UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
For the fiscal year ended December 31, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission File Number 0-16860
EAGLE INSURED L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3442945
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership dated as of September 3, 1987, as
amended and restated December 11, 1987, included as part of the Registration
Statement filed with the Securities and Exchange Commission pursuant to Rule
424(b) under the Securities Act of 1933, and amended February 10, 1988 and
October 31, 1995, is incorporated by reference into Part IV of this Annual
Report on Form 10-K.
Index to exhibits may be found on page 28
Page 1 of 83
<PAGE>
PART I
Item 1. Business.
General
Eagle Insured L.P., a Delaware limited partnership (the "Registrant"),
was formed on August 13, 1987 and will terminate on December 31, 2040 unless
terminated sooner under the provisions of the Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement"). The Registrant was formed to
invest in insured, co-insured or guaranteed mortgage investments and equity
loans ("Mortgages") which finance multifamily residential rental properties
("Developments") from proceeds raised from the initial sale of 2,641,100
Beneficial Unit Certificates ("BUC$") at $20 per BUC. The Registrant's fiscal
year for book and tax purposes ends on December 31.
The Registrant originally invested in four Mortgages financing
Developments. One of the Mortgages was prepaid on January 31, 1994. One of the
three remaining Developments was originally developed by an entity affiliated
with the Registrant. For more information regarding the Registrant's operations,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Registrant is engaged solely in the business of investing in
Mortgages; therefore, presentation of industry segment information is not
applicable.
General Partners
The general partners of the Registrant are Related Federal Insured L.P.
("Related General Partner") and Prudential-Bache Properties, Inc. ("PBP")
(collectively, the "General Partners"). Related FI BUC$ Associates, Inc. (the
"Assignor Limited Partner"), which acquired and holds limited partnership
interests on behalf of those persons who purchased BUC$, has assigned to those
persons substantially all of its rights and interests in and under such limited
partnership interests. The Related General Partner and the Assignor Limited
Partner are under common ownership.
Structure of mortgage loans and equity loans
All base interest and initially at least 90% in the aggregate of the
principal of the mortgages made by the Registrant are coinsured by the FHA (80%
of the 90%) and an affiliate of the Related General Partner (20% of the 90%),
with the remaining 10% of the Registrant's original portfolio consisted of
uninsured non-interest-bearing equity loans made directly to the same developers
as are the Mortgages. With respect to a default on FHA co-insured loans, the
Registrant would bear the risk of loss with respect to uninsured portions of the
loans (10% of Mortgage Loan and additional interest), however these are secured
by the partnership interests which own the underlying properties. The equity
loans to developers are recorded at zero as of December 31, 1996 as a result of
being accounted for under the equity method of accounting without elimination of
the amount due and owing to the Registrant.
In addition to the stated interest rates, the Registrant is entitled to
receive additional interest on the Mortgages from a percentage of the annual net
cash flow of the Development and from a percentage of the residual proceeds upon
sale or refinancing. The Registrant accepted lower base interest rates than were
otherwise available in the market with respect to the Mortgages in exchange for
the potential to receive additional interest payments. The notes evidencing the
Mortgages for Cross Creek and Woodgate Manor, two of the Developments, bear
interest at 8.95% with the potential to receive an additional 0.84% to 1.68% on
the Mortgages plus 30% of any remaining cash flow from the Developments and 35%
of capital proceeds. The Mortgage for Weatherly Walk is structured in the same
manner except the participation in remaining cash flow and capital proceeds is
up to 50%. Additional interest is due no later than upon the prepayment or other
satisfaction of the Mortgages or the sale of the
-2-
<PAGE>
Developments. The receipt of additional interest is dependent upon the economic
performance of the underlying Developments. Additional interest is not insured
by the FHA or any private mortgage lender.
As of December 31, 1996, the Registrant holds three Mortgages. The
following table lists the original amounts of the outstanding Mortgages in which
the Registrant has invested:
<TABLE>
<CAPTION>
Original Original Interest
Funding Mortgage Equity Total Rate on
Closing Completion Loan Loan Loan Mortgage Maturity
Project Date Date Amount Amount Amount Loan (2) Date (3)
- ------- ---- ---- ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cross Creek
Apartments
Charlotte, NC (1) 06/10/88 2/01/91 $17,494,100 $1,783,900 $19,278,000 8.95% 1/1/2030
Weatherly Walk
Apartments
Fayetteville, GA 08/18/88 12/05/89 7,772,500 895,200 8,667,700 8.95% 11/1/2029
Woodgate Manor
Gainesville, FL (1) 12/12/88 12/13/88 3,110,300 339,700 3,450,000 8.95% 1/1/2024
</TABLE>
(1) The general partnership interest of this Development is held by an
affiliate of the Related General Partner.
(2) Includes a servicing fee of 0.07% paid by the developer to Related
Mortgage Corporation (an affiliate of the Related General Partner); however,
does not include additional interest which may be payable.
(3) The Registrant may call for prepayment of the total loan at any time
after the tenth anniversary of the date the mortgage loan funding was completed.
The Registrant, in order to call for prepayment, would be required to terminate
the mortgage insurance contract with FHA (and/or the coinsurer) not later than
the accelerated payment date. Since the exercise of such option would be at the
Registrant's discretion, it is intended to be exercised only where the
Registrant determines that the value of the Development has increased by an
amount which would justify accelerating payment in full and assuming the risks
of foreclosure if the mortgagor failed to make the accelerated payment. The
Registrant presently expects to dispose of such loans within 10 to 15 years
after acquisition.
As of December 31, 1996, the aggregate balance of the Mortgages recorded
on the financial statements is $27,623,254. For individual year-end balances,
see Note 3 to the financial statements in Item 8.
Following is the interest income from mortgage loans as a percentage of
total revenues, excluding equity gains (losses).
1996 1995 1994
---- ---- ----
Cross Creek 53% 53% 49%
Weatherly Walk 23 23 22
Woodgate Manor 12 11 13
Tivoli Lakes 5
Tivoli Lakes Apartments was sold on January 31, 1994 and the related
Mortgage was paid in full. See Note 3 to the financial statements in Item 8 for
further information relating to the repayment of the Tivoli Lakes Mortgage.
-3-
<PAGE>
The Registrant's loan payable relating to its unsecured credit facility
was fully repaid on February 7, 1994 with a portion of the proceeds of the
Tivoli Lakes Mortgage repayment. Originally, $3,060,000 of this credit facility
was used to make a loan (the "Cross Creek Loan") to the present owner of the
Cross Creek property, Walsh/Cross Creek Limited Partnership ("Cross Creek")
which acquired title to the property upon the default of the original developer.
Such funds were used to pay for costs incurred to complete construction and to
fund operating deficits. Significant interests in Cross Creek are held by
affiliates of the Related General Partner. Cross Creek continues to be liable to
the Registrant for the outstanding balance and interest pursuant to the Cross
Creek Loan. Stephen M. Ross holds a majority interest in the Related General
Partner and has guaranteed to the Registrant that the Cross Creek Loan,
including all interest thereunder, will be repaid when due. See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 4 to the financial statements in Item 8.
Competition
The General Partners and/or their affiliates have formed, and may
continue to form, various entities to engage in businesses which may be
competitive with the Registrant. The Registrant's business is affected by
competition to the extent that the underlying properties from which it derives
interest and principal payments may be subject to competition from neighboring
properties. In particular, additional interest payments which are not insured
are dependent upon the economic performance of the underlying properties and may
be affected by competitive conditions.
Employees
The Registrant has no employees. Management and administrative services
for the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners receive special
distributions and reimbursement of expenses in connection with such activities
as described in Articles 9 and 11 of the Partnership Agreement. See Note 4 to
the financial statements in Item 8.
Other Events.
On December 31, 1996, the United States District Court for the Southern
District of New York (the "Court") issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the class
action litigation (the "Class Action") relating to the Registrant (In re
Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005) against
the Related General Partner and certain of its affiliates. See Note 7 to the
financial statements in Item 8. Pursuant to the stipulation of settlement
entered into with counsel for the class on December 24, 1996, the proposed
Related Settlement contemplates, among other matters, the reorganization (the
"Reorganization") of the Registrant and three other partnerships co-sponsored by
affiliates of the Related General Partner and PBP.
The proposed Related settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Registrant as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Registrant and Summit Insured Equity L.P., Summit Preferred Equity L.P. and
Eagle Insured L.P. will receive shares in a newly formed real estate investment
trust. It is anticipated that the shares will be allocated proportionately among
the partnerships and their respective investors based upon appraisals and other
factors and as supported by a third-party fairness opinion. Detailed information
about the proposed Related Settlement and Reorganization will be sent to
BUC$holders in the near future. The terms of the Reorganization include, among
other matters, the acquisition by affiliates of the Related Capital Company
("RCC") of PBP's general partner interest (the "PBP Interest"), transfer to the
BUC$holders one-half of the PBP Interest, the reduction of fees currently
payable to the General Partners by 25%, filing an application to list the new
company's shares on an exchange and the creation of an infinite, as opposed to
finite, life-operating business.
-4-
<PAGE>
In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Registrant by the Court.
Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame in which a closing may occur.
Item 2. Properties.
The Registrant does not own or lease any property.
Item 3. Legal Proceedings.
This information is incorporated by reference from Item 1. Business -
Other Events and Note 6 to the financial statements in Item 8.
Item 4. Submission of Matters to a Vote of BUC$holders.
None.
-5-
<PAGE>
PART II
Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters.
As of March 3, 1997 there were 3,934 holders of record owning 2,641,100
BUC$. A significant secondary market for the BUC$ has not developed and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in Section 13 of the Partnership Agreement limiting the
ability of a BUC$holder to transfer their BUC$. Furthermore, the Court's Order
in connection with the proposed Related Settlement of the Class Action imposes
certain restrictions on the transfer of the BUC$. See Item 1. Business - Other
Events. Consequently, BUC$holders may not be able to liquidate their investments
in the event of emergency or for any other reason.
The following per BUC cash distributions were paid from cash flow from
operations during the following calendar quarters:
Quarter Ended 1996 1995
------------- ----- -----
March 31 $0.2375 $0.2375
June 30 0.2375 0.2375
September 30 0.2375 0.2375
December 31 0.2375 0.2375
There are no material legal restrictions upon the Registrant's present
or future ability to make distributions in accordance with the provisions of the
Partnership Agreement. The Registrant currently expects that cash distributions
will continue to be paid in the foreseeable future from current cash flow from
operations. Approximately $65,000 and $127,000 of the distributions paid to BUC$
holders during 1996 and 1995, respectively, represent a return of capital on a
generally accepted accounting principles (GAAP) basis. The return of capital on
a GAAP basis is calculated as BUC$holder distributions less net income allocated
to BUC$holders. For a discussion of other factors that may affect the amounts of
future distributions, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
-6-
<PAGE>
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the
Registrant. Additional financial information is set forth in the financial
statements and notes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income from
mortgage loans $ 2,534,475 $ 2,536,426 $ 2,774,540 $ 3,630,936 $ 3,715,204
============ ============ ============ ============ ============
Equity gain (loss) $ (6,162) $ (66,265) $ 1,256,027(1) $ (168,980) $ (620,377)
============ ============ ============ ============ ============
Net income $ 2,650,938 $ 2,587,848 $ 4,031,885 $ 3,266,144 $ 2,741,550
============ ============ ============ ============ ============
Net income per BUC $ .93 $ .90 $ 1.44 $ 1.13 $ .93
============ ============ ============ ============ ============
Loan receivable from
affiliate $ 3,060,000 $ 3,060,000 $ 3,060,000 $ 3,060,000 $ 3,060,000
============ ============ ============ ============ ============
Total assets $ 33,055,428 $ 33,149,277 $ 33,251,564 $ 47,641,443 $ 48,082,937
============ ============ ============ ============ ============
Loan payable $ 0 $ 0 $ 0 $ 2,837,553 $ 3,060,000
============ ============ ============ ============ ============
Total Partnerships
Capital $ 32,949,421 $ 33,015,626 $ 33,144,921 $ 44,665,108 $ 44,865,987
============ ============ ============ ============ ============
Total BUC$holder
distributions $ 2,509,081 $ 2,509,081 $ 15,087,311(2) $ 3,169,320 $ 3,175,659
============ ============ ============ ============ ============
BUC$holder distributions
per BUC $ .95 $ .95 $ 5.71 $ 1.20 $ 1.20
============ ============ ============ ============ ============
</TABLE>
(1) Includes an equity gain of approximately $1,523,000 relating to the
collection of the equity loan made to the developer of the Tivoli Lakes
Apartments. The carrying value of this loan had been reduced to zero in previous
years.
(2) Includes a special distribution in March 1994 of approximtately $12,413,000
from the proceeds of a prepayment of the Tivoli Lakes Mortgage.
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Registrant originally invested in four Mortgages which financed
multifamily residential rental properties. As further discussed in Note 3 to the
financial statements, Tivoli Lakes Apartments was sold on January 31, 1994 and
the related Mortgage was paid in full.
All base interest and initially at least 90% in the aggregate of the
principal of the Mortgages made by the Registrant are coinsured by the FHA (80%
of the 90%) and an affiliate of the Related General Partner (20% of the 90%),
with the remaining 10% of the Registrant's original portfolio comprised of
uninsured non-interest-bearing equity loans made directly to the same developers
as are the mortgage investments. With respect to a default on FHA co-insured
loans, the Partnership would bear the risk of loss with respect to uninsured
portions of the loans (10% of Mortgage Loan and additional interest), however
these are secured by the interests in the partnerships owning the underlying
properties. The equity loans to developers are recorded at zero as of December
31, 1996 as a result of being accounted for under the equity method of
accounting without elimination of the amount due and owing to the Partnership.
The Registrant is entitled to receive additional interest on each
Mortgage from the annual net cash flow of the development and from a percentage
of the residual value upon sale or refinancing. The receipt of additional
interest is dependent upon the economic performance of the underlying
properties. During 1996, the Registrant received additional interest payments of
approximately $77,000 from Woodgate Manor.
In prior years, the Registrant utilized $3,060,000 of an unsecured
credit facility to advance funds in the form of a loan to Walsh/Cross Creek L.P.
("Cross Creek Loan") to enable it to complete construction and to fund operating
deficits. See Note 4 to the financial statements. On February 7, 1994, the
Registrant used a portion of the proceeds from the Tivoli Lakes repayment to
fully repay its outstanding debt under the credit facility of $2,837,553;
however, the Cross Creek Loan remains outstanding. Stephen M. Ross, who holds a
majority interest in the Related General Partner, has guaranteed repayment of
the principal and interest on the Cross Creek Loan (as amended, the "Guarantee
Agreement"). See Note 4 to the financial statements for further information. Mr.
Ross remains in compliance with his obligations under the Guarantee Agreement
and Amendment to the Guarantee. However, significant portions of his assets are
in the form of partnership interests and corporate stock which are pledged or
are otherwise illiquid. Furthermore, a significant portion of the cash flow
which Mr. Ross would otherwise be expected to receive from his business
operations is presently pledged to meet other obligations. Mr. Ross also has
contingent liabilities that, if simultaneously called upon, could result in Mr.
Ross having insufficient liquid assets to meet all of his current liabilities.
There can be no assurance that Mr. Ross will have the liquidity necessary to
continue to comply with his obligations under the Guarantee Agreement and
Amendment to the Guarantee. In addition, Mr. Ross has capitalized the Related
General Partner with a demand promissory note and, if called upon to pay all or
a portion of this note, there is no assurance that he will have the liquidity
necessary to meet such demand.
FAI, Ltd. Weatherly Walk Apartments ("Weatherly Walk") and Walsh/Cross
Creek Limited Partnership ("Cross Creek") have in the past experienced recurring
operating losses, working capital deficiencies and negative cash flows which
raised concerns of a potential default on the related Mortgages and equity
loans. With respect to Weatherly Walk, the Fayetteville, Georgia market has
improved, and the partnership which owns the property is no longer experiencing
operating deficits, working capital deficiencies on negative cash flows and it
is currently meeting its operating obligations including required Mortgage
payments. With respect to Cross Creek, which continues to experience recurring
operating losses, as indicated above and in Note 4, Stephen M. Ross has
guaranteed the performance of all obligations for the payment of interest (at
8.95%) and principal of the first Mortgage together with the equity loan and has
contributed $255,000 during 1996 ($3,182,732 cumulatively) to cover operating
losses and working capital deficiencies, allowing this property to meet all
required Mortgage payments.
-8-
<PAGE>
The quarterly distribution to BUC$holders was decreased to $.2375 per
BUC in the second quarter of 1994 as a result of the Tivoli Lakes loan repayment
which reduced the Partnership's interest income. The fourth quarter 1996
distribution of approximately $627,000 was paid to BUC$holders in February 1997
from adjusted cash flow from operations and the Registrant anticipates
continuing to fund cash distributions in the future from the same source.
Principal and interest payments from Mortgages are anticipated to provide
sufficient liquidity to meet the operating expenditures of the Registrant in
future years.
At the beginning of the year, the Registrant had cash and cash
equivalents of approximately $1,146,000. After the receipt of net cash flow from
operations of approximately $2,658,000, principal payments received on mortgage
loans of approximately $141,000 and the payment of distributions of
approximately $2,717,000, the Registrant had approximately $1,228,000 in cash
and cash equivalents at December 31, 1996.
For a discussion of the proposed settlement of the Class Action relating
to the Registrant see Other Events in Item 1. Business above.
Management is not aware of any trends or events, commitments or
uncertainties which have not otherwise been disclosed, that will or are likely
to impact liquidity in a material way. All base interest and at least 90% of the
principal of the Registrant's investments in Mortgages are insured or co-insured
by the FHA and a private mortgage lender (which is an affiliate of the Related
General Partner). The Registrant's investment in unsecured non-interest bearing
equity loans (which represent approximately 10% of the Registrant's original
portfolio) are secured by the interest in the partnerships owning the underlying
properties which are diversified by location so that if one state is
experiencing downturns in the economy, the remaining properties may be
experiencing upswings. However, the geographic diversifications of the portfolio
may not protect against a general downturn in the national economy.
The Registrant anticipates that cash generated currently from the
operations of the properties underlying the Registrant mortgage loans (taking
into account certain guarantees and the current performance of the properties
and the markets) will be sufficient to meet the required debt service payments
to the Registrant.
Results of Operations
1996 vs. 1995
The Registrant's net income for the year ended December 31, 1996
increased by approximately $63,000 as compared to 1995 for the reasons described
below.
During the years ended December 31, 1996 and 1995, the Partnership
recorded equity losses of approximately $6,000 and $66,000, respectively,
relating to net equity losses from the Woodgate Manor property. The decrease in
1996 was due to the carrying value of the Woodgate Manor equity loan being
reduced to zero by the current year loss.
General and administrative expenses decreased approximately $26,000 for
the year ended December 31, 1996 as compared to 1995 primarily due to the cost
of obtaining appraisals of the properties securing the Partnership's three
mortgage loans in 1995 as well as an overaccrual of audit fees at December 31,
1995.
1995 vs. 1994
The Registrant's net income for the year ended December 31, 1995
decreased by approximately $1,444,000 as compared to 1994 for the reasons
described below.
Interest income from mortgage loans decreased approximately $238,000 in
1995 as compared to 1994 primarily due to the reduced interest received by the
Registrant as a result of the repayment of the Tivoli Lakes mortgage in January
1994 and reduced amounts of additional interest received from Woodgate Manor in
1995 relative to 1994. With regard to Woodgate, certain capital repairs and
improvements were made to the property in 1995 which reduced net cash flow and
therefore, the amount of additional interest which was due and payable to the
Registrant.
-9-
<PAGE>
Interest income from loan receivable increased approximately $52,000 for
the year ended December 31, 1995 as compared to the corresponding period in 1994
due to increases of approximately 2% in the prime rate in 1995.
Interest income from temporary investments decreased approximately
$33,000 for the year ended December 31, 1995 as compared to the corresponding
period in 1994 primarily from nonrecurring interest earned on the undistributed
proceeds from the Tivoli Lakes Mortgage repayment during the first quarter of
1994.
During 1995 and 1994, the Registrant recorded an equity loss of
approximately $66,000 and equity gain of approximately $1,256,000, respectively.
The carrying value of the Tivoli Lakes equity loan of $1,523,000 had been
reduced to zero in previous years. The equity loan was fully repaid on January
31, 1994 resulting in an equity gain of $1,523,000 in 1994. The 1994 gain was
offset, in part, by an equity loss of approximately $267,000 relating to the
Woodgate Manor property. The equity loss recorded in 1995 was attributable to
the Woodgate Manor property.
Other income decreased approximately $403,000 for the year ended
December 31, 1995 as compared to the corresponding period in 1994 primarily due
to prepayment penalties and other fees associated with the Tivoli Lakes Mortgage
loan payment in 1994.
Interest expense on loan payable decreased approximately $20,000 in 1995
as compared to 1994 as a result of the repayment of the outstanding debt under
the credit facility with a portion of the proceeds from the Tivoli Lakes
repayment in February 1994.
The Registrant wrote off approximately $495,000 in loan origination fees
relating to the Tivoli Lakes Mortgage in the first quarter of 1994.
Additional Information
The following table lists the respective occupancy rates at each of the
properties securing Mortgages as of March 9, 1997.
Property Location Occupancy %
-------- -------- -----------
Cross Creek Apartments Charlotte, NC 91.0%
Weatherly Walk Apartments Fayetteville, GA 84.4%
Woodgate Manor Gainesville, FL 96.0%
10
<PAGE>
Item 8. Financial Statements and Supplementary Data.
(a) 1. Financial Statements Page
----
Independent Auditors' Report 12
Statements of Financial Condition as of December 31, 1996
and 1995 13
Statements of Income for the years ended December 31, 1996,
1995 and 1994 14
Statements of Changes in Partners' Capital (Deficit) for the
years ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 16
Notes to Financial Statements 17
11
<PAGE>
[Letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Eagle Insured L.P.
New York, New York
We have audited the accompanying statements of financial condition of
Eagle Insured L.P. (a Delaware Limited Partnership) as of December 31, 1996 and
1995, and the related statements of income, changes in partners' capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14. These financial statements and financial
statement schedule are the responsibility of the General Partners. Our
responsibility is to express an opinion on the financial statements and
financial statement schedule 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 the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Eagle Insured L.P. as of December
31, 1996 and 1995 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/DELOITTE & TOUCHE LLP
New York, New York
March 20, 1997
12
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
----------------------------
1996 1995
------------ ------------
Investments in mortgage loans $ 27,623,254 $ 27,764,817
Loan receivable from affiliate 3,060,000 3,060,000
Deferred loan origination fees, net 932,303 962,387
Cash and cash equivalents 1,228,487 1,145,895
Interest receivable 204,387 206,763
Equity loan to developer 0 6,162
Other assets 6,997 3,253
------------ ------------
Total assets $ 33,055,428 $ 33,149,277
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Due to affiliates $ 47,974 $ 76,429
Accrued expenses 58,033 57,222
------------ ------------
Total liabilities 106,007 133,651
------------ ------------
Contingencies
Partners' capital (deficit):
BUC$holders (2,641,100 BUC$
issued and outstanding) 33,286,865 33,351,747
General partners (337,444) (336,121)
------------ ------------
Total partners' capital 32,949,421 33,015,626
------------ ------------
Total liabilities and partners' capital $ 33,055,428 $ 33,149,277
============ ============
See accompanying notes to financial statements
13
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Interest income:
Mortgage loans $ 2,534,475 $ 2,536,426 $2,774,540
Equity gain (loss) (6,162) (66,265) 1,256,027
Loan receivable from affiliate 288,426 305,022 252,684
Temporary investments 47,412 51,627 84,349
Other income 0 0 403,000
----------- ----------- ----------
Total revenues 2,864,151 2,826,810 4,770,600
----------- ----------- ----------
Expenses:
Interest expense on loan payable 0 0 20,415
General and administrative 183,129 208,878 192,098
Amortization of deferred loan origination fees 30,084 30,084 31,277
Write-off of deferred loan origination fees 0 0 494,925
----------- ----------- ----------
Total expenses 213,213 238,962 738,715
----------- ----------- ----------
Net income $ 2,650,938 $ 2,587,848 $4,031,885
=========== =========== ==========
Allocation of Net Income:
BUC$holders $ 2,444,199 $ 2,382,371 $3,797,527
=========== =========== ==========
General partners:
Special distribution $ 156,857 $ 156,857 $ 156,857
Other 49,882 48,620 77,501
----------- ----------- ----------
$ 206,739 $ 205,477 $ 234,358
=========== =========== ==========
Net income per BUC $ .93 $ .90 $ 1.44
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements
14
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Total BUC$holders General Partner
----- ----------- ---------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1994 $ 44,665,108 $ 44,768,241 $(103,133)
Net income 4,031,885 3,797,527 234,358
Distributions (15,552,072) (15,087,311) (464,761)
------------ ------------ ---------
Partners' capital (deficit) - December 31, 1994 33,144,921 33,478,457 (333,536)
Net income 2,587,848 2,382,371 205,477
Distributions (2,717,143) (2,509,081) (208,062)
------------ ------------ ---------
Partners' capital (deficit) - December 31, 1995 33,015,626 33,351,747 (336,121)
Net income 2,650,938 2,444,199 206,739
Distributions (2,717,143) (2,509,081) (208,062)
------------ ------------ ---------
Partners' capital (deficit) - December 31, 1996 $ 32,949,421 $ 33,286,865 $(337,444)
============ ============ =========
</TABLE>
See accompanying notes to financial statements
15
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 2,872,689 $ 2,940,221 $ 3,223,547
Other income received 0 0 403,000
General and administrative expenses paid (214,517) (180,564) (223,676)
Interest paid 0 0 (20,415)
----------- ----------- ------------
Net cash provided by operating activities 2,658,172 2,759,657 3,382,456
----------- ----------- ------------
Cash flows from investing activities:
Principal payments received on mortgage loans 141,563 127,699 13,632,206
Repayment of equity loan receivable 0 0 1,523,300
----------- ----------- ------------
Net cash provided by investing activities 141,563 127,699 15,155,506
----------- ----------- ------------
Cash flows from financing activities:
Distributions paid (2,717,143) (2,717,143) (15,552,072)
Repayment of loan payable 0 0 (2,837,553)
----------- ----------- ------------
Net cash used in financing activities (2,717,143) (2,717,143) (18,389,625)
----------- ----------- ------------
Net increase in cash and cash equivalents 82,592 170,213 148,337
Cash and cash equivalents at beginning of year 1,145,895 975,682 827,345
----------- ----------- ------------
Cash and cash equivalents at end of year $ 1,228,487 $ 1,145,895 $ 975,682
=========== =========== ============
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 2,650,938 $ 2,587,848 $ 4,031,885
----------- ----------- ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity (gain) loss 6,162 66,265 (1,256,027)
Amortization of deferred loan origination fees 30,084 30,084 31,277
Write-off of deferred loan origination fees 0 0 494,925
Changes in:
Interest receivable 2,376 36,854 104,726
Other assets (3,744) 11,598 7,809
Due to affiliates (28,455) 13,753 (15,190)
Accrued expenses 811 13,255 (16,949)
----------- ----------- ------------
Total adjustments 7,234 171,809 (649,429)
----------- ----------- ------------
Net cash provided by operating activities $ 2,658,172 $ 2,759,657 $ 3,382,456
=========== =========== ============
</TABLE>
See accompanying notes to financial statements
16
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - General
Eagle Insured L.P., a Delaware limited partnership (the "Partnership"),
was formed on August 13, 1987 and will terminate on December 31, 2040 unless
terminated sooner under the provisions of the Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement"). The Partnership was formed to
invest in insured, coinsured or guaranteed mortgage investments. The general
partners of the Partnership are Prudential-Bache Properties, Inc. ("PBP") and
Related Federal Insured L.P. (the "Related General Partner") (collectively, the
"General Partners"). Related FI BUC$ Associates, Inc. (the "Assignor Limited
Partner"), which acquired and holds limited partnership interests on behalf of
those persons who purchased Beneficial Unit Certificates ("BUC$"), has assigned
to those persons substantially all of its rights and interests in and under such
limited partnership interests. The Related General Partner and the Assignor
Limited Partner are under common ownership.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
b) Cash and Cash equivalents
Cash and cash equivalents include cash in banks and investments in
short-term instruments with an original maturity of three months or less, for
which cost approximates market value.
c) Investment in Mortgage Loans
The insured mortgage investments are recorded as loans. Amounts
received or receivable from the properties for interest payments on these loans
are reflected as interest income in the Statements of Income. Equity loans to
developers are accounted for under the equity method of accounting without
elimination of the amount due and owing to the Partnership. Equity gains
(losses) recorded on these loans are included in the Statements of Income.
At least annually, and more frequently if circumstances warrant, the
Partnership evaluates the collectibility of both interest and principal of each
of its loans to determine whether it is impaired. A loan is considered to be
impaired when, based on current information and events, it is probable the
Partnership will be unable to collect all amounts due according to the existing
contractual terms. When a loan is considered to be impaired, the amount of the
loss accrual is determined by discounting the expected future cash flows at the
loan's effective interest rate or, for practical purposes, from the estimated
fair value of the collateral.
17
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
Note: 2-Summary of Significant Accounting Policies (continued)
d) Loan Origination Fees
The General Partners were paid loan origination fees equal to 3% of
gross proceeds from the initial offering. Loan origination fees were capitalized
and are amortized over the lives of the mortgages. The accumulated amortization
relating to mortgages outstanding at December 31, 1996 and 1995 was $250,798 and
$220,714, respectively.
e) Income Taxes
The Partnership is not required to provide for, or pay, any Federal
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual BUC$holders. The Partnership may be subject to state
and local taxes in jurisdictions in which it operates.
f) Profit and Loss Allocations/Distributions
The General Partners receive a special distribution of adjusted cash
from operations for managing the affairs of the Partnership (equal to .5% per
annum of total invested assets) which is payable quarterly, subject to certain
limitations. After payment of the special distribution, quarterly distributions
of cash are made from adjusted cash from operations and are allocated 98% to the
BUC$holders and 2% to the General Partners. For financial reporting purposes,
net profits or losses after the special distribution are allocated 98% to the
BUC$holders and 2% to the General Partners.
NOTE 3 - Investment in Mortgage Loans and Equity Loans to Developers
All base interest and initially at least 90% in the aggregate of the
principal of the loans made by the Partnership are coinsured by the Federal
Housing Administration (the "FHA") (80% of the 90%) and Related Mortgage
Corporation, and affiliate of the Related General Partner (20% of the 90%), with
the remaining 10% of the Partnership's original portfolio comprised of uninsured
noninterest-bearing equity loans made directly to the same developers as are the
mortgages. With respect to a default on FHA co-insured loans, the Partnership
would bear the risk of loss with respect to uninsured portions of the loans (10%
of Mortgage Loan and additional interest), however these are secured by the
interests in the partnerships owning the underlying properties. The loans
require monthly payment of principal and interest over the life of the mortgage
loan.
Equity loans to developers, in the original amount of $3,018,800 on the
remaining three projects represented noninterest-bearing advances made to the
developers for such items as initial operating deficit escrow requirements and
Housing and Urban Development ("HUD") related contingencies such as working
capital escrow and cash requirements. Such amounts are due on demand after six
months notice any time after the tenth anniversary of the initial endorsement of
the loan by HUD. Equity operating losses have reduced the carrying value of
these loans to zero as of Decemer 31, 1996 without elimination of the amount due
and owing to the Partnership.
18
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
Note: 3- Investments in Mortgage Loans and Equity Loans To Developers
(continued)
Information relating to investments in FHA co-insured mortgage loans
and equity loans to developers as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Interest Mortgage Mortgage Equity Equity
Funding Final Rate on Loan Loan Loan Loan
Closing Completion Maturity Mortgage Balance at Balance at Balance at Balance at
Project Date Date Date (1) Loan (2) 12/31/96 12/31/95 12/31/96 12/31/95
- ------- --------- ---------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cross Creek
Apartments
Charlotte,
NC (3) 06/10/88 2/1/91 1/1/30 8.95% $17,106,744 $17,187,347 $0 $ 0
Weatherly Walk
Apartments
Fayetteville,
GA 08/18/88 12/5/89 11/1/29 8.95% 7,553,454 7,589,607 0 0
Woodgate Manor
Gainesville,
FL (3) 12/12/88 12/13/88 1/1/24 8.95% 2,963,056 2,987,863 0 6,162
----------- ----------- -- ------
$27,623,254 $27,764,817 $0 $6,162
=========== =========== == ======
</TABLE>
(1) The Partnership may call for prepayment of the total loan at any
time after the tenth anniversary of the date the mortgage loan funding was
completed. The Partnership, in order to call for prepayment, would be required
to terminate the mortgage insurance contract with FHA (and/or the coinsurer) not
later than the accelerated payment date. Since the exercise of such option would
be at the Partnership's discretion, it is intended to be exercised only where
the Partnership determines that the value of the Development has increased by an
amount which would justify accelerating payment in full and assuming the risks
of foreclosure if the mortgagor failed to make the accelerated payment. The
Partnership presently expects to dispose of such loans within 10 to 15 years
after acquisition.
For a period of five years from the loan closing date, the owners of
the properties did not have the right to prepay the mortgage loans without the
consent of the General Partners. Beginning in the sixth year and thereafter, any
prepayment during one calendar year in an amount in excess of 15% of the
original principal amount of the mortgage loan will be subject to a prepayment
penalty. The prepayment penalty is 5% in the sixth year and decreases 1% per
year thereafter.
(2) Includes a servicing fee of 0.07% paid by the developer to Related
Mortgage Corporation (an affiliate of the Related General Partner); however,
does not include additional interest which may be payable.
(3) The general partnership interest of the project is held by an
affiliate of the Related General Partner.
19
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Investment in Mortgage Loans and Equity Loans to Developers (continued)
On January 31, 1994, Tivoli Lakes Associates, Ltd., the owner of
Tivoli Lakes Apartments, a property securing a first mortgage note held by the
Partnership, sold the property to a real estate investment trust which is not
affiliated with the Partnership, its General Partners or Tivoli Lakes
Associates, Ltd. With the consent of the General Partners, the proceeds from the
sale were used to fully repay the Partnership's first mortgage note of
$13,513,611 as well as to repay the original equity loan made to the property's
developer of $1,523,300, the carrying value of which had been reduced to zero in
previous years. In addition, prepayment penalties and other fees of
approximately $403,000 were paid to the Partnership in connection with this
transaction. Tivoli Lakes Associates, Ltd. also used a portion of the proceeds
from the sale to pay the Partnership approximately $63,000 of interest pursuant
to their additional interest guaranty. Deferred loan origination fees of
approximately $495,000 were written off in 1994 as a result of the loan
repayments.
On February 7, 1994, the Partnership used a portion of the proceeds
received from the transaction described above to fully repay its outstanding
debt of $2,837,553. See Note 4 for further information. In March 1994,
distributions of $12,413,170 ($4.70 per BUC) and $253,330 were paid to the
BUC$holders and General Partners, respectively, as a result of the prepayment by
Tivoli Lakes Associates, Ltd.
Following is the interest income from mortgage loans as a percentage of
total revenues, excluding equity gains (losses).
1996 1995 1994
Cross Creek 53% 53% 49%
Weatherly Walk 23 23 22
Woodgate Manor 12 11 13
Tivoli Lakes - - 5
Tivoli Lakes Apartments was sold on January 31, 1994 and the related
Mortgage was paid in full.
At December 31, 1996 and 1995, the estimated fair value of the
Partnership's portfolio of mortgage loans, equity loans and the Cross Creek Loan
(see Note 4) was approximately $32,639,000 and $32,814,000, respectively. The
estimated fair values for the years ended December 31, 1996 and 1995 were based
on internal valuations, of the three properties collateralizing these loans and
independently appraised values, as of October 1, 1995, respectively. Fair value
estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. This estimate is
subjective in nature and involves uncertainties and matters of significant
judgment. Changes in assumptions could significantly affect estimates. Due to
the property-specific nature of the loans and the lack of a ready market for
such investments, this fair value estimate does not necessarily represent the
amount which the Partnership could realize upon a current sale of its
investments.
20
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 - Related Parties
The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PBP and affiliates $ 36,045 $ 63,422 $ 79,645
Related General Partners and affiliates 41,931 13,000 12,375
-------- ------- -------
$ 77,976 $ 76,422 $ 92,020
======== ======= =======
</TABLE>
The present owner of the Cross Creek property ("Walsh/Cross Creek
L.P.") acquired title to the property upon the default of the original
developer. Significant interests in Walsh/Cross Creek L.P. are held by
affiliates of the Related General Partner. The Partnership made a loan of
$3,060,000 to Walsh/Cross Creek L.P. (the "Cross Creek Loan") to pay for costs
incurred to complete construction and to fund operating deficits. The Cross
Creek Loan bears interest at the prime rate plus 1% and is due on January 1,
2030 or on the occurrence of other events as more fully described in the loan
agreement. The amount loaned to Walsh/Cross Creek L.P. is classified as a loan
reveivable from affiliate and is anticipated to be repaid from cash flows from
the property. Stephen M. Ross holds a majority interest in the Related General
Partner and has guaranteed to the Partnership, subject to certain conditions
contained in the Guarantee Agreement and Amendment to the Guarantee as follows:
(i) the performance of all obligations for the payment of interest on the Cross
Creek Loan when due in accordance with documentation evidencing the Cross Creek
Loan; (ii) the payment of principal on the Cross Creek Loan on or before
December 31, 2000; (iii) the repayment on or before December 31, 2000 of the
$1,783,900 equity loan (currently recorded at zero) previously made to the
original developer of Cross Creek; and (iv) the payment when due of interest and
principal at an interest of 8.95% of the $17,494,100 first mortgage loan
previously made to the original developer.
In accordance with the Guarantee Agreement and Amendment to the
Guarantee and except as otherwise required by HUD, available cash flow or
capital proceeds from the Cross Creek property will be applied first to all
expenses of operating and maintaining the property, debt service and/or
satisfaction of the mortgage loan, equity loan and Cross Creek Loan, then to
reimburse Stephen M. Ross for operating deficit payments which he has made
(amounting to $255,000 for the year ended December 31, 1996 and $3,182,732,
cumulatively), then to additional interest, default rate and guaranteed rate
payments as set forth in the Subordinated Note and the Additional Interest
Guarantee.
The Partnership maintained an account with the Prudential Institutional
Liquidity Portfolio Fund, an affiliate of PBP, for investment of its available
cash in short-term instruments in 1995 in accordance with the guidelines
established by the Partnership Agreement.
Prudential Securities Incorporated ("PSI"), an affiliate of PBP, owns
6,655 BUC$ at December 31, 1996.
21
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 5 - Income Taxes
The following is a reconciliation of net income for financial reporting
purposes with net income for tax reporting purposes for the years ended December
31, 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Net income per financial statements $2,650,938 $2,587,848 $ 4,031,885
Elimination of equity (gain) loss 6,162 66,265 (1,256,027)
Other 0 35,509 (35,509)
---------- ---------- -----------
Tax basis net income $2,657,100 $2,689,622 $ 2,740,349
========== ========== ===========
</TABLE>
The differences between the tax and book bases of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments and the recording of the fourth quarter distribution.
Effective October 1, 1995, the Related General Partner has assumed from
PBP, the responsibilities and duties of the Tax Matters Partner as defined in
the Partnership Agreement.
NOTE 6 - Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes
et al. v. Prudential Securities Group, Inc. et al. (CV-93-654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership, against the Partnership, PBP, PSI and a number
of other defendants.
By order of the Judicial Panel on Multidistrict Litigation dated April
14, 1994, the Kinnes case, together with a number of other actions not involving
the Partnership, were transferred to a single judge of the United States
District Court for the Southern District of New York (the "Court") and
consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005) (the
"Class Action"). On June 8, 1994, plaintiffs in the transferred cases filed a
complaint that consolidated the previously filed complaints and named as
defendants, among others, PSI, certain of its present and former employees and
the General Partners. The Partnership was not named a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995, PBP, PSI and other Prudential defendants entered
into a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The Court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
Court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
22
<PAGE>
EAGLE INSURED L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 - Contingencies (continued)
On December 31, 1996, the Court issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the Class
Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
three other partnerships co-sponsored by affiliates of the Related General
Partner and PBP.
The proposed Related Settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the
Partnership and Summit Insured Equity L.P., Summit Insured Equity L.P. II and
Summit Preferred Equity L.P. will receive shares in a newly formed real estate
investment trust. It is anticipated that the shares will be allocated
proportionately among the partnerships and their respective investors based upon
appraisals and other factors as supported by a third-party fairness opinion.
Detailed information about the proposed Related Settlement and Reorganization
will be sent to BUC$holders in the near future. The terms of the Reorganization
include, among other matters, the acquisition by affiliates of the Related
Capital Company ("RCC") of PBP's general partner interest (the "PBP Interest"),
transfer to the BUC$holders of one-half of the PBP Interest, reduction of fees
currently payable to the General Partners by 25%, filing an application to list
the new company's shares on an exchange and the creation of an infinite, as
opposed to finite, life-operating business.
In connection with the proposed Related Settlement and Reorganization,
on December 19, 1996, PBP and RCC entered into an agreement for the purchase by
RCC or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Partnership by the Court.
Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame. In the event a settlement cannot
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.
NOTE 7 - Subsequent Event
In February 1997, distributions of approximately $627,000 and $13,000
were paid to the BUC$holders and General Partners, respectively, for the quarter
ended December 31, 1996.
23
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
There are no directors or executive officers of the Registrant. The
Registrant is managed by the General Partners. The Related General Partner
assumed the responsibilities of the Tax Matters Partner as of October 1, 1995.
The Registrant, the General Partners and their directors and executive
officers, and any BUC$holder holding more than ten percent of the Registrant's
BUC$ are required to report their initial ownership of such BUC$ and any
subsequent changes in that ownership to the Securities and Exchange Commission
on Forms 3, 4 and 5. The Registrant is not aware of any BUC$ holders who own
more than ten percent of the BUC$. Such executive officers, directors are
required by Securities and Exchange Commission regulators to furnish the
Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing
requirements were satisfied by the officers and directors of the General
Partners on a timely basis for the current year. In making these disclosures,
the Registrant has relied solely on written representations of the General
Partners' directors and executive officers or copies of the reports they have
filed with the Securities and Exchange Commission during and with respect to its
most recent fiscal year.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP and their positions with
regard to managing the Registrant are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the
Board of Directors and Director
Barbara J. Brooks Vice President - Finance
Eugene D. Burak Vice President
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive
Officer, Chairman of the Board of Directors, and a Director of PBP. He is a
Senior Vice President of Prudential Securities Incorporated ("PSI"), an
affiliate of PBP. Mr. Lynch also serves in various capacities for other
affiliated companies. Mr. Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief
Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.
24
<PAGE>
EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He
is a Senior Vice President of PSI and is the Senior Manager of the Specialty
Finance Asset Management area. Mr. Piskorowski has held several positions within
PSI since April 1972. Mr. Piskorowski is a member of the New York and Federal
Bars.
FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice
President of PSI and Executive Vice President and General Counsel of Prudential
Mutual Fund Management, LLC, an affiliate of PSI. Mr. Giordano also serves in
various capacities for other affiliated companies. He has been with PSI since
July 1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. She is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work for PSI. She joined PSI's Law Department in 1983; presently she also serves
in various capacities for other affiliated companies.
There are no family relationships among any of the foregoing directors
or executive officers. All of the foregoing directors and executive officers
have indefinite terms.
Related Federal Insured L.P.
The Related General Partner consists of RFI Associates Inc. ("RFI"), a
Delaware corporation, as its sole general partner and Related FIDC Associates, a
New York general partnership, as its limited partner.
The directors and executive officers of RFI are as follows:
Name Position
---- --------
J. Michael Fried President and Director
Stuart J. Boesky Vice President
Alan P. Hirmes Vice President
Richard A. Palermo Treasurer
Stephen M. Ross Director
Lynn A. McMahon Secretary
J. MICHAEL FRIED, 52, is President and a Director of the general
partner of the Related General Partner. Mr. Fried is President, a Director and a
principal shareholder of Related Capital Company ("Capital"), a real estate
finance and acquisition affiliate of the Related General Partner. In that
capacity, he is the chief executive officer of Capital, and is responsible for
initiating and directing all of Capital's syndication, finance, acquisition and
investor reporting activities. Mr. Fried practiced corporate law in New York
City with the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he
joined Capital in 1979. Mr. Fried graduated from Brooklyn Law School with a
Juris Doctor degree, magna cum laude; from Long Island University Graduate
School with a Master of Science degree in Psychology; and from Michigan State
University with a Bachelor of Arts degree in History.
25
<PAGE>
STUART J. BOESKY, 40, is Vice President of the general partner of the
Related General Partner. Mr. Boesky practiced real estate and tax law in New
York City with the law firm of Shipley & Rothstein from 1984 until February 1986
when he joined Capital where he presently serves as Managing Director. From 1983
to 1984 Mr. Boesky practiced law with the Boston law firm of Kaye, Fialkow
Richard & Rothstein (which subsequently merged with Strook and Strook and Lavan)
and from 1978 to 1980 was a consultant specializing in real estate at the
accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan State
University with a Bachelor of Arts degree and from Wayne State University School
of Law with a Juris Doctor degree. He then received a Master of Law degree in
Taxation from Boston University School of Law.
ALAN P. HIRMES, 42, is a Vice President of the general partner of the
Related General Partner. Mr. Hirmes has been a Certified Public Accountant in
New York since 1978. Prior to joining Capital in October 1983, Mr. Hirmes was
employed by Weiner & Co., certified public accountants. Mr. Hirmes is also a
Managing Director of Capital. Mr. Hirmes graduated from Hofstra University with
a Bachelor of Arts degree.
RICHARD A. PALERMO, 36, is Treasurer of the general partner of the
Related General Partner. Mr. Palermo has been a Certified Public Accountant in
New York since 1985. Prior to joining Related in September 1993, Mr. Palermo was
employed by Sterling Grace Capital Management from October 1990 to September
1993, Integrated Resources, Inc., from October 1988 to October 1990 and E.F.
Hutton & Company, Inc. from June 1986 to October 1988. From October 1982 to June
1986, Mr. Palermo was employed by Marks Shron & Company and Mann Judd Landau,
certified public accountants. Mr. Palermo graduated from Adelphi University with
a Bachelor of Business Administration degree.
STEPHEN M. ROSS, 56, is a Director of the general partner of the
Related General Partner. Mr. Ross is President of The Related Companies, L.P. He
graduated from The University of Michigan with a Bachelor of Business
Administration degree and from Wayne State University School of Law. Mr. Ross
then received a Master of Law degree in taxation from New York University School
of Law. He joined the accounting firm of Coopers & Lybrand in Detroit as a tax
specialist and later moved to New York, where he worked for two large Wall
Street investment banking firms in their real estate and corporate finance
departments. Mr. Ross formed The Related Companies, Inc. ("Related") in 1972, to
develop, manage, finance and acquire subsidized and conventional apartment
developments. To date, Related has developed multi-family properties totaling in
excess of 25,000 units, all of which it manages.
LYNN A. McMAHON, 41, is Secretary of the general partner of the Related
General Partner. Since 1983, she has served as Assistant to the President of
Capital. From 1978 to 1983 she was employed at Sony Corporation of America in
the Government Relations Department.
There are no family relationships between the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
26
<PAGE>
Item 11. Executive Compensation.
The Registrant does not pay or accrue any fees, salaries or any other
form of compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from affiliates of the General Partners, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partners believe
that any compensation attributable to services performed for the Registrant is
immaterial. See Item 13. Certain Relationships and Related Transactions for
information regarding compensation to the General Partners.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Other than directors and officers of the general partner of the Related
General Partner who as a group directly own a 99.97% interest in the voting
securities of the Assignor Limited Partner and the general partner of The
Related General Partner, as of March 3, 1997, no director or officer of either
General Partners owns directly or beneficially any interest in the voting
securities of PBP or the Related General Partner.
As of March 3, 1997, no director or officer of either of the General
Partners owns directly or beneficially any of the BUC$ issued by the Registrant.
As of March 3, 1997, no BUC$holder beneficially owns more than five
percent (5%) of the BUC$ issued by the Registrant.
Item 13. Certain Relationships and Related Transactions.
The Registrant has, and will continue to have, certain relationships
with the General Partners and their affiliates. Stephen M. Ross, who holds a
majority interest in the Related General Partner, has made certain guarantees to
the Registrant which are discussed in Note 4 to the financial statements in Item
8. Except as noted, there have been no direct financial transactions between the
Registrant and the directors or officers of the General Partners.
Reference is made to Notes 1 and 4 to the financial statements in Item
8, which identify the related parties and discuss the services provided by these
parties and the amounts paid or payable for their services.
27
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C>
(a) 1. Financial Statements
Independent Auditors' Report 12
Statements of Financial Condition as of December 31, 1996 and 1995 13
Statements of Income for the years ended December 31, 1996, 1995
and 1994 14
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 16
Notes to Financial Statements 17
(a) 2. Financial Statement Schedules
Schedule IV-Mortgage Loans on Real Estate at December 31, 1996 33
All other schedules have been omitted because they are not
required or because the required information is contained in the
financial statements or notes hereto.
Separate Financial Statements for FAI, Ltd., Weatherly Walk
Apartments and Walsh/Cross Creek Limited Partnership (a majority
owned subsidiary of Cross Creek of Columbia, Inc.) 34
</TABLE>
28
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C>
(a) 3. Exhibits
3(a) and 4(a) Agreement of Limited Partnership, as amended
(incorporated by reference to Exhibits 3(a) and 4(a) to the
Prospectus of the Registrant dated December 11, 1987 filed
pursuant to Rule 424(b) under the Securities Act of 1933, File No.
33-17059)
3(b) and 4(b) Certificate of Limited Partnership, as amended (incorporated by reference to
Exhibits 3(a) and 4(a) to the Registration Statement on Form S-11 (No. 33-17059)
dated November 17, 1987 and to Amendment No. 2 to such Registration Statement
dated December 2, 1987)
3(c) Amendment No. 1 to the Partnership Agreement, dated February 10, 1988
(incorporated by reference to Exhibit 3(c) in Registrant's Annual Report on Form
10-K for the period ended December 31, 1987)
3(d) Amendment No. 2 to the Partnership Agreement , dated October 1, 1995 (incorporated
by reference to Exhibit 3(d) in Registrant's Annual Report on Form 10-K for the
period ended December 31, 1995)
10(a) Mortgage Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount
of $17,494,100 (incorporated by reference to Exhibit 10(b) in
Registrant's Current Report on Form 8-K dated June 15, 1988)
10(b) Equity Loan Note, dated June 10, 1988, with respect to Cross Creek
Apartments in Charlotte, North Carolina, in the principal amount
of $1,783,900 (incorporated by reference to Exhibit 10(c) in
Registrant's Current Report on Form 8-K dated June 15, 1988)
10(c) Subordinated Loan Note, dated June 10, 1988, with respect to Cross
Creek Apartments in Charlotte, North Carolina (incorporated by
reference to Exhibit 10(d) in Registrant's Current Report on Form
8-K dated June 15, 1988)
10(d) Mortgage Note, dated August 18, 1988, with respect to Weatherly
Walk Apartments in Fayetteville, Georgia, in the principal amount
of $7,772,500 (incorporated by reference to Exhibit 10(e) in
Registrant's Current Report on Form 8-K dated August 19, 1988)
10(e) Equity Loan Note, dated August 18, 1988, with respect to Weatherly
Walk Apartments in Fayetteville, Georgia, in the principal amount
of $895,200 (incorporated by reference to Exhibit 10(f) in
Registrant's Current Report on Form 8-K dated August 19, 1988)
10(f) Subordinated Loan Note, dated August 18, 1988, with respect to
Weatherly Walk Apartments in Fayetteville, Georgia (incorporated
by reference to Exhibit 10(g) in Registrant's Current Report on
Form 8-K dated August 19, 1988)
</TABLE>
29
<PAGE>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(continued)
<TABLE>
<CAPTION>
(a)3. Exhibits (continued)
Sequential
Page
----------
<S> <C>
10(g) Mortgage Note, dated December 12, 1988, with respect to Woodgate
Manor in Gainesville, Florida, in the principal amount of
$3,110,300 (incorporated by reference to Exhibit 10(h) in
Registrant's Current Report on Form 8-K dated December 12, 1988)
10(h) Equity Loan Note, dated December 12, 1988, with respect to
Woodgate Manor in Gainesville, Florida, in the principal amount of
$339,700 (incorporated by reference to Exhibit 10(i) in
Registrant's Current Report on Form 8-K dated December 12, 1988)
10(i) Subordinated Promissory Note, dated December 12, 1988, with
respect to Woodgate Manor in Gainesville, Florida (incorporated by
reference to Exhibit 10(j) in Registrant's Current Report on Form
8-K dated December 12, 1988)
10(j) Loan Agreement with Walsh/Cross Creek Limited Partnership and Cross Creek of
Columbia, Inc. dated August 15, 1990 (incorporated by reference to Exhibit 10(o)
in Registrant's Annual Report on Form 10-K for the period ended December 31, 1990)
10(k) Guarantee of Cross Creek Apartments by Stephen M. Ross (incorporated by reference
to Exhibit 10(p) in Registrant's Annual Report on Form 10-K for the period ended
December 31, 1991)
10(l) Guarantee Agreement, dated November 13, 1992, by and between the
Registrant and Stephen M. Ross (incorporated by reference to
Exhibit 10(q) in the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1993)
10(m) Amendment to the Guarantee Agreement, dated October 20, 1993, by
and between the Registrant and Stephen M. Ross (incorporated by
reference to Exhibit 10(r) in the Registrant's Annual Report on
Form 10-K for the period ended December 31, 1993)
27 Financial Data Schedule (filed herewith) 83
(b) Reports on Form 8-K
Current report on Form 8-K dated December 31, 1996 was filed on
January 10, 1997 relating to a preliminary approval order with
respect to the settlement of class action litigation.
</TABLE>
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EAGLE INSURED L.P.
By: Related Federal Insured L.P.
A Delaware corporation, General Partner
By: RFI Associates, Inc.
A Delaware corporation, general partner
Date: March 27, 1997
By: /s/ J. Michael Fried
------------------------
J. Michael Fried
President and Director
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
Date: March 27, 1997
By: /s/ Thomas F. Lynch, III
-------------------------
Thomas F. Lynch, III
President, Chief Executive Officer and
Chairman of the Board of Directors
31
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf by the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President and Director of RFI Associates, Inc.,
/s/ J. Michael Fried general partner of Related Federal Insured, L.P.
- ------------------------------ (principal executive officer) March 27, 1997
J. Michael Fried
Vice President of RFI Associates, Inc.,
/s/ Alan P. Hirmes general partner of Related Federal Insured, L.P.
- ------------------------------ (principal financial officer) March 27, 1997
Alan P. Hirmes
Treasurer of RFI Associates, Inc.,
/s/ Richard A. Palermo general partner of Related Federal Insured, L.P.
- ------------------------------ (principal accounting officer) March 27, 1997
Richard A. Palermo
/s/ Stephen M. Ross Director of RFI Associates, Inc.,
- ------------------------------ general partner of Related Federal Insured, L.P. March 27, 1997
Stephen M. Ross
President, Chief Executive Officer and
/s/ Thomas F. Lynch, III Chairman of the Board of Directors
- ------------------------------ of Prudential-Bache Properties, Inc. March 27, 1997
Thomas F. Lynch, III
/s/ Barbara J. Brooks Vice President and Chief Financial Officer
- ------------------------------ of Prudential-Bache Properties, Inc. March 27, 1997
Barbara J. Brooks
/s/ Eugene D. Burak Vice President
- ------------------------------ of Prudential-Bache Properties, Inc. March 27, 1997
Eugene D. Burak
/s/ Frank W. Giordano
- ------------------------------
Frank W. Giordano Director of Prudential-Bache Properties, Inc. March 27, 1997
/s/ Nathalie P. Maio
- ------------------------------
Nathalie P. Maio Director of Prudential-Bache Properties, Inc. March 27, 1997
</TABLE>
32
<PAGE>
EAGLE INSURED L.P.
Schedule IV - Mortgage Loans on Real Estate
December 31, 1996
<TABLE>
<CAPTION>
Periodic Carrying
Final Payment Face Amount Amount
Interest Closing Maturity Terms Prior of Mortgage of Mortgage
Description (1) Rate (2) Date Date (3) (4)(5) Liens Loans Loans(6)(7)(8)
- --------------- -------- ---- -------- ------ ----- ----- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgage Loans:
Cross Creek
Apartments (9) 8.95% 6/10/88 1/1/30 Monthly None $17,494,100 $17,106,744
Weatherly Walk
Apartments 8.95% 8/18/88 11/1/29 Monthly None 7,772,500 7,553,454
Woodgate Manor (9) 8.95% 12/12/88 1/1/24 Monthly None 3,110,300 2,963,056
----------- -----------
$28,376,900 $27,623,254
=========== ===========
</TABLE>
(1) All properties are multifamily residential apartment complexes.
(2) Includes a servicing fee of 0.07% paid by the developer to Related Mortgage
Corporation (an affiliate of the Related General Partner).
(3) The Registrant may call for prepayment of the total loan at any time after
the tenth anniversary of the date the mortgage loan was funded.
(4) Monthly payments include principal and interest and are made at a level
amount over the life of the mortgage loan until maturity. See discussion
regarding additional interest in Item 1, "Business-Structure of mortgage
loans and equity loans."
(5) For a period of five years from the loan closing date, the owners of the
properties did not have the right to prepay the mortgage loans without the
consent of the General Partners. Beginning in the sixth year and
thereafter, any prepayment during one calendar year in an amount in excess
of 15% of the original principal amount of the mortgage loan will be
subject to a prepayment penalty. The prepayment penalty is 5% in the sixth
year and decreases 1% per year thereafter.
(6) Carrying amount of mortgage loans for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Beginning Balance $ 27,764,817 $ 27,892,516 $ 41,524,722
Collections of principal (141,563) (127,699) (118,595)
Repayment of Tivoli Lakes (10) 0 0 (13,513,611)
------------ ------------- --------------
Ending Balance $ 27,623,254 $ 27,764,817 $ 27,892,516
============ ============= ==============
</TABLE>
(7) The aggregate cost of the mortgage loans for Federal income tax purposes
for the tax year ended December 31, 1996 is $27,623,254.
(8) All mortgage loans are current with respect to principal and interest.
(9) The General Partnership interest of the project is held by an affiliate of
the Related General Partner.
(10) Tivoli Lakes Apartments was sold on January 31, 1994 and the related
Mortgage loan was paid in full. See Note 3 to the financial statements in
the Registrant's Annual Report in Item 8.
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
FAI, LTD.
WEATHERLY WALK APARTMENTS
HUD PROJECT NO.: 061-36634
DECEMBER 31, 1996
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
TABLE OF CONTENTS
PAGE
MORTGAGOR'S CERTIFICATION 4
MANAGING AGENT'S Certification 5
INDEPENDENT AUDITOR'S REPORT 6
FINANCIAL STATEMENTS
BALANCE SHEET 8
STATEMENT OF PROFIT AND LOSS 10
STATEMENT OF PARTNERS' DEFICIT 12
STATEMENT OF CASH FLOWS 13
NOTES TO FINANCIAL STATEMENTS 15
SUPPLEMENTAL INFORMATION
ACCOUNTS AND NOTES RECEIVABLE 20
DELINQUENT TENANT ACCOUNTS RECEIVABLE 20
MORTGAGE ESCROW DEPOSITS 20
TENANT SECURITY DEPOSITS 20
RESERVE FOR REPLACEMENTS 21
ACCOUNTS PAYABLE 21
ACCRUED TAXES 22
LOANS AND NOTES PAYABLE 22
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
TABLE OF CONTENTS (continued)
Page
COMPENSATION OF PARTNERS 22
UNAUTHORIZED DISTRIBUTIONS OF
PROJECT INCOME TO PARTNERS 22
IDENTITY OF INTEREST COMPANIES AND ACTIVITIES 23
NON-REVENUE PRODUCING UNITS 23
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND
RESIDUAL RECEIPTS 24
SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS 25
CHANGES IN FIXED ASSET ACCOUNTS 26
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL
STRUCTURE 27
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
MAJOR HUD PROGRAMS 29
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE
FAIR HOUSING 31
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH
LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL
STATEMENTS 32
AUDITOR'S COMMENTS ON AUDIT RESOLUTION MATTERS
RELATED TO THE HUD PROGRAMS 33
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
December 31, 1996
MORTGAGOR'S CERTIFICATION
We hereby certify that we have examine the accompanying financial statements
and supplemental data of FAI, Ltd., and, to the best of our knowledge and
belief, the same is complete and accurate.
GENERAL PARTNER
FAI, Ltd.
Nalco, Inc.
A Georgia Corporation
Corporate General Partner
/s/ Elliot A. Lewis 2-5-97
-----------------------------------
Signature Date
Partnership Employer
Identification Number: 58- 1805795
-4-
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
December 31, 1996
MANAGING AGENT'S CERTIFICATION
We hereby certify that we have examined the accompanying financial
statements and supplemental data of FAI, Ltd., and, to the best of our knowledge
and belief, the same is complete and accurate.
MANAGING AGENT
DOMINION MANAGEMENT, INC.
3190 NE Expressway, Suite 410
Atlanta, Georgia 30341
/s/ Elliot A. Lewis 2-25-97
-----------------------------------
Elliott A. Lewis Date
Owner
Laura Clark
Property Manager
Managing Agent Employer
Identification Number: 58-1803075
- 5 -
<PAGE>
[LETTERHEAD of Timothy F. Kercheval]
INDEPENDENT AUDITOR'S REPORT
To the Partners
FAI, Ltd.
I have audited the accompanying balance sheet of FAI, Ltd., Weatherly
Walk Apartments as of December 31, 1996, and the related statements of profit
and loss (on HUD Form No. 92410), partners' deficit and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects the financial position of FAI, Ltd., Weatherly
Walk Apartments, as of December 31, 1996, and the results of its operations, the
changes in partners' deficit and cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note F to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note F. The financial statements to not include any
adjustments that might result from the outcome of this uncertainty.
- 6 -
<PAGE>
My audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 20
through 26 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in my opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
In accordance with Government Auditing Standards, and the "Consolidated
Audit Guide for Audits of HIJD Programs," I have also issued reports dated
February 19, 1997 on my consideration of FAI, Ltd.'s internal control structure
and on its compliance with specific requirements applicable to major HUD
Programs, affirmative fair housing, and laws and regulations applicable to the
financial statements.
Atlanta, Georgia
February 19,1997
/S/Timothy F. Kercheval, C.P.A.
Audit Principal: Timothy F. Kercheval
Certified Public Accountant
-7-
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS
1110 Petty cash $ 200
1120 Cash and cash equivalents 28,833
1240 Prepaid property insurance 11,126
1250 Prepaid mortgage insurance 51,807
1290 Miscellaneous prepaid expenses 676
--------
Total current assets 92,642
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant security deposits 43,680
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Mortgage escrow deposits $ 23,174
1320 Reserve for replacements 44,093 67,267
-------
RENTAL PROPERTY
1410 Land 810,000
1420 Buildings and improvements 6,985,217
1460 Furnishings 362,839
---------
8,158,056
Less accumulated depreciation 1,590,276 6,567,780
---------
OTHER ASSETS
1902 Organizational costs, less accumulated
amortization of $37,586 173,228
-------
$ 6,944,597
===========
-8-
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
BALANCE SHEET- CONTINUED
December 31,1996
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES
2110 Accounts payable $ 13,914
2111 Accounts payable - other 5,264
2120 Accrued wages payable 1,732
2130 Accrued interest payable - mortgage 56,336
2191 Miscellaneous current liabilities 6,343
2210 Rent deferred credits 2,269
2230 Payable to other projects 101,271
2320 Mortgage payable - current maturities 39,525
-------
Total current liabilities 226,654
DEPOSITS LlABILITY
2191 Tenant security deposits (contra) 41,445
LONG-TERM LIABILITIES
2320 Mortgage payable, net of current maturities 7,513,929
2321 Second mortgage payable, net of current maturities 895,200 8,409,129
---------
3130 PARTNERS' DEFICIT (1,732,631)
-----------
$ 6,944,597
===========
- 9 - See notes to financial statements
<PAGE>
US. Department a/ Housing
Statement of and Urban Development
Profit and Loss Office of Housing
Federal Housing Commissioner
<TABLE>
<CAPTION>
OMB Approval No. 2502-00520(exp. 1/31/95)
- ------------------------------------------------------------------------------------------------------------------------------------
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 source, 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 Report Management Officer, Officer of Information Policies and System, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Officer 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.: 061-16634 FAI, Ltd.
1/1/96 12/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Account No. Amount*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $ 1,567,875
Tenant Assistance Payments 5121 $
Rental Furniture and Equipment 5130 $
Income Stores and Commercial 5140 $
5100 Garage and Parking Spaces 5170 $
Flexible Subsidy Income 5180 $
Miscellaneous (Specify) 5190 $
Total Rent Revenue Potential at 100% Occupancy $ 1,567,875
Apartments 5220 $ (103,276)
Vacancies Furniture and Equipment 5230 $
5200 Stores and Commercial 5240 $
Garage and Parking Spaces 5270 $
Miscellaneous (Specify) 5190 $
Total Vacancies $ (103,276)
Net Rental Revenue Rent Revenue Less Vacancies $ 1,464,599
Elderly and Congregate Services Income-5300
Total Service Income (Schedule Attached) 5300 $
Interest Income-Project Operations 5410 $
Financial Income from Investments-Residual Receipts 5430 $
Revenue Income from Investments-Reserve for Replacement 5440 $
5400 Income from Investments-Miscellaneous 5490 $ 1,939
1939
Total Financial Revenue $ 1,939
Laundry and Vending 5910 $ 3,910
Financial NSF and Late Charges 5920 $ 3,977
Revenue Damages and Cleaning Fees 5940 $ 50
5400 Forfeited Tenant Security Deposits 5490 $ 14,828
Other Revenue (Specify) 5990 $ 42,614
52614
Total Other Revenue $ 65,379
Total Other Revenue $ 1,531,917
Advertising 6210 $ 32,264
Administrative Other Renting Expenses 6250 $ 7,398
Expenses Office Salaries 6310 $ 16,279
6200/6300 Office Supplies 6311 $ 4,491
Office or Model Apartment Rent 6312 $
Management Fee 6230 $ 76,187
Management or Superintendent Salaries 6330 $ 81,914
Manager or Superintendent Rent Free Unit 6331 $
Legal Expenses (Project) 6340 $ 255
Auditing Expenses (Project) 6350
Bookkeeping Fees/Accounting Services 6351 $ 4,656
Telephone and Answering Services 6360 $ 9,108
Bad Debts 6370 $ 805
Miscellaneous Administrative Expenses (Specify) 6390 $ 37,985
37985
Total Administrative Expenses $ 271,342
Fuel Oil/Coal 6420 $
Utilities Electricity 6450 $ 23,797
Expenses Water 6451 $ 7,972
6400 Gas 6452 $ 4,225
Sewer 6452 $
Total Utilities Expense $ 35,994
* All amounts must be rounded to the nearest dollar. $.50 form HUD-92410 (7/91)
and over, round up-$.49 and below round down. ref Handbook 4370.2
Page 1 of 2
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $
Janitor and Cleaning Supplies 6515 $ 521
Janitor and Cleaning Contract 6517 $
Exterminating Payroll/Contract 6519 $
Exterminating Supplies 6520 $ 2,934
Garbage and Trash Removall 6525 $ 7,038
Security Payroll/Contract 6530 $
Grounds Payroll 6535 $ 29,094
Ground Supplies 6536 $
Operating and Grounds Contract 6537 $
Maintenance Repairs Payroll 6540 $
Expenses Repairs Material 6541 $ 136,020
6500 Repairs Contract 6542 $ 24
Elevator Maintenance/Contract 6545 $
Heating/Cooling Repairs and Maintenance 6546 $ 4,461
Swimming Pool Maintenance/Contract 6547 $ 7,406
Snow Removal 6548 $
Decorating Payroll/Contract 6560 $ 893
Decorating Supplies 6561 $ 35,944
Other 6570 $ 9,406
Miscellaneous Administrative Expenses 6590 $ 16,025
16025
Total Operating and Maintenance Expenses $ 249,766
Real Estate Taxes 6710 $ 99,845
Payroll Taxes (FICA) 6711 $
Financial Miscellaneous Taxes, Licenses and Permits 6719 $ 11,010
Expenses Property and Liability Insurance (Hazard) 6720 $ 11,126
6700 Fidelity Bond Insurance 6721 $
Workmen's Compensation 6722 $
Health Insurance & Other Employee Benefits 6723 $ 25,101
Other Insurance (Specify) 6729
Total Taxes and Insurance $ 147,082
Interest on Bonds Payable 6810 $
Interest on Mortgage Payable 6820 $ 677,541
Financial Interest on Notes Payable (Long-Term) 6830 $
Expenses Interest on Notes Payable (Short-Term) 6840 $
6800 Mortgage Insurance Premium/Service Charge 6850 $ 56,776
Miscellaneous Administrative Expenses 6890 $
Total Financial Expenses $ 734,317
Elderly & Total Service Expenses-Schedule Attached 6900
Congregate Total Cost of Operations Before Depreciation $ $1,438,501
Service Profit (Loss) Before Depreciation $ $ 93,416
Expenses Depreciation (Total)-6600 & Amortization 6600 $ $ 216,288
6900 Operating Profit or (Loss) $ (122,872)
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 $
71000 Net Profit or (Loss) $ (122,872)
- ------------------------------------------------------------------------------------------------------------------------------------
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, 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 11
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. $ 56,800
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even
if payments may be temporarily suspended or waived. $ 25,553
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and Loss
statement. $ NONE
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense
items on this Profit and Loss statement. $ N/A
Form HUD-92410
</TABLE>
Page 2 of 2
See notes to financial statements
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
STATEMENT OF PARTNERS' DEFICIT
Year ended December 31, 1996
Partners' deficit, beginning $ (1,609,759)
Net loss (122 872)
---------
Partners' deficit, end $ (1,732,631)
- 12 - See notes to financial statements
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
STATEMENT OF CASH FLOWS
Year ended December 31, 1996
Cash flows from operating activities
Rental income received $ 1,465,862
Interest received 1,939
Other income received 65,379
Administrative expenses paid (100,140)
Management fees paid (76,088)
Utilities paid (35,994)
Salaries and wages paid (129,756)
Operating and maintenance paid (230,089)
Real estate taxes paid (201,923)
Property insurance paid (22,252)
Other taxes and insurance paid (36,787)
Interest paid on mortgage (677,811)
Mortgage insurance premium paid (56,520)
Decrease in mortgage escrow deposits 95,462
Net tenant security deposits paid (442)
---------
Net cash provided by operating activities 60,840
---------
Cash flows from investing activities
Deposits to reserve for replacements (27,472)
Withdrawals from reserve for replacements 59,463
---------
Net cash provided by investing activities 31,991
---------
Cash flows from financing activities
Mortgage principal payments (36,153)
--------
Net cash used in financing activities (36,153)
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 56,678
Cash and cash equivalents, beginning (27,645)
---------
Cash and cash equivalents, ending $ 29,033
=========
-13- (continued)
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 1996
Reconciliation of net loss to net cash provided by operating activities
Net loss $ (122,872)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 210,968
Amortization 5,320
Changes in asset and liability accounts
(Increase) decrease in assets
Prepaid expenses (11,546)
Tenant security deposits - net (442)
Mortgage escrow deposits 95,462
Increase (decrease) in liabilities
Accounts payable (10,310)
Accounts payable - other (3,983)
Accrued wages payable (1,576)
Accrued interest payable (270)
Accrued real estate taxes (102,078)
Management fees payable 99
Rent deferred credits 2,068
--------
Net cash provided by operating activities $ 60,840
========
- 14 - See notes to financial statements
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
The partnership was organized as a limited partnership under the laws of
the State of Georgia during July of 1988 for the purpose of constructing
and operating a rental housing project under Section 8 of the National
Housing Act. The project consists of 194 units located in Fayetteville,
Georgia, and is currently operating under the name of Weatherly Walk
Apartments. The project is regulated by the United States Department of
Housing and Urban Development ("HUD") as to rent charges and operating
methods. The project is managed by a related party under an agreement
approved by HUD which provides for a management fee of 5% of monthly rental
collections.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenue and expenses during
the reporting period. Actual results may differ from those estimates.
Rental Property
Rental property is canted at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives using the straight-line method as follows:
Buildings and improvements 7 - 40 years
Furnishings 10 - 12 years
Amortization
Permanent loan costs consist of fees for obtaining the HUD-insured mortgage
loan and are being amortized over the forty-year life of the mortgage loan
using the straight-line method.
- 15 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)
Income Taxes
Profit or loss of the partnership is allocated 1% to the general partner(s)
and 99% to the limited partners. No income tax provision has been included
in the financial statements since profit or loss of the partnership is
required to be reported by the respective partners on their income tax
returns.
Rental Income
Rental income is recognized from apartment rentals as they accrue. Rental
payments received in advance are deferred until earned. All leases between
the partnership and the tenants of the property are operating leases.
NOTE B - MORTGAGE PAYABLE
The mortgage payable, in the original amount of $7,751,900 is insured by
the Department of Housing and Urban Development and collateralized by a
deed of trust on the rental property. The note is payable to Related
Mortgage Company, and bears interest at the rate of 8.95% per annum.
Principal and interest are payable by the partnership in monthly
installments of $59,497 for a term of 480 months ending November of 2029.
Under agreements with the mortgage lender and HUD, the partnership is
required to make monthly escrow deposits for property taxes and insurance,
mortgage insurance and replacement of project assets, and is subject to
restrictions as to operating policies, rental charges, operating
expenditures and distributions to partners.
The liability of the partnership under the mortgage note is limited to the
underlying value of the real estate collateral plus other amounts deposited
with the lender.
- 16 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE B - MORTGAGE PAYABLE (Continued)
Aggregate annual maturities of the mortgage payable over each of the next
five years are as follows:
December 31, 1997 $ 39,525
1998 43,211
1999 47,241
2000 51,647
2001 56,464
2002 and thereafter 7,315,366
----------
$ 7,553,454
==========
Management believes it is not practicable to estimate the fair value of the
mortgage payable because programs with similar characteristics are not
currently available to the partnership.
NOTE C - RELATED PARTY TRANSACTIONS
The project is managed by Dominion Capital, Inc. Stockholders of Dominion
Capital, Inc. are the general partners of the partnership. The management
contract and the management fees of 5 percent of gross collections are
approved by HUD. Total management fees of $76,187 were incurred in 1996.
The managing agent also received a fee for monthly accounting, record
keeping and data processing of $2 per apartment unit per month. The total
such fee incurred in 1996 is $4,656.
Related Party Transactions
The partnership owed $78,888 to HRA, Ltd., $2,200 to Dominion Holdings,
Inc., $5,400 to BRA, Ltd., $2,000 to Dominion Capital, Inc., and $12,783 to
Arc Way, Ltd. at year end. The aforementioned partnerships and corporations
share common owners.
- 17 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
NOTE D - OTHER REVENUE (ACCOUNT NO. 5990)
Utility Income $ 752
Pet fees 3,875
Lease cancellation fees 15,609
Refund of fees (319)
Application fee 8,820
Bad debt income . 2,337
M-T-M surcharge 11,540
--------
$ 42,614
========
NOTE E - GOING CONCERN
The Company has experienced recurring operation losses, working capital
deficiencies, and negative cash flows which raises significant doubt about
its ability to continue as a going concern. Management plans to obtain
additional capital as needed and to reduce or delay expenditures.
Significant doubt, however, remains about the partnership's ability to
continue as a going concern for a reasonable period of time.
- 18 -
<PAGE>
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
December 31, 1996
ACCOUNTS AND NOTES RECEIVABLE (OTHER THAN FROM REGULAR TENANTS)
NONE
DELINQUENT TENANT ACCOUNTS RECEIVABLE
NONE
MORTGAGE ESCROW DEPOSITS
Estimated amounts required as of December 31, 1996,
for future payment of:
City, state and county taxes $ 8,308
Mortgage insurance 9,420
--------
Total estimated requirements 17,728
--------
Total confirmed by mortgagee $ 23,174
========
Estimated requirements in excess of amount on deposit $ 5,446
========
TENANT SECURITY DEPOSITS
Tenant security deposits are held in a separate bank account in the name of
the project.
- 20 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION (Continued)
SUPPORTING DATA REQUIRED BY HUD
December 31, 1996
RESERVE FOR REPLACEMENTS
In accordance with the provisions of the regulatory agreement, restricted
cash is held by Related Mortgage Company to be used for replacement of
property with the approval of HUD as follows:
Balance at December 31, 1995 $ 76,084
Monthly deposits 25,533
Interest earned 1,939
Withdrawals
Expensed (59,463)
---------
Balance at December 31, 1996 confirmed by mortgagee $ 44,093
=========
ACCOUNTS PAYABLE (OTHER THAN TRADE CREDITORS)
Details of payables due in more than 60 days:
Date Original Amount
Creditor Purpose incurred Terms amount due
- -------- ------- -------- ----- ---------- --------
Dominion Capital, Management 12/96 Surplus $6,343 $6,343
Inc. Fee cash as
defined
- 21 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION (Continued)
SUPPORTING DATA REQUIRED BY HUD
December 31, 1996
ACCRUED TAXES
NONE
LOANS AND NOTES PAYABLE (OTHER THAN THE INSURED MORTGAGE)
Interest Date Original Balance
Creditor rate Collateral incurred Terms amount due
- -------- -------- ---------- -------- ----- -------- ---------
Eagle Non- Partners' 06/18/88 Undefined $ 895,200 $ 895,200
Insured,L.P. interest interest
bearing
COMPENSATION OF PARTNERS
NONE
UNAUTHORIZED DISTRIBUTIONS OF PROJECT INCOME TO PARTNERS
NONE
- 22 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION (Continued)
SUPPORTING DATA REQUIRED BY HUD
December 31, 1996
IDENTITY OF INTEREST COMPANIES AND ACTIVITIES
Amount Amount
Company Name Type of Service Paid Payable
- ------------- ------------------ ----------- -----------
Dominion Capital, Inc. Management Company $ 76,088 $ 6,343
=========== ===========
Payables to related parties
ArcWay, Ltd. Similar ownership 12,783
HRA, Ltd. Similar ownership 78,888
BRA, Ltd. Similar ownership 5,400
Dominion Holdings, Inc. Major stockholder 2,200
Dominion Capital, Inc. Major stockholder 2,000
------------
$ 101,271
============
NON-REVENUE PRODUCING UNITS
Name of occupant Connection with project
Keith McQuilkin Courtesy Officer
(Total rent is $630 with a rent concession of $400)
- 23 -
<PAGE>
<TABLE>
<CAPTION>
Computation of Surplus Cash, U.S. Department of Housing
Distributions and Residual and Urban Development
Receipts Office of Housing
Federal Housing Commissioner
- -----------------------------------------------------------------------------------------------------------------------------------
Project Name Fiscal Period Ended: Project Number
FAI, Ltd. 12/31/96 HUD Project No: 061 -36634
- -----------------------------------------------------------------------------------------------------------------------------------
Part A - Compute Surplus Cas
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash
- ------------------------------------------------------------------------------------------------------------------------------------
1. Cash (Accounts 1110,1120,1191,1192) $ 72,713
2. Tenant subsidy vouchers due for period covered by financial statement $
3. Other (describe) $
(a) Total Cash (Add lines 1,2, and 3) $ 72,713
- -----------------------------------------------------------------------------------------------------------------------------------
Current Obligations
4. Accrued mortgage interest payable $ 56,336
5. Delinquent mortgage principal payments $
6. Delinquent deposits to reserve for replacements $
7. Accounts payable (due within 30 days) $ 25,521
8. Loans and notes payable (due within 30 days) $
9. Deficient Tax Insurance or MIP Escrow Deposits $
10. Accrued expenses (not escrowed) $ 1,732
1l. Prepaid Rent (Account 2210) $ 2,269
12. Tenant security deposits liability (Account 2191) $ 41,445
13. Other (Describe) $
(b) Less Total Current Obligations (Add lines 4 through 13) $ 127,303
(c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ (54,590)
- -----------------------------------------------------------------------------------------------------------------------------------
PART B - Compute Distributions to Owners and Required Deposit to Residual Receipts
- -----------------------------------------------------------------------------------------------------------------------------------
1. Surplus Cash $ NONE
Limited Dividend Projects
2a Annual Distribution Earned During Fiscal Period Covered by the Statement $
2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $
2c. Distributions Paid During Fiscal Period Covered by Statement $
3. Amount to be Carried on Balance Sheet as Distribution Earned but Unpaid
(Line 2a plus 2b minus 2c) $
4. Amount Available for Distribution During Next Fiscal Period $ NONE
5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ NONE
Prepared By Reviewed By
- -----------------------------------------------------------------------------------------------------------------------------------
Loan Technician Date Loan Servicer Date
- -----------------------------------------------------------------------------------------------------------------------------------
form HUD-93486 (8/95)
</TABLE>
-24-
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION (Continued)
SUPPORTING DATA REQUIRED BY HUD
December 31, 1996
SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS
Funds held by mortgagor, operating accounts
1. Wachovia, Operating Account, 28, 833
(Account No. 17-537-029)
Funds held by mortgagor, in trust -
1. Wachovia, Tenant Security Deposit Trust
(Account No. 12-403-428) 43,680
Funds held by mortgagee (in trust)
1 Chemical Bank, Tax and Insurance Escrow 23,174
2 Chemical Bank, Reserve for Replacement (2.9 percent) 44,093
--------
Total funds held by mortgagee $ 139,780
========
Balances confirmed by bank and by mortgagee $ 139,780
========
- 25 -
<PAGE>
<TABLE>
<CAPTION>
FAI, Ltd.
HUD Project No.: 061-36634
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
CHANGES IN FIXED ASSET ACCOUNTS
Year ended December 31, 1996
Assets Accumulated Depreciation
------------------------------------------------------------------------------------------
Balance Balance Balance Current
12/31/95 Additions Deletions 12/31/96 12/31/95 Provision
--------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Land $ 810,000 $ - $ - $ 810,000 $ - $ -
Buildings and improvement 6,985,217 - - 6,985,217 1,147,192 174,930
Furnishings 362,839 - - 362,839 232,116 36,038
------------- ------------- ----------- ------------- ------------- ---------------
$ 8,158,056 $ - $ - $ 8,158,056 $ 1,379,308 $ 210,968
============= ============= =========== ============= ============= ===============
Balance Net book
Deletions 12/31/96 value
--------- -------- ----------
<S> <C> <C> <C>
Land $ - $ - $ 810,000
Buildings and improvement - 1,322,122 5,663,095
Furnishings - 268,154 94,685
------------- -------------
$ - $ 1,590,276 $ 6,567,780
============= =============
- 26 -
<PAGE>
[LETTERHEAD of Timothy F. Kercheval]
</TABLE>
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE
To the Partners
FAI, Ltd.
I have audited the financial statements of FAI, Ltd., as of and for the
year ended December 31, 1996, and have issued my report thereon dated February
19, 1997, I have also audited FAI, Ltd.'s compliance with requirements
applicable to major HUD-assisted programs and have issued my report thereon
dated February 19, 1997.
I conducted my audit in accordance with generally accepted auditing
standards, Government Auditing Standards, issued by the Comptroller General of
the United States, and the "Consolidated Audit Guide for Audits of HUD Programs"
(the Guide), issued by the U.S. Department of Housing and Urban Development,
Office of Inspector General in July 1993. Those standards and the Guide require
that I plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement and about whether
FAI, Ltd. complied with laws and regulations, noncompliance with which would be
material to a major HUD-assisted program.
The management of the partnership is responsible for establishing and
maintaining an internal control structure. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected
benefits and related costs of internal control structure policies and
procedures. The objectives of an internal control structure are to provide
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition, that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with generally
accepted accounting principles, and that HUD-assisted programs are managed in
compliance with applicable laws and regulations. Because of inherent limitations
in any internal control structure, errors, irregularities or instances of
noncompliance may nevertheless occur and not be detected. Also, projection of
any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the
effectiveness of the design and operation of policies and procedures may
deteriorate.
- 27 -
<PAGE>
In planning and performing my audit of the partnership for the year
ended December 31, 1996, I obtained an understanding of the design of the
relevant internal control structure policies and procedures and determined
whether they had been placed in operation, and I assessed control risk in order
to determine my auditing procedures for the purpose of expressing my opinions on
the partnership's financial statements and on its compliance with specific
requirements applicable to major HUD-assisted programs and to report on the
internal control structure in accordance with the provisions of the Guide and
not to provide an opinion on the internal control structure.
I performed tests of controls, as required by the Guide, to evaluate
the effectiveness of the design and operation of internal control structure
policies and procedures that I considered relevant to preventing or detecting
material noncompliance with specific requirements that are applicable to the
partnership's HUD-assisted programs. My procedures were less in scope than would
be necessary to render an opinion on these internal control structure policies
and procedures. Accordingly, I do not express such an opinion.
My consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure that might be
material weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a condition in which the
design or operation of one or more of the internal control structure elements
does not reduce to a relatively low level the risk that errors, irregularities
or instances of noncompliance with laws and regulations in amounts that would be
material in relation to the financial statements being audited or a HUD-
assisted program may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. I noted
no matters involving the internal control structure and its operations that I
consider to be material weaknesses as defined above.
This report is intended for the information of the audit committee,
management, and the Department of Housing and Urban Development. However, this
report is a matter of public record and its distribution is not limited.
/s/Timothy F. Kercheval, CPA
Atlanta, Georgia
February 19, 1997
- 28 -
<PAGE>
[LETTERHEAD of Timothy F. Kercheval]
INDEPENDENT AUDITOR'S REPORT ON
COMPLIANCE WITH SPECIFIC REQUIREMENTS
APPLICABLE TO MAJOR HUD PROGRAMS
To the Partners
FAI, Ltd.
I have audited the financial statements of FAI, Ltd., as of and for the
year ended December 31, 1996, and have issued my report thereon dated February
19, 1997.
I have also audited FAI, Ltd.'s compliance with the specific program
requirements governing federal financial reports; mortgage status; replacement
reserve; residual receipts; security deposits; cash receipts and disbursements;
distributions to owners; tenant application, eligibility, and recertification;
and management functions that are applicable to its major HUD-assisted programs
for the year ended December 31, 1996. The management of FAI, Ltd. is responsible
for compliance with those requirements. My responsibility is to express an
opinion on compliance with those requirements based on my audit.
I conducted my audit of compliance with specific program requirements
in accordance with generally accepted auditing standards, Government Auditing
Standards, issued by the Comptroller General of the United States, and the
"Consolidated Audit Guide for Audits of HUD Programs" (the Guide), issued by the
U.S. Department of Housing and Urban Development, Office of Inspector General
in July 1993. Those standards and the Guide require that I plan and perform the
audit to obtain reasonable assurance about whether material noncompliance with
the requirements referred to above occurred. An audit includes examining, on a
test basis, evidence about FAI, Ltd.'s compliance with those requirements. I
believe that my audit provides a reasonable basis for my opinion.
The results of my audit procedures disclosed immaterial instances of
noncompliance with the requirements referred to above, which are described in
the accompanying Schedule of Findings and Questioned Costs. I considered these
instances of noncompliance in forming my opinion on compliance, which is
expressed in the following paragraph.
In my opinion, FAI, Ltd. complied, in all material respects, with the
specific program requirements that are applicable to its major HUD-assisted
programs for the year ended December 31, 1996.
- 29 -
<PAGE>
This report is intended for the information of the audit committee,
management, and the Department of Housing and Urban Development. However, this
report is a matter of public record and its distribution is not limited.
/s/Timothy F. Kercheval, CPA
Atlanta, Georgia
February 19,1997
- 30 -
<PAGE>
[LETTERHEAD of Timothy F. Kercheval]
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
AFFIRMATIVE FAIR HOUSING
To the Partners
FAI, Ltd.
I have audited the financial statements of FAI, Ltd., as of and for the
year ended December 31, 1996, and have issued my report thereon dated February
19, 1997. I have also audited FAI, Ltd.'s compliance with requirements
applicable to major HUD-assisted programs and have issued my report thereon
dated February 19, 1997.
I have applied procedures to test FAI, Ltd.'s compliance with the
Affirmative Fair Housing requirements applicable to its HUD-assisted programs
for the year ended December 31, 1996.
My procedures were limited to the applicable procedures described in
the "Consolidated Audit Guide for Audits of HUD Programs" (the Guide), issued by
the U.S. Department of Housing and Urban Development, Office of Inspector
General in July 1993. My procedures were substantially less in scope than an
audit, the objective of which is the expression of an opinion on FAI, Ltd.'s
compliance with the Affirmative Fair Housing requirements. Accordingly, I do not
express such an opinion.
The results of my tests disclosed no instances of noncompliance that
are required to be reported herein under the Guide.
This report is intended for the information of the audit committee,
management, and the Department of Housing and Urban Development. However, this
report is a matter of public record and its distribution is not limited.
/s/Timothy F. Kercheval, CPA
Atlanta, Georgia
February 19, 1997
- 31 -
<PAGE>
[LETTERHEAD of Timothy F. Kercheval]
INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE
WITH LAWS AND REGULATIONS APPLICABLE
TO THE FINANCIAL STATEMENTS
To the Partners
FAI, Ltd.
I have audited the financial statements of FAI, Ltd. as of and for the
year ended December 31 , 1996, and have issued my report thereon dated February
19, 1997.
I conducted my audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that I plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.
Compliance with laws, regulations, contracts, and grants applicable to
FAI, Ltd. is the responsibility of FAI, Ltd.'s management. As part of obtaining
reasonable assurance about whether the financial statements are free of material
misstatement, I performed tests of FAI, Ltd.'s compliance with certain
provisions of laws, regulations, contracts, and grants. However, the objective
of my audit of the financial statements was not to provide an opinion on overall
compliance with such provisions. Accordingly, I do not express such an opinion.
The results of my tests disclosed no instances of noncompliance that
are required to be reported herein under Government Auditing Standards.
However, the results of my tests disclosed certain immaterial instances of
noncompliance that are described in the accompanying Schedule of Findings and
Questioned Costs.
This report is intended for the information of the audit committee,
management, and the Department of Housing and Urban Development. However, this
report is a matter of public record and its distribution is not limited.
/s/ Timothy F. Kercheval, CPA
Atlanta, Georgia
February 19, 1997
- 32 -
<PAGE>
FAI, Ltd.
Weatherly Walk Apartments
HUD Project No.: 061-36634
AUDITORS' COMMENTS ON AUDIT RESOLUTION MA l-l FIRS
RELATED TO THE HUD PROGRAMS
December 31, 1996
Finding No. 1
The project operating account experienced overdrB throughout 1995.
Status
As of December 31, 1996, the project maintained adequate cash funds to
cover all outstanding checks.
- 33 -
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
WALSH/CROSS CREEK LIMITED PARTNERSHIP
(A MAJORITY-OWNED SUBSIDIARY
OF CROSS CREEK OF COLUMBIA, INC.)
DECEMBER 31, 1996
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia, Inc.)
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
BALANCE SHEET 4
STATEMENT OF PROFIT AND LOSS 6
STATEMENT OF PARTNERS' DEFICIT 8
STATEMENT OF CASH FLOWS 9
NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Walsh/Cross Creek Limited Partnership
We have audited the accompanying balance sheet of Walsh/Cross Creek
Limited Partnership as of December 31, 1996, and the related statements of
profit and loss (on HUD Form No. 92410), partners' deficit and cash flows for
the year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Walsh/Cross Creek
Limited Partnership as of December 31, 1996, and the results of its operations,
the changes in partners' deficit and its cash flows for the year then ended. in
conformity with generally accepted accounting principles.
/s/Reznick Fedder & Silverman
Boston, Massachusetts
February 21, 1997
- 3 -
<PAGE>
Walsh/Cross Creek Limited Partnership (A Majority-Owned Subsidiary of Cross
Creek of Columbia Inc.)
HUD Project No.: 053-36603
BALANCE SHEET
December 31. 1996
ASSETS
CURRENT ASSETS
1110 Petty cash $ 1,250
1120 Cash in bank 28,616
1130 Tenant accounts receivable 11,987
1240 Prepaid property insurance 36,927
---------
Total current assets 78,780
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant security deposits 79,840
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Mortgage escrow deposits $ 121,937
1320 Reserve for replacements 33,345 155,282
--------
RENTAL PROPERTY
1410 Land 3,204,814
1420 Buildings and improvements 14,896,314
1430 Building equipment - fixed 20,643
1450 Personal property 694,940
----------
18,816,711
Less accumulated depreciation 3,926,973 14,889,738
----------
OTHER ASSETS
1901 Mortgage costs, less accumulated
amortization of $177,638 947,076
----------
$ 16,150,716
===========
- 4 - (continued)
<PAGE>
Walsh/Cross Creek Limited Partnership
(A Majority-Owned Subsidiary of Cross Creek of Columbia. Inc.)
HUD Project No.: 053-36603
BALANCE SHEET- CONTINUED
December 31, 1996
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
2110 Accounts payable $ 48,049
2130 Accrued interest payable - mortgage 127,588
2190 Management fees payable 235,019
2191 Miscellaneous current liabilities 3,066
2210 Rent deferred credits 22,274
2320 Mortgage payable - current maturities 88,120
-------
Total current liabilities 524,116
DEPOSITS LIABILITIES
2191 Tenant security deposits (contra) 73,942
LONG-TERM LIABILITIES
2165 Advances from general partner 3,182,732
2310 Notes payable 1,783,900
2320 Mortgage payable, net of current maturities 17,018,624
2321 Second mortgage payable. net of current maturities 3,060,000 25,045,256
----------
3130 PARTNERS' DEFICIT (9,492,598)
---------
$16,150,716
==========
</TABLE>
- 5 - See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
US. Department a/ Housing
Statement of and Urban Development
Profit and Loss Office of Housing _
Federal Housing Commissioner
- ------------------------------------------------------------------------------------------------------------------------------------
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 source, 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 Report Management Officer, Officer of Information Policies and System, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Officer 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.: 053-36603 Walsh/Cross Creek Limited {Partnership (A majority Owned
1/1/96 12/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
|Part I Description of Account Account No. Amount*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $ 3,119,800
Tenant Assistance Payments 5121 $
Rental Furniture and Equipment 5130 $
Income Stores and Commercial 5140 $
5100 Garage and Parking Spaces 5170 $
Flexible Subsidy Income 5180 $
Miscellaneous (Specify) 5190 $
Total Rent Revenue Potential at 100% Occupancy $ 3,119,800
- ------------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $ (80,700)
Vacancies Furniture and Equipment 5230 $
5200 Stores and Commercial 5240 $
Garage and Parking Spaces 5270 $
Miscellaneous (Specify) 5190 $
Total Vacancies $ (80,700)
Net Rental Revenue Rent Revenue Less Vacancies $ 3,039,100
- ------------------------------------------------------------------------------------------------------------------------------------
Elderly and Congregate Services Income-5300
Total Service Income (Schedule Attached) 5300 $
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 2,622
Financial Income from Investments-Residual Receipts 5430 $
Revenue Income from Investments-Reserve for Replacement 5440 $
5400 Income from Investments-Miscellaneous 5490 $
Total Financial Revenue $ 2,622
- ------------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $ 6,635
Financial NSF and Late Charges 5920 $ -
Revenue Damages and Cleaning Fees 5940 $ -
5400 Forfeited Tenant Security Deposits 5490 $ 1,892
Other Revenue (Specify) 5990 $ 10,383
Total Other Revenue $ 18,910
Total Other Revenue $ 3,060,632
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 11,889
Administrative Other Renting Expenses 6250 $ 20,660
Expenses Office Salaries 6310 $ 93,516
6200/6300 Office Supplies 6311 $ 10,917
Office or Model Apartment Rent 6312 $ -
Management Fee 6230 $ 152,845
Management or Superintendent Salaries 6330 $ 65,387
Manager or Superintendent Rent Free Unit 6331 $ -
Legal Expenses (Project) 6340 $ 1,594
Auditing Expenses (Project) 6350 8,600
Bookkeeping Fees/Accounting Services 6351 $ 12,600
Telephone and Answering Services 6360 $ 9,264
Bad Debts 6370 $ 32,734
Miscellaneous Administrative Expenses (Specify) 6390 $ 19,474
Total Administrative Expenses $ 442,480
- ------------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $ -
Utilities Electricity 6450 $ 44,563
Expenses Water 6451 $ 38,376
6400 Gas 6452 $ -
Sewer 6452 $ 44,051
Total Utilities Expense $ 126,990
- ------------------------------------------------------------------------------------------------------------------------------------
* All amounts must be rounded to the nearest dollar. $.50 From HUED-92410 (7/91)
and over, round up-$.49 and below round down. ref Handbook 4370.2
</TABLE>
Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ -
Janitor and Cleaning Supplies 6515 $ 949
Janitor and Cleaning Contract 6517 $ -
Exterminating Payroll/Contract 6519 $ -
Exterminating Supplies 6520 $ 7,031
Garbage and Trash Removall 6525 $ 4,350
Security Payroll/Contract 6530 $ 943
Grounds Payroll 6535 $ 18,489
Ground Supplies 6536 $ 6,091
Operating and Grounds Contract 6537 $ 68,833
Maintenance Repairs Payroll 6540 $ 19,817
Expenses Repairs Material 6541 $ 5,234
6500 Repairs Contract 6542 $ 212,595
Elevator Maintenance/Contract 6545 $ -
Heating/Cooling Repairs and Maintenance 6546 $ 3,366
Swimming Pool Maintenance/Contract 6547 $ -
Snow Removal 6548 $ 943
Decorating Payroll/Contract 6560 $ -
Decorating Supplies 6561 $ 105,147
Other 6570 $ 387
Miscellaneous Administrative Expenses (Specify) 6590 $ -
Total Operating and Maintenance Expenses $ 454,175
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 182,374
Payroll Taxes (FICA) 6711 $ 15,887
Financial Miscellaneous Taxes, Licenses and Permits 6719 $ 99
Expenses Property and Liability Insurance (Hazard) 6720 $ 39,647
6800 Fidelity Bond Insurance 6721 $ -
Workmen's Compensation 6722 $ 6,181
Health Insurance & Other Employee Benefits 6723 $ 33,026
Other Insurance (Specify) 6729 $ -
Total Financial Expenses $ 277,214
- ------------------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $ -
Interest on Mortgage Payable 6820 $ 1,534,413
Financial Interest on Notes Payable (Long-Term) 6830 $ -
Expenses Interest on Notes Payable (Short-Term) 6840 $ -
6800 Mortgage Insurance Premium/Service Charge 6850 $ 128,531
Miscellaneous Administrative Expenses (Specify) 6890 $ -
Total Financial Expenses $ 1,662,944
- ------------------------------------------------------------------------------------------------------------------------------------
Elderly & Total Service Expenses-Schedule Attached 6900 $
Congregate Total Cost of Operations Before Depreciation $ $ 2,963,803
Service Profit (Loss) Before Depreciation $ 96,829
Expenses Depreciation (Total)-6600 & Amortization 6600 $ 637,881
6900 Operating Profit or (Loss) $ $ (541,052)
- ------------------------------------------------------------------------------------------------------------------------------------
Officer Salaries
Corporate or Legal Expenses (Entity) 7110 $
Mortgagor Taxes (Federal-State-Entity) 7120 $
Entity Other Expenses (Entity) 7130-32 $
Expenses Total Corporate Expenses 7190 $ 288,232 $ $288,232
71000 Net Profit or (Loss) $ $(829,284)
- ------------------------------------------------------------------------------------------------------------------------------------
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, 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 11
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 80,603
- ------------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments mav he temporarily
suspended or waived. $ 52,260
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and Loss
statement $ 36,999
- ------------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense
items on this Profit and Loss statement. $ N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Form HUD-92410
Page 2 of 26
</TABLE>
<PAGE>
Walsh/Cross Creek Limited Partnership (A Majority-Owned Subsidiary of Cross
Creek of Columbia
HUD Project No.: 053-36603
STATEMENT OF PARTNERS' DEFICIT
Year ended December 31. 1996
Partners' deficit, beginning $ (8,663,314)
Net loss (829,284)
----------
Partners' deficit, ending $ (9,492,598)
=============
- 8 - See notes to financial statements
<PAGE>
Walsh/Cross Creek Limited Partnership (A Majority-Owned Subsidiary of Cross
Creek of Columbia Inc.)
HUD Project No.: 053-36603
STATEMENT OF CASH FLOWS
Year ended December 31. 1996
Cash flows from operating activities
Rental income received $ 3,012,265
Interest received 2,622
Other Income received 18,910
Administrative expenses paid 98,653
Management fees paid (323,142)
Utilities paid (130,056)
Salaries and wages paid (201,152)
Operating and maintenance paid (414,926)
Real estate taxes paid (182,374)
Payroll taxes paid (15,887)
Property insurance paid (36,927)
Other taxes and insurance paid (39,306)
Interest paid on mortgage (1,535,014)
Mortgage insurance premium paid (128,531)
Decrease in mortgage escrow deposits 10,934
Mortgagor entity expenses paid (288,232)
Net tenant security deposits paid (2,612)
---------
Net cash used in operating activities (154,775)
---------
Cash flows from investing activities
Deposits to reserve for replacements (52,260)
Withdrawals from reserve for replacements 36,999
---------
Net cash used in investing activities (15,261)
---------
Cash flows from financing activities
Mortgage principal payments (80,603)
Advances from general partners 253,220
---------
Net cash provided by financing activities 172,617
---------
NET INCREASE IN CASH 2,581
Cash, beginning 27,285
---------
Cash, ending 29,866
=========
- 9 - (continued)
<PAGE>
Walsh/Cross Creek Limited Partnership
(A Majority-Owned Subsidiary of Cross Creek of Columbia. Inc.)
HUD Project No.: 053-36603
STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 1996
Reconciliation of net loss to net cash used in operating activities
Net loss $ (829,284)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 609,696
Amortization 28,185
Mortgagor entity expense 288,232
Mortgagor entity expenses paid (288.232)
(Increase) decrease in assets
Tenant accounts receivable (10,459)
Prepaid expenses 2,720
Tenant security deposits - ne (2,612)
Mortgage escrow deposits 10,934
Increase (decrease) in liabilities
Accounts payable (2,544)
Accrued interest payable (601)
Management fees payable 19,766
Miscellaneous current liabilities 3,066
Rent deferred credits 16,358
-------
Net cash used in operating activities $ (154,775)
=========
- 10 - See notes to financial statements
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia, Inc.)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICES
The Partnership was formed as a limited partnership under the laws of the
State of North Carolina on June 10, 1988, for the purpose of constructing
and operating a multi-family rental apartment project under Section 221(d)4
of the National Housing Act. The project consists of 420 units located in
Charlotte, North Carolina and is currently operating under the name of
Cross Creek Apartments. The project is managed by an affiliate of the
general partner under a management agreement which provides for a
management fee of 5% of gross collections, plus $2.50 per unit per month
for bookkeeping services.
Cash distributions are limited by agreements between the Partnership and
HUD to the extent of surplus cash, as defined by HUD.
Cross Creek of Columbia, Inc. is the general partner for the Partnership
and has a 75% ownership interest. Cross Creek of Columbia, Inc. and Allan
Tandy are the limited partners with a 24% and 1% ownership interest.
respectively.
All leases between the Partnership and tenants of the property are
operating leases.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual could differ from those estimates.
Rental Property
Rental property 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 using the straight-line method.
- 11 -
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
The estimated lives used in determining depreciation are:
Land improvements 15 years
Buildings 30 years
Building equipment - fixed 7 years
Maintenance equipment 7 years
Mortgage Costs
Mortgage COStS are amortized over the term of the related mortgage using
the straight-line method.
Rental Income
Rental income is recognized as rents become due. Rental payments received
in advance are deferred until earned.
Income Taxes
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
NOTE B - REALIZATION OF ASSETS
The Partnership has incurred recurring losses from operations, and has a
net capital deficiency at December 31, 1996. In addition, the Partnership's
current liabilities exceed its current assets at December 31, 1996. The
Partnership's ability to meet its obligations is dependent upon its ability
to generate operating income. Due to previously soft market conditions
which suppressed rent income, rental income continues to be insufficient to
cover all of the project's debt service requirements after the payment of
operating costs. The general partner has funded the Partnership's operating
deficits by borrowing funds from affiliates of the general partner. The
general partner intends to continue to borrow funds from its affiliates to
maintain its operations.
- 12 -
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia. Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE C - MANAGEMENT AGENT
The property is managed by an affiliate of the general partner. The current
management agreement provides for a management fee of 5% of gross
collections, as defined in the management agreement, plus $2.50 per unit
per month for bookkeeping services. The management and bookkeeping fees
charged to operations were $152,845 and $12,600, respectively in 1996. At
December 31, 1996, unpaid fees aggregated to $235,019.
NOTE D - RELATED PARTY TRANSACTIONS
Second Mortgage Payable
Eagle Insured L.P. (Eagle), an affiliate of the general partner, has agreed
to loan up to $4,000,000 to the Partnership for construction costs, closing
costs and accrued interest payments on the mortgage payable. The note is
subordinated to the mortgage payable and is collateralized by a deed of
trust on the real property. The note bears interest at prime plus 1% (9.25%
at December 31, 1996). As of December 31, 1996, the Partnership owed
$3,060,000 under the note. In 1996, interest charged to mortgagor entity
expense amounted to $288,232, which was paid from affiliate advances.
Equity Loan
Eagle loaned the Partnership $1,783,900 for the HUD required escrows, cash
requirement and loan fees pertaining to the equity loan. This note is
non-interest bearing unless certain events as defined in the loan agreement
occur and is subordinated to the mortgage payable and the note payable and
is unsecured unless coinsurance is terminated by HUD. If an event of
default occurs, the note shall bear interest at the lesser of 4% above the
prime rate or the highest rate permitted by law. The note matures on
January 1, 2030, when all principal is due and payable.
- 13 -
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE D - RELATED PARTY TRANSACTIONS - Continued
Mortgage Payable
The mortgage, in the original amount of $17,494,100, is payable to Related
Mortgage Corporation, an affiliate of the general partner. The mortgage is
payable in monthly principal and interest installments of $134,635 through
January 2030. The mortgage, which is coinsured by HUD, is collateralized by
a deed of trust on the rental property and bears interest at the rate of
8.95%, plus mortgage insurance premium at .75% per annum.
Under agreements with the mortgage lender and FHA, the Partnership is
required to make monthly escrow deposits for taxes, insurance and
replacement of project assets, and is subject to restrictions as to
operating policies. rental charges, operating expenditures and
distributions to partners.
Mortgage escrow deposits at December 31, 1996 consist of the following:
Hazard insurance $ 4,701
Mortgage insurance 117,236
-------
$ 121,937
=========
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.
Aggregate annual maturities of the mortgage payable over each of the next
five years- are as follows:
December 31, 1997 $ 88,120
1998 96,339
1999 105,324
2000 115,147
2001 125,886
- 14 -
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia, Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
Due to Affiliates
During 1996, an affiliate of the general partner advanced $253,220 to the
Partnership, which was used to pay a portion of the interest on the second
mortgage payable. These advances are noninterest bearing and payable on
demand subject to HUD regulations. At December 31, 1996, the aggregate
balance of advances due to the affiliate was $3,182,732.
NOTE E - OTHER REVENUE (ACCOUNT NO. 5990)
Other revenue consists of the following:
Processing fees $ 9,255
Miscellaneous 1,128
--------
$ 10,383
========
NOTE F - MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNT NO. 6390)
Miscellaneous administrative expenses consist of the following:
Uniforms $ 784
Training 1,164
Personnel expense reimbursement 1,110
Tenant relations 7,666
Travel and entertainment 855
Computer expense 3,594
Professional fees 1,470
Miscellaneous 521
Dues and subscriptions 2,310
-------
$ 19,474
========
- 15 -
<PAGE>
Walsh/Cross Creek Limited Partnership
(a majority-owned subsidiary
of Cross Creek of Columbia. Inc.)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996
NOTE G - OTHER EXPENSES (ENTITY) (ACCOUNT NO. 7190)
Other expenses consist of the following:
Interest expense on second mortgage payable $ 288,232
===========
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Eagle Insured L.P. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000821203
<NAME> Eagle Insured L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,228,487
<SECURITIES> 0
<RECEIVABLES> 30,887,641
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,997
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,055,428
<CURRENT-LIABILITIES> 106,007
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 32,949,421
<TOTAL-LIABILITY-AND-EQUITY> 33,055,428
<SALES> 0
<TOTAL-REVENUES> 2,864,151
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 213,213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,650,938
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,650,938
<EPS-PRIMARY> .93
<EPS-DILUTED> 0
</TABLE>
