5490 $ 4,286
-----------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 11,601
- ----------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending - One-Time 5910 $ 36,281
Laundry Fee $8,400
-----------------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 4,120
-----------------------------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $ 5,272
-----------------------------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security 5940 $ 14,961
Deposits
-----------------------------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) Bad 5990 $ 15,114
Debt Recovery $2,684
Application Fees $5,165; Pet
Fee $1,700; Storage $5,565
-----------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 75,748
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $1,729,283
-----------------------------------------------------------------------------------------------------
Advertising 6210 $ 40,145
-----------------------------------------------------------------------------------------------------
Other Renting Expenses See 6250 $ 26,062
Note E
-----------------------------------------------------------------------------------------------------
Office Salaries 6310 $ 30,169
-----------------------------------------------------------------------------------------------------
Office Supplies 6311 $ 9,326
-----------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $ 4,368
-----------------------------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 63,892
-----------------------------------------------------------------------------------------------------
EXPENSES Manager or Superintendent 6330 $ 15,811
Salaries
-----------------------------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent 6331 $ 5,616
Free Unit
-----------------------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 799
-----------------------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,750
-----------------------------------------------------------------------------------------------------
Computer Fees 6351 $ 1,994
-----------------------------------------------------------------------------------------------------
Telephone and Answering 6360 $ 8,115
Services
-----------------------------------------------------------------------------------------------------
Bad Debts 6370 $ 7,213
-----------------------------------------------------------------------------------------------------
Misc. Administrative Expenses 6390 $ 1,136
(Specify) (See Note D)
-----------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 220,396
- ----------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
-----------------------------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 24,077
-----------------------------------------------------------------------------------------------------
EXPENSE Water 6451 $ 5,296
-----------------------------------------------------------------------------------------------------
6400 Gas 6452 $ 50,412
-----------------------------------------------------------------------------------------------------
Sewer 6453 $ 14,192
TOTAL UTILITIES EXPENSE $ 93,977
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be rounded Page 1 of 2 form HUD-92410 (7/91)
to the nearest dollar, $.50 ref Handbook 4370.2
and over, round up - $.49
and below round down.
-6-
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ 37,705
------------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 1,899
------------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 6,476
------------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 1,507
------------------------------------------------------------------------------------------------
Exterminating Supplies 6520 $
------------------------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 6,876
------------------------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 17,522
------------------------------------------------------------------------------------------------
Grounds Payroll 6535 $
------------------------------------------------------------------------------------------------
Grounds Supplies 6536 $
------------------------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 10,104
------------------------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 23,278
------------------------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 6,196
------------------------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 46,877
------------------------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 4,651
------------------------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $ 337
------------------------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 632
------------------------------------------------------------------------------------------------
Snow Removal 6548 $ 5,033
------------------------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
------------------------------------------------------------------------------------------------
Decorating Supplies 6561 $ 11,911
------------------------------------------------------------------------------------------------
Other 6570 $ 1,208
------------------------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $
------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 182,212
- ----------------------------------------------------------------------------------------------------------------
Real Estate Taxes - Net of Refund $6,902 6710 $ 289,385
------------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 17,060
------------------------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,000
------------------------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 18,460
------------------------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
------------------------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 7,557
------------------------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 6,834
------------------------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 341,296
- ----------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $ 1,299,776
------------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $
------------------------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
------------------------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
------------------------------------------------------------------------------------------------
6800 Mortgage Servicing Fee 6850 $ 80,094
------------------------------------------------------------------------------------------------
Misc Financial Expenses - Security Deposit Interest 6890 $ 1,835
------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,381,705
- ----------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 2,219,586
------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (490,303)
------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 473,846
------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $ (964,149)
- ----------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
------------------------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
------------------------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
------------------------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
------------------------------------------------------------------------------------------------
Amortization 7190 $ 131,146
------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $ 131,146
7100 NET PROFIT OR (LOSS) $(1,095,295)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Total principal payments required under the mortgage, even if payments
under a Workout Agreement are less or more than those required under the mortgage. $
- ------------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments
thereto, even if payments may be temporarily suspended or waived. $
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on
the Profit and Loss statement. $
- ------------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are
included as expense items on this Profit and Loss statement. $
- ------------------------------------------------------------------------------------------------------------------------------------
Page 2 of 2 Form HUD-92410
</TABLE>
See notes to financial statements
-7-
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning
as originally reported $(4,058,087)
Prior period adjustment (25,219)
------------
Partners' deficit, beginning
as restated (4,083,306)
Net loss (1,095,295)
----------
Partners' deficit, end $(5,178,601)
==========
See notes to financial statements
-8-
<PAGE>
CRICO of Valley Creek I Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,095,295)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 473,846
Amortization 131,146
Decrease in tenants' security deposits - net 7,131
Increase in accounts receivable - tenants (7)
Decrease in accounts receivable - other 1,465
Increase in cash and investments held by bond
servicer (9,469)
Decrease in subscription receivable 100
Increase in prepaid expenses (472)
Increase in accrued mortgage servicing fee 80,094
Increase in accrued interest payable 478,273
Increase in accounts payable 9,926
-----------
Net cash provided by operating activities 76,738
-----------
Cash flows from investing activities
Increase in cash and investments held
by bond servicer (53,554)
-----------
Net cash used in investing activities (53,554)
-----------
NET INCREASE IN CASH 23,184
Cash, beginning 62,514
-----------
Cash, end $ 85,698
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 821,503
===========
See notes to financial statements
-9-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on December 28, 1990 for the purpose of acquiring, owning
and operating a rental housing project. The project consists of 225 units
located in the City of Woodbury, Minnesota and operates under the name of
Valley Creek Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when collected, as opposed to when earned
as required by generally accepted accounting principles.
Investment in Real Estate, Depreciation and Amortization
--------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-
balance methods.
Favorable financing is amortized over the remaining life of the bonds by use
of the straight-line method.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
-10-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Valley Creek I, Inc., a
Delaware corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project. On
January 1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in
the partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership.
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacements account maintained by the servicer. The required annual deposits
into the reserve for replacements account is $56,724 for 1994 and each year
thereafter until such time as the balance in the reserve equaled or exceeded
$340,000. Thereafter, no monthly deposits are required unless the balance
falls below $340,000.
-11-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1994, cash and investments held by the bond servicer consisted
of the following:
Mortgage Reserve for
escrow deposits replacements Total
---------------- ------------- ------------
Balance at December
31, 1993 $ 83,331 $184,213 $ 267,544
Deposits 358,800 56,724 415,524
Interest income 4,286 5,891 10,177
Tax refund 6,902 - 6,902
Withdrawals
Taxes (296,287) - (296,287)
Insurance (18,932) - (18,932)
Other withdrawals (45,300) (9,061) (54,361)
--------- -------- ---------
Balance at December
31, 1994 $ 92,800 $237,767 $ 330,567
========= ======== =========
Real estate taxes paid during the year were $296,287. During 1994, the
partnership received a refund of $24,996 less a tax appeal fee of $18,092.
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Washington County Housing and Redevelopment Authority in
the total amount of $12,815,000, which are evidenced by a mortgage loan
agreement with Capital Realty Investors Tax Exempt Fund Limited Partnership
(CRITEF), the bondowner, a related party. The maturity date of the mortgage is
February 1, 1999. Upon maturity all outstanding principal and interest,
including all deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 10.35%
through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 4.15% per annum, out of 50% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until the earlier of the sale or refinancing of the
project or maturity. The deferred interest has not been recorded on the books
of the partnership.
-12-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1994, accrued base interest was $2,369,294. Interest accrues on the
unpaid base interest at a compounded rate of 10.35%.
During the year ended December 31, 1994, the partnership only recorded the
base interest and did not record interest accrued on the unpaid base interest
of $307,996, primary contingent interest of $192,225 and supplemental
contingent interest of $531,822. At December 31, 1994, interest accrued on
the unpaid base interest of $554,713, primary and supplemental contingent
interest of $4,283,947 and construction period deferred base interest of
$1,986,957 has not been recorded. Total interest incurred on the mortgage for
the year ended December 31, 1994 is as follows:
Currently
Deferred payable Total
---------- ----------- ----------
Base interest $ - $1,299,776 $1,299,776
Interest on interest 307,996 - 307,996
Primary contingent interest 192,225 - 192,225
Supplemental contingent
interest 531,822 - 531,822
---------- ---------- ----------
Total interest incurred 1,032,043 1,299,776 $2,331,819
==========
Accrued interest, beginning 5,793,574 1,891,021
Interest paid - (821,503)
---------- ----------
Accrued interest, ended $6,825,617 $2,369,294
========== ==========
-13-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20 percent
of the units in the project are to be occupied by individuals of low or
moderate income, as defined in the Internal Revenue Code. In the event that
the underlying bonds do not maintain their tax-exempt status, whether by
change in law or by noncompliance with the regulatory agreement, repayment of
the bonds may be accelerated.
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the bondowner.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date. Any unpaid fees are
deferred until cash flow on subsequent interest payment dates is sufficient
for payment or until the earlier of the sale or refinancing of the project or
maturity. As of December 31, 1994, $307,028 has been accrued and $80,094 was
charged to operations.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management of Minnesota, Inc.
-14-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Management Agreement (Continued)
--------------------
Management fees are equal to 3.75% of gross revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1994, management fees totalling $63,892 were charged to
operations. Management fees paid to CRICO Management of Minnesota, Inc. of
$5,151 were charged to operations during 1994. At December 31, 1994, $5,660
is due for December management fees.
Other Receivables
-----------------
CRICO of Valley Creek II Limited Partnership is an affiliate of the
partnership and owns a complex known as Valley Creek Apartments, Phase II.
Both the Project and Valley Creek Apartments, Phase II, are managed by the
same management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are
primarily allocated on a pro rata basis based on the number of dwelling units.
An account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. At December 31,
1994, there was no amount due from Phase II.
NOTE C - PRIOR PERIOD ADJUSTMENT
During 1993, goodwill was reclassified to investment in real estate due to
changes in current tax laws. Accordingly, prior year tax returns were amended
to adjust depreciation expense.
The cumulative effect to accumulated depreciation and partners' deficit is
$25,219 and has been reflected in the accompanying financial statements as a
prior period adjustment.
-15-
<PAGE>
CRICO of Valley Creek I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE D - MISCELLANEOUS ADMINISTRATIVE EXPENSES
(ACCOUNT NO. 6390)
Miscellaneous administrative expenses consists of the
following:
Laundry and uniform $294
City code requirements 60
Other 782
----
$1,136
=====
NOTE E - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $11,293
Resident retention 6,282
Credit report 5,178
Corporate unit 3,309
-------
$26,062
=======
-16-
<PAGE>
EXHIBIT 99.1
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF WHITE BEAR WOODS I
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of White Bear Woods I Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of White Bear Woods I
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of White Bear Woods I Limited Partnership as of
December 31, 1994, and the related statements of profit and loss - income tax
basis, partners' deficit - income tax basis and cash flows - income tax basis
for the year then ended. These financial statements are the responsi-bility 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of White Bear
Woods I Limited Partnership as of December 31, 1994, and its profit and loss,
changes in partners' deficit and cash flows for the year then ended, on the
basis of accounting described in note A.
- 3 -
[BOTTOM LETTERHEAD OF REZNICH FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not execute its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 25, 1995
-4-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $10,831,939
Equipment 966,221
-----------
11,798,160
Less accumulated depreciation 1,708,924
-----------
10,089,236
Land 357,840
-----------
10,447,076
Tenants' security deposits,
separately held in an interest-
bearing account $ 69,583
Cash and investments held by
bond servicer 384,839
Favorable financing, less
accumulated amortization of
$78,447 106,746 561,168
--------
OTHER ASSETS
Cash 133,841
Prepaid insurance 13,870
Accounts receivable - tenants 1,763
Other receivables 4,262 153,736
-------- -----------
$11,161,980
===========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $12,485,000
Accrued interest payable 1,637,994
-----------
14,122,994
Tenants' security deposit
liability $ 66,495
Accrued mortgage servicing fee 240,596 307,091
-------- -----------
14,430,085
OTHER LIABILITY
Accounts payable 36,420
----------
Total liabilities 14,466,505
PARTNERS' DEFICIT (3,304,525)
----------
$11,161,980
==========
See notes to financial statements
-5-
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax AND URBAN DEVELOPMENT
Basis Office of Housing
Fedesral Housing
Commissioner
OMB Approval No. 2502-0052 (exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 HUD Project No.: CRICO of White Bear Woods I Limited
Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $1,776,252
----------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
----------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $
INCOME ----------------------------------------------------------------------------------
5100 Stores and Commercial 5140 $
----------------------------------------------------------------------------------
Garage and Parking Spaces 5170 $
----------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
----------------------------------------------------------------------------------
Miscellaneous (Specify) Prepaid Rent 5190 $ 30,578
------------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $1,806,830
- ------------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 45,026)
----------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
----------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
5200 ----------------------------------------------------------------------------------
Garage and Parking Spaces 5270 $( )
----------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
-------------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (45,026)
------------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $1,761,804
- ------------------------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
-------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 1,954
----------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430 $
REVENUE ----------------------------------------------------------------------------------
5400 Income from Investments-Reserve for Replacement 5440 $ 7,330
----------------------------------------------------------------------------------
Income from Investments-Escrows 5490 $ 4,105
-------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 13,389
-----------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending - One-Time Laundry Fee $15,000 5910 $ 44,884
----------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 4,226
----------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
REVENUE ----------------------------------------------------------------------------------
5900 Forfeited Tenant Security Deposits 5940 $ 13,667
----------------------------------------------------------------------------------
OTHER REVENUE (SPECIFY) See Note C 5990 $ 26,772
-------------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 89,549
-------------------------------------------------------------------------------------------------------
TOTAL REVENUE $1,864,742
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 25,317
Other Renting Expenses - See Note E 6250 $ 14,837
----------------------------------------------------------------------------------
Office Salaries 6310 $ 35,105
----------------------------------------------------------------------------------
Office Supplies 6311 $ 2,398
----------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $ 4,462
----------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 68,771
EXPENSES ----------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Salaries 6330 $ 17,201
----------------------------------------------------------------------------------
Manager or Superintendent Rent Free Unit 6331 $
----------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 1,037
----------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 7,450
----------------------------------------------------------------------------------
Computer Fees 6351 $ 439
----------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 8,877
----------------------------------------------------------------------------------
Bad Debts 6370 $ 12,530
----------------------------------------------------------------------------------
Misc Admin Expenses (Specify) See Note D 6390 $ 20,820
-------------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 219,244
- ------------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
----------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 22,652
EXPENSE ----------------------------------------------------------------------------------
6400 Water 6451 $ 12,766
----------------------------------------------------------------------------------
Gas 6452 $ 40,974
----------------------------------------------------------------------------------
Sewer 6453 $ 25,211
-------------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 101,603
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be rounded to Page 1 of 2 form HUD-92410 (7/91)
the nearest dollar, ref Handbook 4370.2
$.50 and over, round up -
$.49 and below round down.
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 40,752
-----------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 2,142
-----------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 13,504
------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 942
------------------------------------------------------------------------------
Exterminating Supplies 6520 $
-----------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 9,624
------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 14,480
-----------------------------------------------------------------------------
Grounds Payroll 6535 $
-----------------------------------------------------------------------------
Grounds Supplies 6536 $
-----------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 11,833
MAINTENANCE -----------------------------------------------------------------------------
EXPENSES Repairs Payroll 6540 $ 31,331
6500 -----------------------------------------------------------------------------
Repairs Material 6541 $ 9,282
-----------------------------------------------------------------------------
Repairs Contract 6542 $ 34,563
-----------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 5,234
-----------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $ 2,157
-----------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 2,620
-----------------------------------------------------------------------------
Snow Removal 6548 $ 5,399
-----------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $ 17,210
-----------------------------------------------------------------------------
Decorating Supplies 6561 $
-----------------------------------------------------------------------------
Other 6570 $ 1,445
-----------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $
---------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 202,518
-------------------------------------------------------------------------------------------------------------------
Real Estate Taxes, Net of Refund $15,895 6710 $ 317,649
-----------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 22,035
-----------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $
-----------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 17,898
INSURNACE -----------------------------------------------------------------------------
6700 Fidelity Bond Insurance 6721 $
-----------------------------------------------------------------------------
Workmen's Compensation 6722 $ 3,106
-----------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 3,896
-----------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
---------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 364,584
- --------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $ 1,310,925
-----------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $
-----------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
EXPENSES -----------------------------------------------------------------------------
6800 Interest on Notes Payable (Short-Term) 6840 $
-----------------------------------------------------------------------------
Mortgage Servicing Fee 6850 $ 78,031
-----------------------------------------------------------------------------
Misc Financial Expenses - Security Deposit Interest 6890 $ 3,976
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,392,932
- --------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
CONGREGATE ---------------------------------------------------------------------------------------------------
SERVICE Total Cost of Operations Before Depreciation $ 2,280,881
EXPENSES ---------------------------------------------------------------------------------------------------
6900 PROFIT (LOSS) BEFORE DEPRECIATION $ (416,139)
---------------------------------------------------------------------------------------------------
Depreciation (Total)-6600 (Specify) 6600 $ 562,841
---------------------------------------------------------------------------------------------------
OPERATING PROFIT OR (LOSS) $ (978,980)
- --------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
-----------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
MORTGAGOT -----------------------------------------------------------------------------
ENTITY Taxes (Federal-State-Entity) 7130-32 $
EXPENSES -----------------------------------------------------------------------------
7100 Amortization 7190 $ 26,157
---------------------------------------------------------------------------------------------------
TOTAL CORPORATE EXPENSES $ 26,157
NET PROFIT OR (LOSS) $(1,005,137)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PART II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are
less or more than those required under the mortgage. N/A
- ------------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments
may be temporarily suspended or waived. N/A
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. N/A
- ------------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Page 2 of 2 Form HUD-92410
</TABLE>
See notes to financial statements
-7-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning
as originally reported $(2,240,218)
Prior period adjustment (59,170)
----------
Partners' deficit, beginning
as restated (2,299,388)
Net loss (1,005,137)
----------
Partners' deficit, end $(3,304,525)
==========
See notes to financial statements
-8-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,005,137)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 562,841
Amortization 26,157
Tenants' security deposits - net 685
Decrease in accounts receivable - tenants 414
Increase in prepaid insurance (597)
Increase in accrued interest 437,449
Increase in accrued mortgage servicing fee 78,031
Increase in accounts payable 15,975
Increase in cash and investments held by
bond servicer (15,956)
-----------
Net cash provided by operating activities 99,862
-----------
Cash flows from investing activities
Increase in cash and investments held by bond
servicer (60,055)
Decrease in other receivables 17,607
-----------
Net cash used in investing activities (42,448)
-----------
NET INCREASE IN CASH 57,414
Cash, beginning 76,427
-----------
Cash, end $ 133,841
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $873,476
=======
See notes to financial statements
-9-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on December 26, 1990 for the purpose of acquiring, owning
and operating a rental housing project. The project consists of 225 units
located in the City of White Bear Lake, Minnesota and operates under the name
of White Bear Woods Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when collected, as opposed to when earned
as required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
-----------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-
balance methods.
Favorable financing is amortized over the remaining life of the bonds by use
of the straight-line method.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible; they will be charged to operations when that determination is
made.
-10-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized when rents are collected. All leases between the
partnership and the tenants of the property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of White Bear Woods, Inc., a
Delaware corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project. On
January 1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in
the partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership.
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for
the replacement of project assets. The required annual deposit into the
reserve for replacement account is $54,000 for 1994 and each year thereafter
until such time as the balance in the reserve equals or exceeds $340,000.
Thereafter, no monthly deposits are required unless the balance falls below
$340,000.
-11-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1994, cash and investments held by the bond servicer consist
of the following:
Mortgage Reserve
escrow for
deposits replacements Total
---------- ------------- ----------
Balance at December
31, 1993 $ 101,954 $206,874 $ 308,828
Deposits 348,000 54,000 402,000
Tax refund 15,895 - 15,895
Interest income 4,105 7,330 11,435
Withdrawals
Taxes (333,544) - (333,544)
Insurance (18,493) - (18,493)
Other withdrawal - (1,275) (1,275)
Service charges (7) - (7)
--------- -------- ---------
Balance at December
31, 1994 $ 117,910 $266,929 $ 384,839
========= ======== =========
Real estate taxes paid during the year were $333,544. During 1994, the
partnership received a refund of $41,695 less a tax appeal fee of $25,800.
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of White Bear Lake, Minnesota, in the total amount of
$12,485,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the bondowner,
a related party. The maturity date of the mortgage is February 1, 1999. Upon
maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
-12-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The mortgage note provides for base interest payable at the rate of 10.5% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 4% per annum, out of 50% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until the earlier of the sale or refinancing of the
project or maturity. Total deferred interest has not been recorded on the
books of the partnership.
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1994, accrued base interest was $1,637,994. Interest accrues on the
unpaid base interest at a compounded rate of 10.5%.
During the year ended December 31, 1994, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$162,566, primary contingent interest of $187,275 and supplemental contingent
interest of $499,400. At December 31, 1994, interest accrued on the unpaid
base interest of $290,954, primary and supplemental contingent interest of
$4,062,827 and construction period deferred base interest of $2,074,565 has
not been recorded. Total interest incurred on the mortgage for the year ended
December 31, 1994, is as follows:
-13-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (continued)
----------------
Currently
Deferred payable Total
---------- ----------- ----------
Base interest $ - $1,310,925 $1,310,925
Interest on interest 162,566 - 162,566
Primary contingent interest 187,275 - 187,275
Supplemental contingent interest 499,400 - 499,400
---------- ---------- ----------
Total interest incurred 849,241 1,310,925 $2,160,166
==========
Accrued interest, beginning 5,579,105 1,200,545
Interest paid - (873,476)
---------- ----------
Accrued interest, ended $6,428,346 $1,637,994
========== ==========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees are deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity.
As of December 31, 1994, $240,596 has been accrued and $78,031 has been
charged to operations.
-14-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management of Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined.
The management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1994, management fees totalling $68,771 were charged to
operations. Management fees of $5,755 paid to CRICO Management of Minnesota,
Inc. were charged to operations during 1994. At December 31, 1994, $6,441 is
included in accounts payable for management fees.
Other Receivables
-----------------
CRICO of White Bear Woods II Limited Partnership is an affiliate of the
partnership and owns a complex known as White Bear Woods Apartments, Phase II.
Both the Project and White Bear Woods Apartments, Phase II, are managed by the
same management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are
primarily allocated on a pro rata basis based on the number of dwelling units.
An account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. At December 31,
1994, $4,262 was due from this affiliate.
-15-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - OTHER REVENUE (ACCOUNT NO. 5990)
Other revenue consists of the following:
Garage/parking $ 2,800
Storage 5,650
Application fees 4,713
Furniture rental 5,936
Forfeited security deposits and
other rent receipts 3,555
Other 4,118
-------
$26,772
=======
NOTE D - MISCELLANEOUS ADMINISTRATIVE EXPENSES
(ACCOUNT NO. 6390)
Miscellaneous administrative expenses consists of the
following:
Corporate unit expense $13,549
Employee relations 2,574
Other 4,697
-------
$20,820
======
NOTE E - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $ 6,230
Resident retention 3,567
Credit report check 5,040
------
$14,837
======
-16-
<PAGE>
CRICO of White Bear Woods I Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE F - PRIOR PERIOD ADJUSTMENT
The partnership switched to an accelerated depreciation method in preparing
its 1993 tax return. Prior to this time, the books and records had reflected
use of the straight-line method of depreciation. The difference of $59,170
has been reflected in the accompanying financial statements as a prior period
adjustment.
-17-
<PAGE>
EXHIBIT 99.m
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
Page 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Ethan's I Limited Partnership
(A Missouri Limited Partnership):
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Ethan's I Limited Partnership (a Missouri limited partnership, the
"Partnership") as of December 31, 1994 and 1993, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared on the income
tax basis of accounting, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Ethan's I Limited
Partnership as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended, on the income tax basis of
accounting described in Note 3.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. As discussed in Note 2, the
Partnership was in default at December 31, 1994, with regard to the mortgage
loan agreements, due to its inability to generate sufficient cash flow to meet
its contractual obligations. Additionally, the Partnership does not expect to
be able to generate sufficient cash flow to meet its contractual obligations
under the mortgage loan agreements in 1995. The Partnership's lender, an
affiliated entity, has represented that it will not foreclose on the
Partnership's defaulted loans prior to January 2, 1996. However, the
Partnership does not expect to be able to cure the defaults in 1995 at that
time. While the lender has no immediate plans to foreclose on the property in
1996, there can be no assurance that the lender will not sell or assign its
rights under the mortgage loan
<PAGE>
Page 2
agreements in 1995 or exercise its rights subsequent to January 2, 1996. This
issue raises substantial doubt about the Partnership's ability to continue as a
going concern. Management's plan in regard to this matter is also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss (Schedule I) is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
January 30, 1995
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
FIXED ASSETS:
<S> <C> <C>
Land $ 1,168,712 $ 1,168,712
Building and improvements 13,679,132 13,679,132
Furniture, fixtures and equipment 562,681 558,571
----------- -----------
15,410,525 15,406,415
Less- Accumulated depreciation (2,763,553) (2,215,438)
----------- -----------
Net fixed assets 12,646,972 13,190,977
----------- -----------
CURRENT ASSETS:
Cash 104,447 126,746
Prepaid insurance 20,807 20,433
Other assets 7,748 16,236
----------- -----------
Total current assets 133,002 163,415
----------- -----------
RESTRICTED CASH:
Tenants' security deposits, separately
held in an interest-bearing account 34,645 39,616
Escrow deposits 161,259 262,623
----------- -----------
Total restricted cash 195,904 302,239
----------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of
$1,453,103 and $1,130,649,
respectively 1,003,116 1,325,570
----------- -----------
Total assets $13,978,994 $14,982,201
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accrued interest $ 1,698,524 $ 1,389,991
Accounts payable 44,416 17,853
Accrued mortgage service 303,665 192,415
fee
Mortgage loans payable 17,800,000 17,800,000
----------- -----------
Total current 19,846,605 19,400,259
liabilities
TENANTS' SECURITY DEPOSITS 33,880 39,616
CONSTRUCTION PERIOD DEFERRED BASE
INTEREST PAYABLE 818,341 818,341
----------- -----------
Total liabilities 20,698,826 20,258,216
----------- -----------
PARTNERS' DEFICIT (6,719,832) (5,276,015)
----------- -----------
Total liabilities and
partners' deficit $13,978,994 $14,982,201
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING INCOME:
Rental income $ 2,078,300 $ 1,969,045
Interest income 10,771 7,087
Other income 81,737 87,658
----------- -----------
Total operating income 2,170,808 2,063,790
----------- -----------
OPERATING EXPENSES:
Real estate taxes 200,932 199,110
Salaries and related 205,488 198,283
payroll costs
Repairs and maintenance 315,713 157,625
Fuel and utilities 137,900 111,415
Marketing 79,706 93,854
Management fees 83,055 80,722
Insurance 38,413 42,036
Professional fees 7,701 10,096
Other 41,909 36,614
----------- -----------
Total operating expenses 1,110,817 929,755
----------- -----------
Income from operations 1,059,991 1,134,035
DEPRECIATION 548,115 570,233
AMORTIZATION OF FAVORABLE FINANCING 322,454 322,454
INTEREST ON MORTGAGE LOAN 1,521,989 1,518,749
FEES ON MORTGAGE LOANS 111,250 111,250
----------- -----------
Net loss $(1,443,817) $(1,388,651)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -----
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1992 $(109,188) $(3,778,176) $(3,887,364)
Net loss (1,389) (1,387,262) (1,388,651)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1993 (110,577) (5,165,438) (5,276,015)
Net loss (156,529) (1,287,288) (1,443,817)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1994 $(267,106) $(6,452,726) $(6,719,832)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(1,443,817) $(1,388,651)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities-
Depreciation and amortization 870,569 892,687
Payments made to restricted funds
held by bond trustee (295,946) (372,921)
Disbursements made from insurance 241,674 331,354
and tax escrow
Disbursements made from replacement 166,084 -
reserve escrow
Interest earned on restricted funds (10,448) (5,924)
Increase/decrease in assets and
liabilities:
Prepaid expenses (374) (1,727)
Other assets 8,488 (2,422)
Accounts payable 25,798 (9,535)
Accrued mortgage service fee 111,250 114,500
Accrued interest 308,533 467,067
----------- -----------
Cash (used in) provided by operating
activities (18,189) 24,428
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of equipment (4,110) -
----------- -----------
Cash used in investing activities (4,110) -
----------- -----------
NET (DECREASE) INCREASE IN CASH (22,299) 24,428
CASH, beginning of year 126,746 102,318
----------- -----------
CASH, end of year $ 104,447 $ 126,746
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid during the year for
interest $ 1,213,457 $ 1,051,682
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
1. ORGANIZATION:
CRICO of Ethan's I Limited Partnership (the "Partnership") was formed April 15,
1990, for the purpose of acquiring interests in and/or investing in real and
personal property, including owning and operating two apartment complexes in
Kansas City, Missouri. According to the provisions of the First Amended and
Restated Partnership Agreement (the "Agreement"), CRICO of Ethan's I, Inc., is
the general partner and CRICO Minnesota Holdings, Inc., David A. Sislen, P.
Richard Zitelman, and Sislen Housing Partners are the limited partners.
According to the Agreement, the Partnership will terminate on December 31, 2030,
if not terminated sooner.
The Partnership owns a 316-unit apartment complex known as Ethan's Ridge ("Phase
I") and a 48-unit apartment complex known as Ethan's Glen ("Phase IIB"). Both
of these complexes (collectively, the "Projects") are part of a two-phase
project involving three apartment complexes, collectively known as Ethan's
Ridge. The third complex, known as Ethan's Glen ("Phase IIA"), is owned by
CRICO of Ethan's II Limited Partnership, an affiliated entity.
Construction of Phase I commenced in 1986 and was completed in April 1, 1988.
Construction of Phase IIB commenced in 1988 and was completed on March 31, 1990.
Under the terms of the bonds issued to provide permanent financing for the
Projects, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1994 and 1993, the Projects
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1994, the Partnership was in default with regard to the mortgage
loan agreements due to its inability to generate sufficient cash flow to meet
its contractual obligations under these agreements. The Partnership's lender,
Capital Realty Investors Tax-Exempt Fund Limited Partnership ("CRITEF"), has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreements and is effectively treating this obligation as a cash
flow mortgage. CRITEF has indicated that it will not foreclose on the Project
through January 2, 1996; however, it has not represented that it will not sell
or assign its rights under the mortgage loan agreements in 1995 or exercise its
rights subsequent to January 2, 1996. Consequently, there is substantial doubt
about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result should the Partnership be unable to continue as a going concern.
<PAGE>
-2-
Should CRITEF sell or assign its rights under the mortgage loan agreements,
management plans to consider its options.
3. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Partnership in preparing its financial statements.
FAVORABLE FINANCING
On April 15, 1990, certain assets, liabilities, and operations were transferred
from the Projects' previous owners to the Partnership in full satisfaction of
the related bonds' indebtedness. Upon transfer, assets and liabilities were
recorded at their respective fair values, and an intangible asset was
recognized, representing the value to the Partnership of the favorable financing
provided by the mortgage loans. According to Federal income tax rules and
regulations, the sale price equates to the face value of the indebtedness
assumed. Under tax guidelines, the intangible asset is being amortized on a
straight-line basis over the remaining life of the related mortgage loans.
BASIS OF PRESENTATION
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for Federal income tax purposes, as required by the
Agreement. The principal differences between the income tax basis and generally
accepted accounting principles ("GAAP") are that an intangible asset has been
recognized for income tax purposes representing the value to the Partnership of
its favorable financing and that certain assets were written up to their fair
market values when they were transferred to the Partnership. The intangible
asset is being amortized for income tax purposes on a straight-line basis over
the remaining life of the related mortgage loans.
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE
(YEARS) BASIS
------- -----
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
<PAGE>
-3-
Repairs and maintenance are charged to expense when incurred, while major
improvements are capitalized in the applicable asset accounts. Additions to
furniture, fixtures and equipment in 1994 consist of $4,110 of costs capitalized
for replacement of a sprinkler system.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the income or loss of the Partnership is included in the individual income
tax returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner has a 1 percent ownership interest, and the limited partners
together have a 99 percent ownership interest, in the Partnership. In
accordance with the original Partnership Agreement, the general partner
contributed $1, and the original limited partner, CRICO of Iona, Inc.,
contributed $99 to the Partnership.
On July 6, 1990, two additional limited partners joined the Partnership with a
contribution of $14,768 each. On November 1, 1991, the two additional limited
partners each increased his contributed capital by $6,285 to $21,053,
respectively, to acquire a total limited partner interest of 24.995 percent
each. Also on that date, a third additional limited partner joined the
Partnership with a contribution of $12,570 and acquired a 49 percent limited
partner interest. The Partnership was expanded to admit these new limited
partners in consideration of their commitment to make additional capital
contributions, as set forth in the first amendment to the First Amended and
Restated Partnership Agreement, dated November 1, 1991. Notwithstanding the
additional capital contribution obligations, the general partner retains the
right to remove these limited partners from the Partnership at any time after
April 15, 1992. As of December 31, 1994, this right has not been exercised.
Pursuant to the terms of the Agreement, all profits and losses, as defined, are
allocated to the partners, pro rata, in accordance with their percentage
interests after giving effect to certain allocations specified in the Agreement.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENT:
During fiscal 1993, CRICO Management of Minnesota, Inc. ("CRICO"), a related
party to the general partner, was manager of the property, with management fees
payable monthly at 3.75 percent of gross revenues with an annual incentive fee
of 0.5 percent of gross revenues, as
<PAGE>
-4-
defined by the agreement. During 1993, an annual incentive fee of $5,527 was
paid for the prior year.
Effective February 1, 1994, the property management responsibilities were
assigned from CRICO to CAPREIT Residential Corporation ("CAPREIT"), an unrelated
entity. Management fees are payable to CAPREIT at the same rate and terms as
under the agreement with CRICO Management of Minnesota, Inc. As of December 31,
1994 and 1993, management fees paid were $83,319 and $78,677, respectively. Of
the 1994 management fee amount paid, management fees of $11,227 were paid to
CRICO. In addition, during 1994, incentive fees of $10,283 were paid for 1993.
6. MORTGAGE LOANS PAYABLE:
Permanent financing for the Projects was provided through Multifamily Housing
Revenues Bonds issued by the Industrial Development Authority of the city of
Kansas City, Missouri ("Authority"), and purchased by CRITEF, an affiliate and
the bond owner. The permanent financing for the Projects totals $17,800,000;
$15,500,000 for Phase I is due on April 1, 1998, and $2,300,000 for Phase IIB is
due on March 31, 2000. Upon maturity, all outstanding principal and interest,
including base interest and construction period deferred base interest, is due
and payable. The bonds are collateralized by the apartment complexes and
assignments of rents.
The bonds for Phase I bear a base annual interest rate of 8.5 percent, a primary
contingent interest rate of 2 percent per annum to be paid each quarter from the
net cash flow, as defined, and a supplemental contingent interest rate of 5.5
percent per annum to be paid each quarter from 60 percent of net cash flow, as
defined, remaining after deduction of primary contingent interest. With respect
to Phase IIB, the bonds bear a base annual interest rate of 8.75 percent, a
primary contingent interest rate of 1.75 percent per annum to be paid each
quarter from the net cash flow, as defined, and a supplemental contingent
interest rate of 5.5 percent per annum to be paid each quarter from 60 percent
of net cash flow, as defined, remaining after deduction of primary contingent
interest. For both Phase I and Phase IIB, if the quarterly net cash flow is
insufficient, primary and supplemental contingent interest are deferred without
interest until the earlier of sale or refinancing of the Projects or maturity,
to the extent excess net proceeds or fair value, as defined, exist. Because net
cash flow for the years ended December 31, 1994 and 1993, was insufficient, no
provision has been recorded for primary or supplemental contingent interest in
the accompanying financial statements. The unpaid primary and supplemental
contingent interest balances at December 31, 1994, were $2,092,500 and
$5,754,375, respectively, for Phase I and $191,188 and $600,875, respectively,
for Phase IIB. The unpaid primary and supplemental contingent interest balances
at December 31, 1993, were $1,782,500 and $4,901,875, respectively, for Phase I
and $150,938 and $474,375, respectively, for Phase IIB. Pursuant to terms of
the Partnership Agreement, interest is also accrued on base interest payable,
compounded at the base interest rate. Because this amount is payable out of
available cash flow after the payment of all current and accrued base interest
and all current and accrued servicing fees, it is not recorded on the books of
the Partnership.
During the first month of the construction period, the loan for Phase I accrued
interest at the rate of 6.05 percent, which was paid currently. During the
remaining construction period for the Projects, the loans accrued interest at a
rate of 8.50 percent for Phase I and 11.4 percent for Phase IIB, of which 2.91
and 8.371 percent, respectively, were paid currently, while the
<PAGE>
-5-
remaining interest was deferred and will be unconditionally due and payable upon
sale, refinancing or maturity. As of December 31, 1994 and 1993, the
construction period deferred base interest payable was $818,341.
The following schedule presents interest deferred, interest paid and accrued
interest for the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
-------- --------- -----
<S> <C> <C> <C>
ACCRUED INTEREST AT DECEMBER 31, 1992 $6,040,821 $ 922,924
---------- ----------
Base interest - 1,518,749 $1,518,749
Primary contingent interest 350,250 - 350,250
Supplemental contingent interest 979,000 - 979,000
Interest on base interest 98,383 - 98,383
---------- ---------- ----------
Total 1993 interest incurred 1,427,633 1,518,749 $2,946,382
==========
Interest paid from operations - (946,682)
Interest paid from reserves - (105,000)
---------- ----------
ACCRUED INTEREST AT DECEMBER 31, 1993 7,468,454 1,389,991
---------- ----------
Base interest - 1,521,989 $1,521,989
Primary contingent interest 350,250 - 350,250
Supplemental contingent interest 979,000 - 979,000
Interest on base interest 143,657 - 143,657
---------- ---------- ----------
Total 1994 interest incurred 1,472,907 1,521,989 $2,994,896
==========
Interest paid from operations - 1,185,956
Interest paid from reserves - (27,500)
---------- ----------
ACCRUED INTEREST AT DECEMBER 31, 1994 $8,941,361 $1,698,524
========== ==========
</TABLE>
Interest on the bonds is intended to be exempt from Federal income tax pursuant
to the Internal Revenue Code. In connection with obtaining the bonds, certain
regulatory agreements were executed which provide, among other things, that
substantially all of the proceeds of the bonds issued must be utilized to
finance multifamily housing in which 20 percent or more of the completed units
in the Projects will be occupied on a continuous basis by individuals or
families of low or moderate income, as determined under certain sections of the
Internal Revenue Code. In the event that the underlying bonds do not maintain
their tax-exempt status, whether by a change in law or by noncompliance with the
rules and regulations related thereto, repayment of the bonds may be
accelerated.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreements at December 31, 1994.
<PAGE>
-6-
7. ESCROW DEPOSITS:
In 1994 and 1993, escrow deposits consist of the following.
<TABLE>
<CAPTION>
REPLACEMENT TAX AND
RESERVE INSURANCE
ESCROW ESCROW TOTAL
----------- --------- -----
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 83,187 $ 131,945 $ 215,132
Deposits 143,792 229,129 372,921
Withdrawals:
Insurance - (27,244) (27,244)
Taxes - (199,110) (199,110)
Applied to bond interest - (105,000) (105,000)
Interest earned 2,343 3,581 5,924
--------- --------- ---------
BALANCE, DECEMBER 31, 1993 229,322 33,301 262,623
Deposits 59,576 236,370 295,946
Withdrawals:
Insurance - (27,742) (27,742)
Taxes - (200,932) (200,932)
Applied to bond interest - (13,000) (13,000)
Replacement reserve expenditures (166,084) - (166,084)
Service charges (211) - (211)
Interest earned 5,476 5,183 10,659
--------- --------- ---------
BALANCE, DECEMBER 31, 1994 $ 128,079 $ 33,180 $ 161,259
========= ========= =========
</TABLE>
The replacement reserve and tax and insurance escrow accounts were established
to fund future capital improvements and real estate taxes and insurance
premiums, respectively. The Partnership is required to deposit $59,576 in the
replacement reserve until the balance of this reserve is $413,000. The
Partnership is required to make monthly payments into the tax and insurance
escrow, each equaling one-twelfth of the Projects' annual real estate taxes and
insurance premiums. During 1994 and 1993, the Partnership made all required
payments into this escrow.
8. RELATED-PARTY TRANSACTIONS:
Certain expenditures applicable to both the Projects and Phase IIA are billed to
and paid by the property manager or by another affiliate. Amounts are
reimbursable and are maintained in the due to/from affiliate account on the
Projects' books. These common charges are allocated to each of the projects on
a pro rata basis based on the number of dwelling units in each apartment
complex. At December 31, 1994 and 1993, amounts due from affiliates were
approximately $0 and $588, respectively, and are included in other assets.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1994 December 31, 1994 CRICO of Ethan's I
- ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $2,210,828
--------------------------------------------------------------------------------------- -----------
Tenant Assistance Payments 5121
--------------------------------------------------------------------------------------- -----------
Furniture and Equipment 5130
--------------------------------------------------------------------------------------- -----------
Stores and Commercial 5140
--------------------------------------------------------------------------------------- -----------
Garage and Parking Spaces 5170 $17,663
--------------------------------------------------------------------------------------- -----------
5 Flexible Subsidy Income 5180
--------------------------------------------------------------------------------------- -----------
0 Miscellaneous (specify) 5190
--------------------------------------------------------------------------------------- -----------
0 Total Rent Revenue Potential at 100% Occupancy $2,228,491
--------------------------------------------------------------------------------------------------------------------------
0 Vacancies - 5200
Apartments 5220 ($150,191)
--------------------------------------------------------------------------------------- -----------
R Furniture and Equipment 5230
--------------------------------------------------------------------------------------- -----------
e Stores and Commercial 5240
--------------------------------------------------------------------------------------- -----------
v Garage and Parking Spaces 5270
--------------------------------------------------------------------------------------- -----------
e Miscellaneous (specify) 5290
--------------------------------------------------------------------------------------- -----------
n Total Vacancies ($150,191)
-------------------------------------------------------------------------------------------------------------------------
u Net Rental Revenue (Rent Revenue Less Vacancies) $2,078,300
-------------------------------------------------------------------------------------------------------------------------
e Elderly and Congregate Services Income - 5300
Total Service Income 5300 $0
-------------------------------------------------------------------------------------------------------------------------
A Financial Revenue - 5400
c Interest Income - Project Operations 5410
--------------------------------------------------------------------------------------- -----------
c Income from Investments - Residual Receipts 5430
--------------------------------------------------------------------------------------- -----------
o Income from Investments - Reserve for Replacement 5440 $5,476
--------------------------------------------------------------------------------------- -----------
u Income from Investments - Miscellaneous (Escrows) 5490 $5,295
--------------------------------------------------------------------------------------- -----------
n Total Financial Revenue $10,771
-------------------------------------------------------------------------------------------------------------------------
t Other Revenue - 5900
--------------------------------------------------------------------------------------- -----------
s Laundry and Vending 5910 $4,062
--------------------------------------------------------------------------------------- -----------
NSF and Late Charges 5920 $5,783
--------------------------------------------------------------------------------------- -----------
Damages and Cleaning Fees 5930 $0
--------------------------------------------------------------------------------------- -----------
Forfeited Tenant Security Deposits 5940 $3,662
--------------------------------------------------------------------------------------- -----------
Other Revenue (specify) Application Fees, Pet and Cancellation Fees 5990 $68,230
--------------------------------------------------------------------------------------- -----------
Total Other Revenue $81,737
-------------------------------------------------------------------------------------------------------------------------
Total Revenue $2,170,808
- -----------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses - 6200/6300
6 Advertising 6210 $37,786
--------------------------------------------------------------------------------------- -----------
0 Other Renting Expense 6250 $42,726
--------------------------------------------------------------------------------------- -----------
0 Office Salaries 6310 $64,349
--------------------------------------------------------------------------------------- -----------
0 Office Supplies 6311 $6,867
--------------------------------------------------------------------------------------- -----------
Office or Model Apartment Rent 6312
--------------------------------------------------------------------------------------- -----------
P Management Fee 6320 $83,055
--------------------------------------------------------------------------------------- -----------
r Manager or Superintendent Salaries 6330 $25,223
--------------------------------------------------------------------------------------- -----------
o Manager or Superintendent Rent Free Unit 6331 $7,642
--------------------------------------------------------------------------------------- -----------
j Legal Expenses (Project) 6340 $301
--------------------------------------------------------------------------------------- -----------
e Auditing Expenses (Project) 6350 $7,400
--------------------------------------------------------------------------------------- -----------
c Bookkeeping Fees/Accounting Services 6351
--------------------------------------------------------------------------------------- -----------
t Telephone and Answering Service 6360 $6,134
--------------------------------------------------------------------------------------- -----------
Bad Debts 6370 $5,179
--------------------------------------------------------------------------------------- -----------
E Miscellaneous Administrative Expenses (specify) 6390 $19,398
--------------------------------------------------------------------------------------- -----------
x Total Administrative Expenses $306,060
-------------------------------------------------------------------------------------------------------------------------
p Utilities Expense - 6400
e Fuel Oil/Coal 6420
--------------------------------------------------------------------------------------- -----------
n Electricity 6450 $51,537
--------------------------------------------------------------------------------------- -----------
s Water 6451 $56,410
--------------------------------------------------------------------------------------- -----------
e Gas 6452
--------------------------------------------------------------------------------------- -----------
s Sewer 6453 $29,953
--------------------------------------------------------------------------------------- -----------
Total Utilities Expense $137,900
-------------------------------------------------------------------------------------------------------------------------
Total Expenses ( Carry forward to page 2) $443,960
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance from
Acct. No Page 1 $443,960
- -----------------------------------------------------------------------------------------------------------------------------------
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $21,277
-------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $1,500
-------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $18,540
-------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $3,965
-------------------------------------------------------------------------------------------
6 Exterminating Supplies 6520
-------------------------------------------------------------------------------------------
0 Garbage and Trash Removal 6525 $5,377
-------------------------------------------------------------------------------------------
0 Security Payroll/Contract 6530
-------------------------------------------------------------------------------------------
0 Grounds Payroll 6535
-------------------------------------------------------------------------------------------
Grounds Supplies 6536 $7,022
-------------------------------------------------------------------------------------------
P Grounds Contracts 6537 $27,842
-------------------------------------------------------------------------------------------
r Repairs Payroll 6540 $63,847
-------------------------------------------------------------------------------------------
o Repairs Material 6541 $25,133
-------------------------------------------------------------------------------------------
j Repairs Contract 6542 $15,943
-------------------------------------------------------------------------------------------
e Elevator Maintenance/Contract 6545
-------------------------------------------------------------------------------------------
c Heating/Cooling Repairs Maintenance 6546 $1,384
-------------------------------------------------------------------------------------------
t Swimming Pool Maintenance/Contract 6547 $1,507
-------------------------------------------------------------------------------------------
Snow Removal 6548 $4,904
-------------------------------------------------------------------------------------------
E Decorating Payroll/Contract-Exterior Painting 6560 $166,175
-------------------------------------------------------------------------------------------
x Decorating Supplies 6561
-------------------------------------------------------------------------------------------
p Vehicle & Maintenance Equipment Operation and Repairs 6570 $3,995
-------------------------------------------------------------------------------------------
e Miscellaneous Operating & Maintenance Expense 6590 $31,410
-------------------------------------------------------------------------------------------
n Total Operating & Maintenance Expenses $399,821
---------------------------------------------------------------------------------------------------------------------------
s Taxes and Insurance - 6700
e Real Estate Taxes 6710 $200,932
-------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $18,242
-------------------------------------------------------------------------------------------
A Miscellaneous Taxes, Licenses, and Permits 6719 $186
-------------------------------------------------------------------------------------------
c Property and Liability Insurance (Hazard) 6720 $27,368
-------------------------------------------------------------------------------------------
c Fidelity Bond Insurance 6721
-------------------------------------------------------------------------------------------
o Workmen's Compensation 6722 $2,333
-------------------------------------------------------------------------------------------
u Health Insurance & Other Employee Benefits 6723 $8,712
-------------------------------------------------------------------------------------------
n Other Insurance (specify) 6729
-------------------------------------------------------------------------------------------
t Total Taxes and Insurance $257,773
---------------------------------------------------------------------------------------------------------------------------
s Financial Expenses - 6800
Interest on Bonds Payable 6810
-------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $1,521,989
-------------------------------------------------------------------------------------------
Interest on Notes Payable (Long-Term) 6830
-------------------------------------------------------------------------------------------
c Interest on Notes Payable (Short-Term) 6840
-------------------------------------------------------------------------------------------
o Mortgage Insurance Premium/Service Charge 6850 $111,250
-------------------------------------------------------------------------------------------
n Miscellaneous Financial Expenses-Trustee fees of $8,000 6890 $9,263
-------------------------------------------------------------------------------------------
t Total Financial Expenses $1,642,502
---------------------------------------------------------------------------------------------------------------------------
i Elderly and Congregate Service Expenses
n Total Service Expenses - Schedule Attached 6900
--------------------------------------------------------------------------------------------------------------------------
u Total Cost of Operations before Depreciation $2,744,056
--------------------------------------------------------------------------------------------------------------------------
e Profit (Loss) before Depreciation ($573,248)
--------------------------------------------------------------------------------------------------------------------------
d Depreciation (Total) - 6600 (specify) and Amortization 6600 $870,569
--------------------------------------------------------------------------------------------------------------------------
Operating Profit or (Loss) ($1,443,817)
--------------------------------------------------------------------------------------------------------------------------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
-------------------------------------------------------------------------------------------
Legal Expenses (Entity) 7120
-------------------------------------------------------------------------------------------
Taxes (Federal-State-Entity) 7130-32
-------------------------------------------------------------------------------------------
Other Expenses (Entity) 7190
-------------------------------------------------------------------------------------------
Total Corporate Expenses $0
--------------------------------------------------------------------------------------------------------------------------
Net Profit or (Loss) ($1,443,817)
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous or other Income & Expense Sub-account Groups. If miscellaneous or other and/or expense sub-accounts
(5190, 5290, 5490, 5990, 6390, 6590, 6729, 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 principal payments required under the mortgage,
even if payments under a Workout Agreement are less
or more than those required under the mortgage.
$0
- -----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the
Regulatory Agreement or Amendment thereto, even if
payments may be temporarily suspended or waived. $36,300
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are
included as expense items on this Profit and Loss
Statement. $0
- -----------------------------------------------------------------------------------------------------------------------------------
4. Project improvement Reserve Releases under the
Flexible Subsidy Program that are included as
expense items on this Profit and Loss Statement. $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1
CRICO OF ETHAN'S I LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACCOUNT NO. 5990 - OTHER REVENUE:
<S> <C>
Pet fees $10,935
Application fees 6,668
Nonrefundable fees 15,190
Bad debt collections 10,883
Cancellation fees 14,211
Washer/dryer collections 2,690
Other 7,653
-------
Total other revenue $68,230
=======
ACCOUNT NO. 6250 - OTHER
RENTING EXPENSES:
Rental concessions $39,206
Resident retention 57
Resident referrals 3,100
Other 363
-------
Total other renting expense $42,726
=======
ACCOUNT NO. 6590 -
MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
Floor and wood $18,819
replacement
Parking lots and walkway 10,162
repair
Other 2,429
-------
Total miscellaneous
operating and maintenance
expense $31,410
=======
ACCOUNT NO. 6390 -
MISCELLANEOUS
ADMINISTRATIVE EXPENSE:
Washer/dryer expense $ 7,797
Bonuses 5,178
Employee relations 1,278
Computer expense 1,230
Other 3,915
-------
$19,398
=======
</TABLE>
<PAGE>
EXHIBIT 99.n
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF FOUNTAIN PLACE
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Fountain Place Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX
BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Fountain Place
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Fountain Place Limited Partnership as of December
31, 1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis 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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Fountain Place
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
-3-
[BOTTOM PART OF LETTERHEAD REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not execute its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 4, 1995
-4-
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
<TABLE>
<CAPTION>
ASSETS
INVESTMENT IN REAL ESTATE
<S> <C> <C>
Building $17,179,859
Personal property 1,088,596
-----------
18,268,455
Less accumulated depreciation 3,219,063
-----------
15,049,392
Land 1,515,239
-----------
16,564,631
Tenants' security deposits, separately
held in an interest bearing account 107,409
Cash and investments held by bond
servicer 522,275
Favorable financing, less accumulated
amortization of $1,048,360 1,179,408
-----------
18,373,723
OTHER ASSETS
Cash $29,449
Accounts receivable -
tenants 8,257
Subscriptions receivable 100
Utility deposits 900
Prepaid insurance 27,258 65,964
------- -----------
$18,439,687
==========
<CAPTION>
LIABILITIES
LIABILITIES APPLICABLE TO REAL
<S> <C>
ESTATE
Mortgage payable $20,900,000
Accrued interest payable -
mortgage 4,494,367
-----------
25,394,367
Tenants' security deposits 107,344
Accrued mortgage servicing 522,503
Accrued administration fee 26,125
Assessments payable 86,871
-----------
26,137,210
OTHER LIABILITY
Accounts payable 19,745
----------
Total liabilities 26,156,955
PARTNERS' DEFICIT (7,717,268)
----------
$18,439,687
==========
</TABLE>
See notes to financial statements
-5-
<PAGE>
Statement of Profit and U.S. DEPARTMENT OF HOUSING
Loss - Income Tax Basis AND URBAN DEVELOPMENT
Office of Housing
Federal Housing Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/94)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name: CRICO of Fountain
Beginning: 1/1/94 Ending: 12/31/94 Place Limited Partnership
- ----------------------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member Carrying 5120 $ 2,788,980
Charges (Coops)
-----------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
-----------------------------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 2,286
-----------------------------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
-----------------------------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 3,356
-----------------------------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
-----------------------------------------------------------------------------------------------------
Miscellaneous (Specify) 5190 $ 12,431
-----------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 2,807,053
- -----------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 199,395)
-----------------------------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
-----------------------------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
-----------------------------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
-----------------------------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
-----------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (199,395)
-----------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 2,607,658
- -----------------------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES
INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE 5300 $ $
ATTACHED)
-----------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 4,318
-----------------------------------------------------------------------------------------------------
FINANCIAL Income from 5430 $
Investments-Residential Receipts
-----------------------------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve 5440 $ 12,183
for Replacement
-----------------------------------------------------------------------------------------------------
5400 Income from 5490 $ 6,380
Investments-Miscellaneous
-----------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 22,881
- -----------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
-----------------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 5,930
-----------------------------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $ 21,213
-----------------------------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 7,884
-----------------------------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) See Note D 5990 $ 47,515
-----------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 82,542
-----------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 2,713,081
- -----------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 56,133
-----------------------------------------------------------------------------------------------------
Other Renting Expenses Concessions 6250 $ 800
-----------------------------------------------------------------------------------------------------
Office Salaries 6310 $ 19,545
-----------------------------------------------------------------------------------------------------
Office Supplies 6311 $ 16,310
-----------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $ 5,790
-----------------------------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 100,932
-----------------------------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 38,294
-----------------------------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent 6331 $ 103,271
Free Unit
-----------------------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 6,341
-----------------------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 4,150
-----------------------------------------------------------------------------------------------------
Bookkeeping Fees/Accounting 6351 $
Services
-----------------------------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 10,160
-----------------------------------------------------------------------------------------------------
Bad Debts 6370 $ 3,450
-----------------------------------------------------------------------------------------------------
Misc Admin Expenses (Specify) See 6390 $ 1,277
Note D
-----------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 366,453
- -----------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
-----------------------------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 32,962
-----------------------------------------------------------------------------------------------------
EXPENSE Water 6451 $ 49,838
-----------------------------------------------------------------------------------------------------
6400 Gas 6452 $ 36,983
-----------------------------------------------------------------------------------------------------
Sewer 6453 $
TOTAL UTILITIES EXPENSE $ 119,783
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All must be rounded to the nearest Page 1 of 2 form HUD-92410 (7/91
dollar, $.50 and over, round up- $.49 ref Hanbook 4370
and below round down.
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 25,933
------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 15,987
------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $
------------------------------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 48
------------------------------------------------------------------------------------------------------------------
Exterminating Supplies 6520 $
------------------------------------------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 32,218
------------------------------------------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 14,898
------------------------------------------------------------------------------------------------------------------
Grounds Payroll 6535 $ 6,711
------------------------------------------------------------------------------------------------------------------
Grounds Supplies 6536 $
------------------------------------------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 10,959
------------------------------------------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $
------------------------------------------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 12,666
------------------------------------------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 74,707
------------------------------------------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 7,880
------------------------------------------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
------------------------------------------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 1,839
------------------------------------------------------------------------------------------------------------------
Snow Removal 6548 $ 6,253
------------------------------------------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
------------------------------------------------------------------------------------------------------------------
Decorating Supplies 6561 $ 65,881
------------------------------------------------------------------------------------------------------------------
Other 6570 $ 547
------------------------------------------------------------------------------------------------------------------
Misc Operating and Maintenance Expenses See Note D 6590 $ 2,196
------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 278,723
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 489,978
------------------------------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $
------------------------------------------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 5,434
------------------------------------------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 32,299
------------------------------------------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
------------------------------------------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $
------------------------------------------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $
------------------------------------------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
------------------------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 527,711
- -----------------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $ 1,911,366
------------------------------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $
------------------------------------------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $ 6,045
------------------------------------------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $ 5,412
------------------------------------------------------------------------------------------------------------------
6800 Mortgage Insurance Premium/Service Charge 6850 $ 130,625
------------------------------------------------------------------------------------------------------------------
Miscellaneous Financial Expenses See Note D 6890 $ 29,673
------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 2,083,121
- -----------------------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
------------------------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 3,375,791
------------------------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (662,710)
------------------------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 761,252
------------------------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $(1,423,962)
- -----------------------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
------------------------------------------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
------------------------------------------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
------------------------------------------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $ 262,090
------------------------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $ 262,090
7100 NET PROFIT OR (LOSS) $(1,686,052)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PART II
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout
Agreement are less or more than those required under the mortgage. $ N/A
- ------------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto,
even if payments may be temporarily suspended or waived. $ N/A
- -----------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the
Profit and Loss statement. $ N/A
- ------------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included
as expense items on this Profit and Loss statement. $ N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Page 2 of 2 Form HUD-92410
</TABLE>
See notes to financial statements
- 7 -
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning,
as originally stated $(5,961,129)
Prior period adjustment (70,087)
------------
Partners' deficit, beginning,
as restated (6,031,216)
Net loss (1,686,052)
-----------
Partners' deficit, end $(7,717,268)
============
See notes to financial statements
-8-
<PAGE>
CRICO of Fountain Place Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,686,052)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 761,252
Amortization 262,090
Changes in assets and liabilities
Tenants' security deposits - net 1,272
Increase in prepaid insurance (411)
Decrease in accounts payable (17,562)
Increase in accrued mortgage servicing fee 130,625
Increase in accrued mortgage administration 26,125
Increase in accrued interest payable 639,791
Funds deposited to cash and investments
held by bond servicer (2,833)
Increase in accounts receivable - tenants (8,257)
-----------
Net cash provided by operating activities 106,040
-----------
Cash flows from investing activities
Funds deposited to cash and investments held
by bond servicer (33,672)
-----------
Net cash used in investing activities (33,672)
-----------
Cash flows from financing activities
Payments of assessments payable (17,214)
Payments of capital lease obligation (32,078)
-----------
Net cash used in financing activities (49,292)
-----------
NET INCREASE IN CASH 23,076
Cash, beginning 6,373
-----------
Cash, end $ 29,449
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,283,032
===========
See notes to financial statements
-9-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on December 27, 1990 for the purpose of acquiring, owning
and operating a rental housing project. The project consists of 332 units
located in the City of Eden Prairie, Minnesota and operates under the name of
Fountain Place Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when collected, as opposed to when earned
as required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
-----------------------------------------------------------
Investment in real estate is carried at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-
balance methods.
Favorable financing is amortized over the remaining life of the bonds by use
of the straight-line method.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts became
uncollectible, they will be charged to operations when that determination is
made.
-10-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance
are recognized when collected. All leases between the partnership and the
tenants of the property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Fountain Place, Inc., a
Delaware corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project. On
January 1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in
the partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
1. Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership.
2. Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The required annual deposits
into the reserve for replacement account is $93,233 for 1994 and each year
thereafter until such time as the balance in the reserve equals or exceeds
$500,000. There-after, no monthly deposits are required unless the balance
falls below $500,000.
-11-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
2. Reserve for Replacements (Continued)
------------------------
At December 31, 1994, cash and investments held by the bond servicer consisted
of the following:
Mortgage
Escrow Reserve for
Deposits Replacements Total
---------- ------------- ----------
Balance at
December 31, 1993 $ 137,603 $348,167 $ 485,770
Deposits 526,800 93,233 620,033
Interest income 6,380 12,183 18,563
Withdrawals
Real estate taxes (489,978) - (489,978)
Insurance (32,963) - (32,963)
Interest (7,400) - (7,400)
Withdrawals - (71,684) (71,684)
Service charges (6) (60) (66)
--------- -------- ---------
$ 140,436 $381,839 $ 522,275
========= ======== =========
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Eden Prairie, Minnesota in the total amount of
$20,900,000, which are evidenced by a mortgage loan agreement with CRITEF, the
bondowner, a related party. The maturity date of the mortgage is July 1,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.5%
through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 5% per annum, out of 50% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until
-12-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (continued)
----------------
the earlier of the sale or refinancing of the project or maturity. The
deferred interest has not been recorded on the books of the partnership.
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until
the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1994, accrued base interest was $4,494,367. Interest is accrued
on the unpaid base interest at a compounded rate of 9.5%.
During the year ended December 31, 1994, the partnership only recorded the
base interest and did not record interest accrued on the unpaid base interest
of $530,614, primary contingent interest of $313,500, and supplemental
contingent interest of $1,045,000. At December 31, 1994, interest accrued on
the unpaid base interest of $1,002,902, primary and supplemental contingent
interest of $7,471,700 and construction period deferred base interest of
$4,223,106 has not been recorded. Total interest incurred on the mortgage for
the year ended December 31, 1994 is as follows:
-13-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (continued)
----------------
Currently
Deferred payable Total
----------- ------------ ----------
Base interest $ - $ 1,911,366 $1,911,366
Interest on interest 530,614 - 530,614
Primary contingent interest 313,500 - 313,500
Supplemental contingent
interest 1,045,000 - 1,045,000
----------- ----------- ----------
Total interest incurred 1,889,114 1,911,366 $3,800,480
==========
Accrued interest, beginning 10,808,594 3,854,576
Interest paid - (1,271,575)
-----------
Accrued interest, ending $12,697,708 $ 4,494,367
=========== ===========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the bondowner.
-14-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (continued)
----------------
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date. Any unpaid fees shall be
deferred until cash flow on subsequent interest payment dates is sufficient
for payment or until the earlier of the sale or refinancing of the project or
maturity. As of December 31, 1994, $130,625 has been accrued.
Other Receivables
-----------------
CRICO of Fountain Place II Limited Partnership is an affiliate of the
partnership and owns a complex known as Fountain Place Apartments, Phase II.
Both the Project and Fountain Place Apartments, Phase II, are managed by the
same management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are
primarily allocated on a pro rata basis based on the number of dwelling units.
An account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. At December 31,
1994, there were no amounts due from Fountain Place Apartments, Phase II.
NOTE C - CAPITAL LEASE OBLIGATION
The partnership had assumed leases for washers, dryers and microwaves for a
period of five years, commencing upon installation, and had guaranteed the
purchase of the equipment for $1 per washers, dryers and microwave.
The partnership made monthly lease payments of $18 per washer, dryer and
microwave. The interest rate charged was 17%. The lease obligation was paid
in full in May, 1994 plus the bargain purchase price of $646.
-15-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE D - SCHEDULE TO SUPPORT FORM HUD-92410
Other Revenue (Account 5990)
Other revenue consists of the following:
Key $ 1,293
Transfer fees 21,616
Application 9,770
Bad debt recovery 12,016
Other 2,820
-------
$47,515
=======
Miscellaneous Operating and Maintenance Expenses (Account 6590)
Miscellaneous operating and maintenance expenses consists of the following:
Fire prevention/inspection $ 1,886
Uniforms 310
-------
$ 2,196
=======
Miscellaneous Financial Expenses (Account 6890)
Miscellaneous financial expenses consists of the following:
Interest paid on security deposits $ 3,548
Administration fee 26,125
-------
$29,673
=======
Miscellaneous Administrative Expenses (Account 6390)
Miscellaneous administrative expenses consists of the following:
Education $ 384
Miscellaneous 893
-------
$ 1,277
=======
-16-
<PAGE>
CRICO of Fountain Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE E - ASSESSMENTS PAYABLE
Amounts payable to CSM Corporation are for assessments imposed by the taxing
authority. The amount is repayable in monthly installments with interest
accrued at prime which was 8.5% at December 31, 1994. The balance is due in
full on February 1999. The amount paid during 1994 was $23,259 of which
$17,214 was applied to principal and $6,045 to interest.
NOTE F - MANAGEMENT AGREEMENT
The property is managed by CSM Corporation pursuant to a management agreement
renewable annually. Management fees are equal to 3.75% of rental income
collected. For the year ended December 31, 1994, $100,932 has been charged to
operations.
NOTE G - RECLASSIFICATION
During 1993, goodwill was reclassified to investment in real estate due to
changes in current tax laws. Accordingly, prior year tax returns were amended
to adjust depreciation expense.
The cumulative effect to accumulated depreciation and partners' deficit is
$70,087 and has been reflected in the accompanying financial statements as a
prior period adjustment.
-17-
<PAGE>
EXHIBIT 99.O
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF JAMES STREET CROSSING
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of James Street Crossing Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of James Street Crossing Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of James Street Crossing Limited Partnership as of
December 31, 1994, and the related statements of profit and loss - income tax
basis, partners' deficit - income tax basis and cash flows - income tax basis
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. 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.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of James Street
Crossing Limited Partnership as of December 31, 1994, and its profit and loss,
changes in partners' deficit and cash flows for the year then ended, on the
basis of accounting described in note A.
- 3 -
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not exercise its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 26, 1995
- 4 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $12,304,688
Personal property 672,009
-----------
12,976,697
Less accumulated
depreciation 1,024,913
-----------
11,951,784
Land 1,661,834
-----------
13,613,618
Tenants' security deposits, separately
held in a noninterest-bearing account 66,227
Cash and investments held by
bond servicer 352,648
-----------
14,032,493
OTHER ASSETS
Cash $116,953
Accounts receivable - tenants 3,201
Prepaid insurance 18,603
Subscriptions receivable 100 138,857
-------- -----------
$14,171,350
===========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $13,878,001
Accrued interest payable 1,429,729
-----------
15,307,730
Tenants' security deposits
liability 61,606
Assessments payable, including
accrued interest of $5,881 134,307
Accrued mortgage servicing fee 412,004
-----------
15,915,647
OTHER LIABILITY
Accounts payable 43,099
-----------
Total liabilities 15,958,746
CONTINGENCY -
PARTNERS' DEFICIT (1,787,396)
-----------
$14,171,350
===========
See notes to financial statements
- 5 -
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax AND URBAN DEVELOPMENT
Basis Office of Housing
Federal Housing
Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/92)
- --------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
For Month/Period HUD Project Number: Project Name: CRICO of James
Beginning: 1/1/94 Ending: 12/31/94 Street Crossing Limited Partnership
- -------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $2,135,474
--------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 3,549
--------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 48,091
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) Prepaid Rent 5190 $ 36,570
---------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 2,223,684
- -------------------------------------------------------------------------------------------------------------------
Apartments 5220 $ (188,479)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
--------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
---------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (188,479)
---------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 2,035,205
- -------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
- -------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 2,620
--------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430 $
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 6,410
--------------------------------------------------------------------------------
5400 Income from Investments-Miscellaneous 5490 $ 2,581
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 11,611
- -------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $ 401
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 10,529
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 44,937
--------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) See Note F 5990 $ 35,074
---------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 90,941
---------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 2,137,757
- -------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 32,056
--------------------------------------------------------------------------------
Other Renting Expenses See Note F 6250 $ 50,045
--------------------------------------------------------------------------------
Office Salaries 6310 $ 44,498
--------------------------------------------------------------------------------
Office Supplies 6311 $ 5,619
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $ 15,097
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 70,406
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 27,552
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 4,552
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 6,107
--------------------------------------------------------------------------------
Computer Fees 6351 $ 1,305
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 11,759
--------------------------------------------------------------------------------
Bad Debts 6370 $ 18,485
--------------------------------------------------------------------------------
Misc Administrative Expenses (Specify) See Note F 6390 $ 15,120
---------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 302,601
- -------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 22,796
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 36,299
--------------------------------------------------------------------------------
6400 Gas 6452 $ 2,386
--------------------------------------------------------------------------------
Sewer 6453 $ 71,852
---------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 133,333
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be Page 1 of 2 form HUD-92410 (7/91)
rounded to the nearest ref Handbook 4370.2
dollar, $.50 and over,
round up - $.49 and
below round down.
- 6 -
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ 23,697
--------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 2,257
--------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 15,410
--------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 6,207
--------------------------------------------------------------------------------
Exterminating Supplies 6520 $
--------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 35,746
--------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 15,426
--------------------------------------------------------------------------------
Grounds Payroll 6535 $
--------------------------------------------------------------------------------
Grounds Supplies 6536 $ 6,146
--------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 35,057
--------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 45,091
--------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 70,810
--------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 57,572
--------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $
--------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
--------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 2,042
--------------------------------------------------------------------------------
Snow Removal 6548 $
--------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
--------------------------------------------------------------------------------
Decorating Supplies 6561 $
--------------------------------------------------------------------------------
Other 6570 $
--------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 3,715
---------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 319,176
- -------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 215,404
--------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 23,727
--------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 6,311
--------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 23,296
--------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
--------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 3,815
--------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 8,194
--------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
---------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 280,747
- -------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
--------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $1,335,758
--------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable Special Assessment 6830 $ 10,462
--------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
--------------------------------------------------------------------------------
6800 Mortgage Servicing Fee 6850 $ 86,738
--------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890 $ 44,395
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,477,353
- -------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
---------------------------------------------------------------------------------------------------
Total Cost of Operations Before Depreciation $ 2,513,210
---------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (375,453)
---------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 611,973
---------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $ (987,426)
- -------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
--------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
--------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
--------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
---------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $
---------------------------------------------------------------------------------------------------
7100 NET PROFIT OR (LOSS) $ (987,426)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Part II
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement
are less or more than those required under the mortgage. $ N/A
- -------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if
payments may be temporarily suspended or waived. $ N/A
- -------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning,
as originally stated $ (751,970)
Prior period adjustment (48,000)
----------
Partners' deficit, beginning, as restated (799,970)
Net loss (987,426)
----------
Partners' deficit, end $(1,787,396)
===========
See notes to financial statements
- 8 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(987,426)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 611,973
Tenants' security deposits - net (16,525)
Increase in accounts receivable - tenants (2,271)
Increase in prepaid insurance (1,508)
Increase in cash and investments held by
bond servicer (4,709)
Increase in accrued interest 456,267
Increase in accounts payable - operations 2,353
Increase in accrued mortgage servicing fee 86,738
---------
Net cash provided by operating activities 144,892
---------
Cash flows from investing activities
Increase in cash and investments held
by bond servicer (70,286)
---------
Net cash used in investing activities (70,286)
---------
Cash flows from financing activities
Payments of special assessments payable (33,960)
---------
Net cash used in financing activities (33,960)
---------
NET INCREASE IN CASH 40,646
Cash, beginning 76,307
---------
Cash, end $ 116,953
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $889,953
=========
See notes to financial statements
- 9 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Washington on March 24, 1993, for the purpose of constructing, owning
and operating a rental housing project. The project consists of 300 units
located in the City of Kent, Washington and operates under the name of CRICO
of James Street Crossing.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized when received.
Investment in Real Estate and Depreciation
------------------------------------------
Investment in real estate is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives by use of
the straight-line and declining-balance methods.
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.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
- 10 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance
are included in rental income. All leases between the partnership and tenants
of the property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of James Street, Inc., a
Maryland corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes, special
assessments and insurance premiums to the mortgage escrow account maintained
by CRICO Mortgage Company, Inc. (the servicer). The servicer is a related
party of the general partner.
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for
the replacement of project assets. The required annual deposits into the
reserve for replacement account is $64,000 for 1994 and each year thereafter.
- 11 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1994, cash and investments held by the bond servicer consist
of the following:
Mortgage Reserve for
escrows replacements
---------- -------------
Balance at December 31, 1993 $ 71,495 $206,158
Deposits 265,200 64,016
Interest income 2,581 6,410
Withdrawals:
Taxes (238,077) -
Insurance (24,804) -
Service charges (191) (140)
--------- --------
Balance at December 31, 1994 $ 76,204 $276,444
========= ========
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Washington State Housing Finance Commission in the total
amount of $13,878,001, which are evidenced by a mortgage loan agreement with
Capital Realty Investors Tax Exempt Fund Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is November 15,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.625% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 2% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the
rate of 4.375% per annum, out of 60% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until the earlier of the sale or refinancing of the
project or maturity. The deferred interest has not been recorded on the books
of the partnership.
- 12 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until
the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1994, accrued base interest was $1,429,729. Interest accrues on
the unpaid base interest at a compounded rate of 9.625%.
During year ended December 31, 1994, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$116,625, primary contingent interest of $277,560 and supplemental contingent
interest of $607,162. At December 31, 1994, interest accrued on the unpaid
base interest, primary and supplemental contingent interest and construction
period base interest of $7,245,141 has not been recorded. Total interest
incurred on the mortgage for the year ended December 31, 1994 is as follows:
- 13 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
Currently
Deferred payable Total
---------- ----------- ----------
Base interest $ - $1,335,758 $1,335,758
Interest on interest 116,625 - 116,625
Primary contingent interest 277,560 - 277,560
Supplemental contingent
interest 607,162 - 607,162
---------- ---------- ----------
Total interest incurred 1,001,347 1,335,758 $2,337,105
==========
Accrued interest, beginning 6,243,794 973,462
Interest paid - (879,491)
---------- ----------
Accrued interest, ending $7,245,141 $1,429,729
========== ==========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the mortgagee.
- 14 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date. Any unpaid fees shall be
deferred until cash flow on subsequent interest payment dates is sufficient
for payment or until the earlier of the sale or refinancing of the project or
maturity. As of December 31, 1994, $412,004 has been accrued and $86,738 was
charged to operations.
Management Agreement
--------------------
CRICO Management Northwest, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management Northwest, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management Northwest, Inc.
Management fees are equal to 3.5% of Gross Revenues received, as defined. For
the year ended December 31, 1994, management fees totalling $70,406 were
charged to operations and $6,413 is payable at December 31, 1994. Management
fees paid to CRICO Management Northwest, Inc. of $5,919 were charged to
operations during 1994.
NOTE C - ASSESSMENTS PAYABLE
The assessments payable is due to the City of Kent, Washington. Principal
payments of $11,675 plus accrued interest at 7.85% is payable annually. The
loan is due in full on June 20, 2005.
NOTE D - CONTINGENCY
The original owners of the property entered into an Off-Site Wetland
Mitigation Plan when constructing the property. The work required under the
plan, which the partnership has estimated to cost approximately $150,000, was
never performed. The U.S. Army Corps of Engineers has asserted that the
partnership became liable under the Plan by taking title to the
- 15 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE D - CONTINGENCY (Continued)
property. The partnership has disputed this assertion and requested the Corps
to cite legal authority for its position. To date, the Corps has failed to
cite any such authority. Therefore, the effect of this claim has not been
recognized in the accompanying financial statements.
NOTE E - PRIOR PERIOD ADJUSTMENT
The partnership elected an accelerated depreciation method in preparation of
filing the 1993 tax return. The books and records had reflected a straight-
line method of depreciation. The difference of $48,000 has been recorded as a
prior period adjustment.
NOTE F - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
Miscellaneous other revenue - Account No. 5990:
Tax assessment adjustment $21,749
Bad debt collections 3,730
Pet fees 3,100
Application fees 2,180
Insurance claim reimbursement 1,002
Other 3,313
-------
$35,074
=======
Other renting expenses - Account No. 6250:
Rental concessions $41,346
Resident retention 3,862
Resident referrals 3,900
Credit reports 937
-------
$50,045
=======
- 16 -
<PAGE>
CRICO of James Street Crossing Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE F - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
(Continued)
Miscellaneous administrative expenses - Account No. 6390:
Bank charges $ 565
Employee relations 3,973
Furniture rental 2,777
Miscellaneous 1,779
Security consultant 6,026
------
$15,120
=======
Miscellaneous financial expenses - Account No. 6890:
Annual trust fees $ 4,000
Monitoring fee 5,700
State agency fee 34,695
-------
$44,395
=======
- 17 -
<PAGE>
EXHIBIT 99.p
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Trailway Pond II Limited Partnership
(A Minnesota Limited Partnership):
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Trailway Pond II Limited Partnership (a Minnesota limited partnership, the
"Partnership") as of December 31, 1994 and 1993, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared on the income
tax basis of accounting, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Trailway Pond II
Limited Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended, on the income tax basis
of accounting described in Note 3.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 5, the
Partnership was in default at December 31, 1994, with regard to the mortgage
loan agreement, due to its inability to generate sufficient cash flow to meet
its contractual obligations. Additionally, the Partnership does not expect to
be able to generate sufficient cash flow to meet its contractual obligations
under the mortgage loan agreement in 1995. The Partnership's lender, an
affiliated entity, has represented that it will not foreclose on the
Partnership's defaulted loan prior to January 2, 1996. However, the Partnership
does not expect to be able to cure the default at that time. While the lender
has no plans to foreclose on the property in 1996, there can be no assurance
<PAGE>
Page 2
that the lender will not sell or assign its rights under the mortgage loan
agreement in 1995 or exercise its rights subsequent to January 2, 1996. This
issue raises substantial doubt about the Partnership's ability to continue as a
going concern. Management's plan in regard to this matter is also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss (Schedule I) is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.,
January 30, 1995
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
FIXED ASSETS:
<S> <C> <C>
Land $ 1,113,662 $ 1,113,662
Building and improvements 8,959,385 8,941,385
Furniture, fixtures and equipment 805,312 805,312
----------- -----------
Total 10,878,359 10,860,359
----------- -----------
LESS- Accumulated depreciation (1,791,872) (1,363,453)
----------- -----------
Net fixed assets 9,086,487 9,496,906
----------- -----------
CURRENT ASSETS:
Cash 58,952 39,734
Accounts receivable - 2,232
Prepaid insurance 10,739 2,554
Other prepaids 6,983 7,313
----------- -----------
Total current assets 76,674 51,833
----------- -----------
RESTRICTED CASH:
Tenants' security deposits, separately
held in an interest-bearing account 46,799 42,909
Escrow deposits 234,966 212,820
----------- -----------
Total restricted cash 281,765 255,729
----------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of $552,867
and $737,156, respectively 798,586 982,875
----------- -----------
Total assets $10,243,512 $10,787,343
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1994 1993
---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 28,635 $ 17,806
Accrued mortgage service
fee 188,064 125,376
Accrued interest 2,140,876 1,598,263
Special assessment
payable 7,616 12,041
Mortgage loan payable 10,030,000 10,030,000
----------- -----------
Total current
liabilities 12,395,191 11,783,486
TENANTS' SECURITY
DEPOSITS 46,799 42,909
SPECIAL ASSESSMENTS
PAYABLE, net of current
portion 65,079 72,695
CONSTRUCTION PERIOD
DEFERRED BASE INTEREST
PAYABLE 1,358,359 1,358,359
----------- -----------
Total
liabilities 13,865,428 13,257,449
----------- -----------
PARTNERS' DEFICIT (3,621,916) (2,470,106)
----------- -----------
Total
liabilities and
partners'
deficit $10,243,512 $10,787,343
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING INCOME:
Rental income $ 1,168,548 $ 1,150,206
Interest income 8,741 7,528
Other income 61,779 42,252
---------- -----------
Total operating
income 1,239,068 1,199,986
---------- -----------
OPERATING EXPENSES:
Real estate taxes 199,934 215,643
Repairs and maintenance 97,511 131,568
Salaries and related 118,030 108,117
payroll costs
Fuel and utilities 96,872 86,342
Management fee 45,420 48,837
Marketing 63,755 43,721
Insurance 13,190 40,851
Professional fees 12,915 8,670
Other 44,702 29,012
---------- -----------
Total operating
expenses 692,329 712,761
---------- -----------
Income from
operations 546,739 487,225
DEPRECIATION 428,419 473,537
AMORTIZATION OF FAVORABLE
FINANCING 184,289 184,289
INTEREST ON MORTGAGE LOAN 1,003,000 1,003,000
FEES ON MORTGAGE LOAN 75,225 75,225
INTEREST ON SPECIAL
ASSESSMENTS 7,616 8,699
----------- -----------
Net loss $(1,151,810) $(1,257,525)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -----
<S> <C> <C> <C>
PARTNERS' DEFICIT,
December 31, 1992 $(23,364) $(1,189,217) $(1,212,581)
Net loss (11,994) (1,245,531) (1,257,525)
-------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1993 (35,358) (2,434,748) (2,470,106)
Net loss (11,047) (1,140,763) (1,151,810)
-------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1994 $(46,405) $(3,575,511) $(3,621,916)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,151,810) $(1,257,525)
Adjustments to reconcile net loss to
net cash provided by operating
activities-
Depreciation and amortization 612,708 657,826
Payments made to restricted funds
held by bond trustee (296,444) (276,671)
Disbursements made from insurance
and tax escrow 298,172 305,109
Interest earned on restricted funds (7,510) (6,614)
Proceeds received in escrow for tax
refund (16,364) (14,646)
Increase/decrease in assets and
liabilities:
Accounts receivable 2,232 524
Prepaid insurance (8,185) 12,263
Other prepaids 330 -
Accounts payable 10,829 7,120
Accrued mortgage service fee 62,688 62,688
Accrued interest 542,613 553,436
Due to affiliates - (6,772)
Special assessments payable (12,041) (12,041)
----------- -----------
Cash provided by operating activities 37,218 24,697
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of fixed assets (18,000) (4,473)
----------- -----------
NET INCREASE IN CASH 19,218 20,224
CASH, beginning of year 39,734 19,510
----------- -----------
CASH, end of year $ 58,952 $ 39,734
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid during the year for interest $ 460,387 $ 449,564
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
1. ORGANIZATION:
CRICO of Trailway Pond II Limited Partnership (the "Partnership") was formed as
a limited partnership under the laws of the state of Minnesota on December 26,
1990, for the purpose of owning and operating a rental housing project.
According to the Partnership Agreement (the "Agreement"), the Partnership will
terminate on December 31, 2030, if not terminated sooner. The project consists
of 165 units located in the city of Burnsville, Minnesota, and operates under
the name of Trailway Pond Apartments, Phase II (the "Project"). The general
partner, CRICO of Trailway Pond II, Inc., a Delaware corporation, is affiliated
with the managing general partner of the general partner of the entity that
holds the mortgage loan which provides financing for the Project (Note 6). On
January 1, 1992, CRICO of Iona, Inc., assigned its 99 percent limited partner
interest in the Partnership to CRICO Minnesota Holdings, Inc., an affiliated
entity.
Under the terms of the bonds issued to provide permanent financing for the
Project, at least 20 percent of the completed project units must be occupied by
individuals or families qualified as lower income tenants under certain sections
of the Internal Revenue Code. At December 31, 1994 and 1993, the Project
complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1994, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The Partnership's lender, Capital
Realty Investors Tax-Exempt Fund Limited Partnership ("CRITEF"), has not availed
itself of any of its contractual rights and remedies provided by the mortgage
loan agreement and is effectively treating this obligation as a cash flow
mortgage. CRITEF has indicated that it will not foreclose on the Project
through January 2, 1996; however, it has not represented that it will not sell
or assign its rights under the mortgage loan agreement in 1995 or exercise its
rights subsequent to January 2, 1996. Consequently, there is substantial doubt
about the Partnership's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result should the Partnership be unable to continue as a going concern.
Should CRITEF sell or assign its rights under the mortgage loan agreement,
management plans to consider its options.
<PAGE>
-2-
3. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed by the
Partnership in preparing its financial statements.
BASIS OF ACCOUNTING
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for income tax purposes, in accordance with the Agreement.
The principal differences between this basis and generally accepted accounting
principles ("GAAP") are that an intangible asset has been recognized for income
tax purposes representing the value to the Partnership of its favorable
financing and that assets were written up to their fair values at the time of
the transfer. The favorable financing asset is being amortized for income tax
purposes on a straight-line basis over the remaining life of the mortgage loan.
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
The transfer of the 99 percent limited partner interest from CRICO of Iona,
Inc., to CRICO Minnesota Holdings, Inc., resulted in a fair value determination
of the assets transferred in excess of their respective book values in the
amount of $1,170,345. Accordingly, the 1992 financial statements were restated
to reflect this step-up in value, net of the related depreciation for 1992. The
effect of this restatement increased the previously reported net loss for the
year ended December 31, 1993, by $46,517.
FAVORABLE FINANCING
Assets, liabilities and operations of the former partnership, Trailway Pond II
Limited Partnership, were transferred on January 2, 1991, in full satisfaction
of the previous partnership's indebtedness. Upon transfer, assets and
liabilities were recorded at their respective fair values, and an intangible
asset was recognized representing the value to the Partnership of the favorable
financing provided by the Project's mortgage loan. According to Federal income
tax rules and regulations, the sales price equates to the face value of the
indebtedness assumed. According to Federal income tax rules and regulations,
the favorable financing asset is being amortized on a straight-line basis over
the remaining life of the mortgage loan.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE
(YEARS) BASIS
------- -----
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
<PAGE>
-3-
Repairs and maintenance are expensed as incurred, while major improvements are
capitalized in the applicable asset accounts. Additions to building and
improvements in 1994 totaled $18,000. This amount consists of $9,267 of costs
capitalized for gutters and $8,733 of costs capitalized for drain tiling built
for erosion control.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the loss of the Partnership is included in the individual income tax
returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner and the limited partner, CRICO Minnesota Holdings, Inc.,
have a 1 and 99 percent ownership interest, respectively, in the Partnership.
In accordance with the Agreement, the general partner contributed $1 to the
Partnership, and the limited partner contributed $99.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities, and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENTS:
During fiscal 1993, CRICO Management of Minnesota, Inc. ("CRICO"), a related
party to the general partner, was manager of the property, with management fees
payable monthly at 3.75 percent of gross revenues with an annual incentive fee
of 0.5 percent of gross revenues, as defined by the agreement. During 1993, an
incentive fee of $5,760 was paid for the prior year.
Effective February 1, 1994, the property management responsibilities were
assigned from CRICO to CAPREIT Residential Corporation ("CAPREIT"), an unrelated
entity. Management fees are payable to CAPREIT at the same rate and terms as
under the agreement with CRICO. As of December 31, 1994 and 1993, management
fees paid were $44,849 and $48,868, respectively. Of the 1994 management fee
amount paid, management fees of $7,226 were paid to CRICO. During 1994, no
incentive fees were paid.
<PAGE>
-4-
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the project was provided through the issuance of tax-
exempt bonds by the city of Burnsville, Minnesota, in the total amount of
$10,030,000, which was evidenced by a mortgage loan agreement with CRITEF, a
related party and the bond owner. As further security on the obligation, the
Partnership assigned existing and future rents and leases to the mortgagee. The
maturity date of the mortgage is ten years from the construction completion
date, which was determined by CRITEF to be May 1, 1989. Upon maturity, all
outstanding principal and interest, including base interest and construction
period deferred base interest, is due and payable.
The mortgage loan, which is nonrecourse to the Partnership, provided for base
interest and construction period deferred base interest at a rate of 2.195 and
7.805 percent, respectively, through May 1, 1989. From May 1, 1989, through the
maturity date, base interest is payable at the rate of 10 percent per annum.
Primary contingent interest is payable each quarter at the rate of 1.5 percent
per annum, out of that quarter's net cash flow, as defined. In addition,
supplemental contingent interest is payable each quarter, at the rate of 4.5
percent per annum, out of 50 percent of that quarter's net cash flow, as
defined, remaining after deduction of primary contingent interest. If quarterly
net cash flow is insufficient to pay contingent interest, primary contingent
interest and supplemental contingent interest are deferred without interest
until the earlier of the sale or refinancing of the Partnership occurs, as
defined, but only if sufficient cash flow is generated from the sale or
refinancing of the property. Because net cash flow in 1994 and 1993 was not
sufficient to cover primary contingent interest, these amounts were not accrued
for, in accordance with Federal income tax rules and regulations. The unpaid
primary contingent interest balances at December 31, 1994 and 1993, were
$852,550 and $702,100, respectively. The unpaid supplemental contingent
interest balances at December 31, 1994 and 1993, were $2,557,650 and $2,106,300,
respectively. Pursuant to terms of the Partnership Agreement, interest is also
accrued on base interest payable, compounded at the base interest rate. As of
December 31, 1994, the balance is $450,866. Because this amount is payable out
of available cash flow after the payment of all current and accrued base
interest and all current and accrued servicing fees, it is not recorded on the
books of the Partnership.
<PAGE>
-5-
The following schedule presents interest deferred, interest paid, and accrued
interest for the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
-------- ------- ---------
<S> <C> <C> <C>
ACCRUED INTEREST AT
DECEMBER 31, 1992 $2,282,898 $1,044,827
---------- ----------
Base interest - 1,003,000 $1,003,000
Primary
contingent
interest 150,450 - 150,450
Supplemental
contingent
interest 451,350 - 451,350
Interest on base
interest 159,088 - 159,088
---------- ---------- ----------
Total 1993
interest
incurred 760,888 1,003,000 $1,763,888
==========
Interest paid
from operations - (449,564)
---------- ----------
ACCRUED INTEREST AT
DECEMBER 31, 1993 3,043,786 1,598,263
---------- ----------
Base interest - 1,003,000 1,003,000
Primary 150,450 - 150,450
contingent
interest
Supplemental 451,350 - 451,350
contingent
interest
Interest on base
interest 215,480 - 215,480
---------- ---------- ----------
Total 1994
interest
incurred 817,280 1,003,000 $1,820,280
==========
Interest paid
from operations - (450,387)
Interest paid
from reserves - (10,000)
---------- ----------
ACCRUED INTEREST AT
DECEMBER 31, 1994 $3,861,066 $2,140,876
========== ==========
</TABLE>
The Partnership was required to pay the servicer a mortgage servicing fee equal
to 0.625 percent of the outstanding principal balance of the loan. The fee is
payable monthly on each base interest payment date, after payment of debt
service on the mortgage loan. In 1994 and 1993, all amounts for these fees were
accrued but not paid because there was insufficient cash flow to pay full debt
service due.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1994.
7. REAL ESTATE TAXES AND SPECIAL ASSESSMENTS PAYABLE:
During fiscal 1994, a real estate tax refund for $40,895 was received for
overpayment of 1993 and 1992 taxes. This refund, net of $12,349 of tax appeal
fees, is netted against 1994 real estate tax expense in the accompanying
statement of operations.
A special assessment tax has been levied against the Partnership from an
assessment performed several years ago. The total amount outstanding from the
assessment at December 31, 1994 and 1993, was $72,695 and $84,736, respectively.
Of these amounts, $12,041 of principal was paid during fiscal 1994 and 1993,
respectively.
<PAGE>
-6-
8. ESCROW DEPOSITS:
In 1994 and 1993, cash and investments held by the bond trustee consist of the
following.
<TABLE>
<CAPTION>
REAL ESTATE
TAX AND RESERVE FOR
INSURANCE REPLACEMENTS
ESCROW ESCROW TOTAL
---------- ------------ -----
<S> <C> <C> <C>
BALANCE AT DECEMBER $ 94,778 $125,220 $ 219,998
31, 1992
Deposits 232,271 44,400 276,671
Withdrawals:
Insurance (19,425) - (19,425)
Taxes (230,289) - (230,289)
Special
assessment (20,740) - (20,740)
Replacement
funding - (34,655) (34,655)
Interest earned 2,761 3,853 6,614
Tax refund 14,646 - 14,646
--------- -------- ---------
BALANCE AT DECEMBER 31, 1993 74,002 138,818 212,820
Deposits
Withdrawals: 249,271 47,173 296,444
Insurance (14,319) - (14,319)
Taxes (248,137) - (248,137)
Debt service (10,000) - (10,000)
Replacement - (25,716) (25,716)
funding
Interest earned 3,048 4,462 7,510
Tax refund 16,364 - 16,364
--------- -------- ---------
BALANCE AT DECEMBER 31, 1994 $ 70,229 $164,737 $ 234,966
========= ======== =========
</TABLE>
REAL ESTATE TAX AND INSURANCE ESCROW
Per the mortgage loan agreement (see Note 6), the Partnership is required to
deposit on a monthly basis an amount equal to one-twelfth of the aggregate
annual amount of all real estate taxes, special assessments, and insurance
premiums into the real estate tax and insurance escrow account maintained by the
servicer. During 1994 and 1993, the Partnership made all required deposits into
this escrow.
RESERVE FOR REPLACEMENTS ESCROW
The Partnership is also required to make monthly deposits into the reserve for
replacements escrow account maintained by the servicer, as specified in the
above-mentioned mortgage loan agreement. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacements account is $44,400, to be deposited in equal monthly installments
until such time as the balance in the reserve equals or exceeds $250,000.
Thereafter, no monthly deposits are required unless the balance falls below
$250,000.
<PAGE>
-7-
9. RELATED-PARTY TRANSACTIONS:
CRICO of Trailway Pond I Limited Partnership is an affiliate of the Partnership
and owns a complex known as Trailway Pond Apartments. Both the Project and
Trailway Pond Apartments are managed by the same management company. Certain
expenses applicable to both are billed to the management company and paid for
collectively. These common charges are primarily allocated on a pro rata basis
based on the number of dwelling units. An account has been established on the
books of each partnership to record amounts payable to or receivable from the
related entity. As of December 31, 1994, there are no receivables or payables
from the related entity.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF PROFIT AND LOSS- U.S. Department of Housing and Urban Development
INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1994 December 31, 1994 CRICO of Trailway Pond II Limited Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $1,238,767
--------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121
--------------------------------------------------------------------------------------------------
Furniture and Equipment 5130
--------------------------------------------------------------------------------------------------
Stores and Commercial 5140 $1,660
--------------------------------------------------------------------------------------------------
Garage and Parking Spaces 5170 $2,735
--------------------------------------------------------------------------------------------------
5 Flexible Subsidy Income 5180
--------------------------------------------------------------------------------------------------
0 Miscellaneous (specify) 5190
--------------------------------------------------------------------------------------------------
0 Total Rent Revenue Potential at 100% Occupancy $1,243,162
--------------------------------------------------------------------------------------------------------------------------
0 Vacancies - 5200
Apartments 5220 ($74,614)
--------------------------------------------------------------------------------------------------
R Furniture and Equipment 5230
--------------------------------------------------------------------------------------------------
e Stores and Commercial 5240
--------------------------------------------------------------------------------------------------
v Garage and Parking Spaces 5270
--------------------------------------------------------------------------------------------------
e Miscellaneous (specify) 5290
--------------------------------------------------------------------------------------------------
n Total Vacancies $(74,614)
-------------------------------------------------------------------------------------------------------------------------
u Net Rental Revenue (Rent Revenue Less Vacancies) $1,168,548
-------------------------------------------------------------------------------------------------------------------------
e Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $0
-------------------------------------------------------------------------------------------------------------------------
A Financial Revenue - 5400
c Interest Income - Project Operations 5410
--------------------------------------------------------------------------------------------------
c Income from Investments - Residual Receipts 5430
--------------------------------------------------------------------------------------------------
o Income from Investments - Reserve for Replacement 5440 $5,295
--------------------------------------------------------------------------------------------------
u Income from Investments - Miscellaneous 5490 $3,446
--------------------------------------------------------------------------------------------------
n Total Financial Revenue $8,741
-------------------------------------------------------------------------------------------------------------------------
t Other Revenue - 5900
--------------------------------------------------------------------------------------------------
s Laundry and Vending 5910 $29,212
--------------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $2,911
--------------------------------------------------------------------------------------------------
Damages and Cleaning Fees 5930 $2,808
--------------------------------------------------------------------------------------------------
Forfeited Tenant Security Deposits 5940 $2,157
--------------------------------------------------------------------------------------------------
Other Revenue (specify) Application Fees, Forfeitures & Reimbursements 5990 $24,691
--------------------------------------------------------------------------------------------------
Total Other Revenue $61,779
-------------------------------------------------------------------------------------------------------------------------
Total Revenue $1,239,068
- -----------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses - 6200/6300
6 Advertising 6210 $40,199
--------------------------------------------------------------------------------------------------
0 Other Renting Expense 6250 $20,598
--------------------------------------------------------------------------------------------------
0 Office Salaries 6310 $31,269
--------------------------------------------------------------------------------------------------
0 Office Supplies 6311 $2,580
--------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $9,264
--------------------------------------------------------------------------------------------------
P Management Fee 6320 $45,420
--------------------------------------------------------------------------------------------------
r Manager or Superintendent Salaries 6330 $14,865
--------------------------------------------------------------------------------------------------
o Manager or Superintendent Rent Free Unit 6331 $1,788
--------------------------------------------------------------------------------------------------
j Legal Expenses (Project) 6340 $1,215
--------------------------------------------------------------------------------------------------
e Auditing Expenses (Project) 6350 $11,700
--------------------------------------------------------------------------------------------------
c Bookkeeping Fees/Accounting Services 6351
--------------------------------------------------------------------------------------------------
t Telephone and Answering Service 6360 $7,015
--------------------------------------------------------------------------------------------------
Bad Debts 6370 $2,024
--------------------------------------------------------------------------------------------------
E Miscellaneous Administrative Expenses (specify) Business Expenses 6390 $21,997
--------------------------------------------------------------------------------------------------
x Total Administrative Expenses $209,934
-------------------------------------------------------------------------------------------------------------------------
p Utilities Expense - 6400
e Fuel Oil/Coal 6420
--------------------------------------------------------------------------------------------------
n Electricity 6450 $21,136
--------------------------------------------------------------------------------------------------
s Water 6451 $11,339
--------------------------------------------------------------------------------------------------
e Gas 6452 $43,071
--------------------------------------------------------------------------------------------------
s Sewer 6453 $21,326
--------------------------------------------------------------------------------------------------
Total Utilities Expense $96,872
-------------------------------------------------------------------------------------------------------------------------
Total Expenses ( Carry forward to page 2) $306,806
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance from
Acct. No Page 1 $306,806
- -----------------------------------------------------------------------------------------------------------------------------------
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 25,573
-------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $1,104
-------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $9,894
-------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $1,256
-------------------------------------------------------------------------------------------
6 Exterminating Supplies 6520
-------------------------------------------------------------------------------------------
0 Garbage and Trash Removal 6525 $12,031
-------------------------------------------------------------------------------------------
0 Security Payroll/Contract 6530
-------------------------------------------------------------------------------------------
0 Grounds Payroll 6535
-------------------------------------------------------------------------------------------
Grounds Supplies 6536 $2,707
-------------------------------------------------------------------------------------------
P Grounds Contracts 6537 $6,473
-------------------------------------------------------------------------------------------
r Repairs Payroll 6540 $26,793
-------------------------------------------------------------------------------------------
o Repairs Material 6541 $22,558
-------------------------------------------------------------------------------------------
j Repairs Contract 6542 $8,038
-------------------------------------------------------------------------------------------
e Elevator Maintenance/Contract 6545 $3,209
-------------------------------------------------------------------------------------------
c Heating/Cooling Repairs Maintenance 6546 $2,978
-------------------------------------------------------------------------------------------
t Swimming Pool Maintenance/Contract 6547 $1,831
-------------------------------------------------------------------------------------------
Snow Removal 6548 $2,607
-------------------------------------------------------------------------------------------
E Decorating Payroll/Contract 6560
-------------------------------------------------------------------------------------------
x Decorating Supplies 6561
-------------------------------------------------------------------------------------------
p Vehicle & Maintenance Equipment Operation and Repairs 6570 $711
-------------------------------------------------------------------------------------------
e Miscellaneous Operating & Maintenance Expense 6590 $25,653
-------------------------------------------------------------------------------------------
n Total Operating & Maintenance Expenses $153,416
---------------------------------------------------------------------------------------------------------------------------
s Taxes and Insurance - 6700
e Real Estate Taxes-Net of refund of $28,546 6710 $199,934
-------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $14,702
-------------------------------------------------------------------------------------------
A Miscellaneous Taxes, Licenses, and Permits 6719 $2,000
-------------------------------------------------------------------------------------------
c Property and Liability Insurance (Hazard) 6720 $6,134
-------------------------------------------------------------------------------------------
c Fidelity Bond Insurance 6721
-------------------------------------------------------------------------------------------
o Workmen's Compensation 6722 $4,519
-------------------------------------------------------------------------------------------
u Health Insurance & Other Employee Benefits 6723 $4,818
-------------------------------------------------------------------------------------------
n Other Insurance (specify) 6729
-------------------------------------------------------------------------------------------
t Total Taxes and Insurance $232,107
---------------------------------------------------------------------------------------------------------------------------
s Financial Expenses - 6800
Interest on Bonds Payable 6810
-------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $1,003,000
-------------------------------------------------------------------------------------------
Interest on Notes Payable (Long-Term)-Special Assessment 6830 $7,616
-------------------------------------------------------------------------------------------
c Interest on Notes Payable (Short-Term) 6840
-------------------------------------------------------------------------------------------
o Mortgage Insurance Premium/Service Charge 6850 $62,688
-------------------------------------------------------------------------------------------
n Miscellaneous Financial Expenses-Bond Issue Fee 6890 $12,537
-------------------------------------------------------------------------------------------
t Total Financial Expenses $1,085,841
---------------------------------------------------------------------------------------------------------------------------
i Elderly and Congregate Service Expenses
n Total Service Expenses - Schedule Attached 6900
--------------------------------------------------------------------------------------------------------------------------
u Total Cost of Operations before Depreciation $1,778,170
--------------------------------------------------------------------------------------------------------------------------
e Profit (Loss) before Depreciation ($539,102)
--------------------------------------------------------------------------------------------------------------------------
d Depreciation (Total) - 6600 (specify) and Amortization 6600 $ 612,708
--------------------------------------------------------------------------------------------------------------------------
Operating Profit or (Loss) ($1,151,810)
--------------------------------------------------------------------------------------------------------------------------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
-------------------------------------------------------------------------------------------
Legal Expenses (Entity) 7120
-------------------------------------------------------------------------------------------
Taxes (Federal-State-Entity) 7130-32
-------------------------------------------------------------------------------------------
Other Expenses (Entity) 7190
-------------------------------------------------------------------------------------------
Total Corporate Expenses $0
--------------------------------------------------------------------------------------------------------------------------
Net Profit or (Loss) ($1,151,810)
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous or other Income & Expense Sub-account Groups. If miscellaneous or other and/or expense sub-accounts
(5190, 5290, 5490, 5990, 6390, 6590, 6729, 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 principal payments required under the mortgage,
even if payments under a Workout Agreement are less
or more than those required under the mortgage.
$0
- -----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the
Regulatory Agreement or Amendment thereto, even if
payments may be temporarily suspended or waived. $17,700
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are
included as expense items on this Profit and Loss
Statement. $0
- -----------------------------------------------------------------------------------------------------------------------------------
4. Project improvement Reserve Releases under the
Flexible Subsidy Program that are included as
expense items on this Profit and Loss Statement. $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1
CRICO OF TRAILWAY POND II LIMITED PARTNERSHIP
(A MINNESOTA LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACCOUNT NO. 5990 - OTHER REVENUE:
<S> <C>
Corporate office income $ 7,619
Application fees 5,110
Bad debt collections 1,240
Forfeitures 2,043
Reimbursements and 4,326
entertainment room
rental
Other 4,353
-------
Total other
revenue $24,691
=======
ACCOUNT NO. 6390 -
MISCELLANEOUS
ADMINISTRATIVE EXPENSE:
Employee relations and
business expenses $ 6,951
Computer and corporate
unit expenses 7,220
Security deposit
interest expense 5,379
Other 2,447
-------
Total
miscellaneous
administrative
expense $21,997
=======
ACCOUNT NO. 6590 -
OPERATING AND MAINTENANCE
EXPENSE:
Floor and wood $13,503
replacement
Grounds and land 4,941
Roof 3,200
Plumbing 2,041
Other 1,968
-------
Total operating
and maintenance
miscellaneous
expense $25,653
=======
ACCOUNT NO. 6250 - OTHER
RENTING EXPENSE:
Rental concessions $11,667
Resident retention 3,569
Credit report expense 5,133
Other 229
-------
Total other
renting expense $20,598
=======
</TABLE>
