January 2, 1996
Members of the Partnership
U.S. Realty Income Partners, L.P.
Nashville, Tennessee
We are pleased to confirm our understanding of the services we
are to provide for U.S. Realty Income Partners, L.P. for the year
ended December 31, 1995.
We will audit the balance sheet of U.S. Realty Income Partners,
L.P., and the related statements of income, retained earnings,
and cash flows for the year then ended.
Our audit will be conducted in accordance with generally accepted
auditing standards and will include tests of your accounting
records and other procedures we consider necessary to enable us
to express an unqualified opinion that your financial statements
are fairly presented, in all material respects, in conformity
with generally accepted accounting principles. If our opinion is
other than unqualified, we will fully discuss the reasons with
you in advance. If, for any reason, we are unable to complete
the audit, we will not issue a report as a result of this
engagement.
Our procedures will include tests of documentary evidence
supporting the transactions recorded in the accounts, tests of
the physical existence of inventories, and direct confirmation of
receivables and certain other assets and liabilities by
correspondence with selected customers, creditors, and banks. We
will request written representations from your attorneys as part
of the engagement, and they may bill you for responding to this
inquiry. At the conclusion of our audit, we will also request
certain written representations from you about the financial
statements and related matters.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements;
therefore, our audit will involve judgment about the number of
transactions to be examined and the areas to be tested. Also, we
will plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. However, because of the concept of reasonable
assurance and because we will not perform a detailed examination
of all transactions, there is a risk that material errors,
irregularities, or illegal acts, including fraud or defalcations,
may exist and not be detected by us. We will inform you,
however, of any matters of that nature that come to our attention
unless they are clearly inconsequential. Our responsibility as
auditors is limited to the period covered by our audit and does
not extend to any later periods for which we are not engaged as
auditors.
We understand that you will provide us with the basic information
required for our audit and that you are responsible for the
accuracy and completeness of that information. We will advise
you about appropriate accounting principles and their application
and will assist in the preparation of your financial statements,
but the responsibility for the financial statements remains with
you. This responsibility includes the maintenance of adequate
records and related internal control structure, the selection and
application of accounting principles, and the safeguarding of
assets.
We understand that your employees will type all cash, accounts
receivable, accounts payable, and other confirmations we request
and will locate any documents selected by us for testing.
Our audit is not specifically designed and cannot be relied on to
disclose reportable conditions, that is, significant deficiencies
in the design or operation of the internal control structure.
However, during the audit, if we become aware of such reportable
conditions or ways that we believe management practices can be
improved, we will communicate them to you in a separate letter.
We expect to begin our audit on approximately February 5, 1996
and to issue our report no later than March 31, 1996.
Our fees for these services will be $6,500 for the audit. The
fee is based on anticipated cooperation from your personnel and
the assumption that unexpected circumstances will not be
encountered during the audit. If significant additional time is
necessary, we will discuss it with you and arrive at a new fee
estimate before we incur the additional costs. Our invoices for
these fees will be rendered each month as work progresses and are
payable on presentation.
We appreciate the opportunity to be of service to you and believe
this letter accurately summarizes the significant terms of our
engagement. If you have any questions, please let us know. If
you agree with the terms of our engagement as described in this
letter, please sign the enclosed copy and return it to us.
Very truly yours,
Dempsey, Wilson & Co., P.C.
RESPONSE:
This letter correctly sets forth the understanding of U.S. Realty
Income Partners, L.P.
Officer signature:
Title:
Date:
<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
FINANCIAL STATEMENTS AND SCHEDULES
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
Table of Contents
Page
Number
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Partnership Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-14
Independent Auditors' Report on Accompanying Schedules 15
Schedules:
Schedule V - Property and Improvements 16
Schedule VI - Accumulated Depreciation of
Property and Improvements 17
<PAGE>
Independent Auditors' Report
Members of the Partnership
U.S. Realty Income Partners, L.P.
Nashville, Tennessee
We have audited the balance sheets of U.S. Realty Income
Partners, L.P. (a limited partnership) (the Partnership) as of
December 31, 1996 and 1995 and the related statements of
operations, partnership equity, and cash flows for the years then
ended. The financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The
financial statements of U.S. Realty Income Partners, L.P. for the
year ended December 31, 1994 was audited by other auditors whose
report dated March 15, 1995 expressed an unqualified report
thereon.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of U.S. Realty Income Partners, L.P. as of December 31, 1996 and
1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting
principles.
January 21, 1997
Murfreesboro, Tennessee
<PAGE>
U. S. Realty Income Partners, L.P.
(A Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
Assets
1996 1995
Cash $ 291,829 $ 155,183
Tenant receivables 6,035 2,752
Property, plant and equipment, net of
accumulated depreciation of $1,269,294
in 1996 and $1,113,864 in 1995 4,040,633 4,196,063
Investment in joint venture 1,000 1,000
Other assets 266,984 332,909
Total assets $4,606,481 $4,687,907
Liabilities and Partnership Equity
Notes payable $3,600,032 $3,642,603
Accounts payable 2,548 2,705
Accrued expenses 83,492 81,867
Total liabilities 3,686,072 3,727,175
Commitments and contingent liabilities
Minority partners' interest in joint
venture (121,073) (133,390)
Partnership equity 1,041,482 1,094,122
Net partnership equity 920,409 960,732
$4,606,481 $4,687,907
See accompanying notes to financial statements.
2<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Rental income $629,035 $609,362 $ 594,525
Common area maintenance 114,654 83,116 95,899
Interest 3,212 6,088 1,971
Total revenues 746,901 698,566 692,395
Expenses:
Interest 362,845 366,378 370,034
Legal and professional 24,510 28,269 20,798
Depreciation 155,430 155,430 155,427
Amortization 30,925 31,758 28,599
Property taxes 68,047 68,047 68,047
Leasing and administrative 75,068 47,025 44,993
Management fees 27,121 26,305 25,900
Repairs and maintenance 23,583 23,134 20,711
Refinancing costs 28,543 - -
Utilities 8,814 10,419 9,104
Insurance 3,183 7,052 6,340
Total expenses 808,069 763,817 749,953
Net loss before minority
interest and loss from joint
venture (61,168) (65,251) (57,558)
Minority partner's interest in
operating loss (profit) (12,317) (3,009) (2,470)
Loss from operations (73,485) (68,260) (60,028)
Income (loss) from joint venture 20,845 (118) (25,174)
Net loss $(52,640) $(68,378) $ (85,202)
Net loss per unit $ (10.29) $ (13.37) $ (16.66)
Weighted average number of units 4,858 4,858 4,858
See accompanying notes to financial statements.
3<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
STATEMENTS OF PARTNERSHIP EQUITY
Years Ended December 31, 1996, 1995 and 1994
Limited General
Partners Partners Total
Distributive share of net earnings 95% 5% 100%
Balance at December 31, 1993 $1,421,694 $(173,992) $1,247,702
Net loss of 1994 (80,942) (4,260) (85,202)
Balance at December 31, 1994 1,340,752 (178,252) 1,162,500
Net loss of 1995 (64,959) (3,419) (68,378)
Balance at December 31, 1995 1,275,793 (181,671) 1,094,122
Net loss of 1996 (50,008) (2,632) (52,640)
Balance at December 31, 1996 $1,225,785 $(184,303) $1,041,482
See accompanying notes to financial statements.
4<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash Flows from Operating Activities
Net loss from operations $(73,485) $(68,260) $ (60,028)
Adjustments to reconcile net
income to cash provided by
operating activities:
Minority partner's
interest in net profit
(loss) of consolidated
partnership 12,317 3,009 2,470
Depreciation 155,430 155,430 155,427
Amortization 30,925 31,758 28,599
(Increase) decrease in:
Tenant receivable (3,283) 3,127 2,250
Other assets 35,000 (65,080) (11,145)
Increase (decrease) in:
Accounts payable (157) 1,145 1,335
Accrued expenses 1,625 (32,572) (11,416)
Net cash provided by operating
activities 158,372 28,557 107,492
Cash Flows from Investing Activities
Purchases of property and
improvements - - (935)
Distribution from (investment in)
joint venture 20,845 (118) (25,174)
Net cash used in investing
activities 20,845 (118) (26,109)
Cash Flows from Financing Activities
Repayments on mortgage note (42,571) (38,538) (34,882)
Net cash used in financing
activities (42,571) (38,538) (34,882)
Net (decrease) increase in
cash and cash equivalents 136,646 (10,099) 46,501
Cash and cash equivalents
at beginning of year 155,183 165,282 118,781
Cash and cash equivalents
at end of year $291,829 $155,183 $165,282
See accompanying notes to financial statements.
5<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
Organization
U.S. Realty Income Partners, L.P. (the Partnership) was formed as a
limited partnership under the laws of the state of Delaware on
September 23, 1987. The Partnership was formed to acquire, operate,
hold for investment and dispose of residential and commercial
property. The general partner is Vanderbilt Realty Joint Venture, a
Tennessee partnership. Limited partners were admitted beginning on
May 15, 1988. The partnership controls certain shopping center
property, located in Nashville, Tennessee, through its 66-2/3%
interest in Bellevue Plaza Partners, a Tennessee joint venture. This
joint venture's assets, liabilities and operations are included in
these financial statements and represent the partnership's primary
business. Minority interests represent the 33-1/3% interest held in
such joint venture by an unaffiliated party.
The Partnership files its tax return and prepares its financial
statements under the accrual method of accounting.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership
considers cash on hand, demand deposits with financial institutions,
and highly liquid financial instruments with a maturity of three
months or less to be cash and cash equivalents.
Property and Improvements
Property and improvements are recorded at the acquisition cost.
Depreciation is provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service
lives, using straight-line and accelerated methods.
Investment in Joint Venture
Investment in joint venture currently represents the partnership's
indirect 4.17% interest in Prudential/Daniel Office Venture, LLC,
which is stated at cost (note 3).
Earnings per Unit
Earnings per unit are based on the weighted average of limited partner
units outstanding.
6<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies, (Continued)
Income Taxes
The financial statements include only the assets and liabilities and
results of operations which relate to the business of the Partnership.
No provisions have been made for federal and state income taxes as
such taxes are the personal responsibility of the partners.
Partnership Allocations
Partnership allocations are made in accordance with the limited
partnership agreement. Cash distributions, net earnings or loss and
taxable income or loss are generally allocated 95% to the limited
partners and 5% to the general partner. Liquidation proceeds are
generally allocated 85% to the limited partners and 15% to general
partners, after replenishment of negative capital accounts and return
of limited partners' capital and preferred returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. Property and Improvements
Property and improvements located at Bellevue Plaza consist of the
following:
1996 1995
Buildings and improvements $4,895,626 $4,895,626
Less accumulated depreciation (1,269,294) (1,113,864)
3,626,332 3,781,762
Land 414,301 414,301
$4,040,633 $4,196,063
During the years ended December 31, 1996, 1995 and 1994, the
Partnership recognized depreciation of $155,430, $155,430,
and $155,427, respectively.
7<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
3. Investment in Joint Venture
The Partnership held a 50% interest in DR/US West End General
Partnership, a general partnership joint venture formed to own and
operate a commercial office building in Nashville, Tennessee.
Investment in joint venture at December 31, 1993 $ 1,000
Additional equity contributions 25,174
Provision for loss in investment (25,174)
Investment in joint venture at December 31, 1994 1,000
Additional equity contributions 10,118
Provision for loss in investment (10,118)
Investment in joint venture at July 28, 1995 $ 1,000
Financial Statements of Joint Venture:
Assets (Unaudited)
July 28,
1995
Cash $ (341)
Restricted cash 162,706
Accounts receivable 2,335
Property and improvements, net 10,304,413
Deferred fees 96,838
$10,565,951
Liabilities and Partnership Equity
Accrued interest $ 60,146
Mortgages and notes payable 7,478,710
7,538,856
Partnership equity 3,027,095
$10,565,951
Property and improvements consist of:
1995
Building $10,661,345
Personal property 371,065
Tenant finishes 908,443
11,940,853
Less accumulated depreciation (2,851,633)
9,089,220
Land 1,215,193
$10,304,413
8<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
3. Investment in Joint Venture, (Continued)
Financial Statements of Joint Venture, Continued:
(Unaudited)
(Seven Months)
1995 1994
Revenues:
Rental income $1,109,049 $1,806,826
Miscellaneous income 19,996 25,672
Loss on disposition
of property (6,212) (8,172)
Interest income 10,619 8,016
1,133,452 1,832,342
Expenses:
Interest 408,573 694,176
Depreciation and
amortization 285,598 510,168
Utilities 130,951 219,945
Property taxes 100,401 173,291
Repairs and maintenance 73,332 73,443
Personnel and
administrative 88,960 84,234
Janitorial 48,628 79,638
Management fees 44,858 74,314
Insurance 5,707 18,407
Advertising and
promotion 1,125 2,711
1,188,133 1,903,327
Net loss $ (54,681) $ (97,985)
Cash flows provided by
operating activities 148,286 391,756
Cash flows used in
investing activities (39,659) (165,002)
Cash flows used in
financing activities (156,610) (230,534)
Net (decrease) in
cash and cash
equivalents (47,983) (3,780)
Cash at beginning of year 47,642 51,422
Cash at end of year $ (341) $ 47,642
9<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
3. Investment in Joint Venture, (Continued)
Financial Statements of Joint Venture, Continued:
Mortgages payable consist of:
(Unaudited)
July 28,
1995
Mortgage - 9% monthly principal and
interest of $62,981, matures
April 1, 1997 $6,634,502
Nonrecourse promissory note - 8%
monthly principal payments of
$10,000 and interest, matures
February 1, 1997 170,696
Joint venture partner - prime + 1%
interest only, matures March 1, 2028 673,512
$7,478,710
Effective July 28, 1995, the partnership exchanged its interest in the
assets of DR/US West End General Partnership (DR/US) for an indirect
4.17% equity interest (held through a limited partnership interest in
Daniel S.E. Office Limited Partnership) in Prudential/Daniel Office
Venture, LLC (the LLC). The LLC, which is controlled by Prudential
Life Insurance Company of America, owns six office buildings
(including the DR/US property) located in Nashville, Tennessee and
Raleigh, North Carolina. Management believes the fair value of the
partnership's interest in the LLC approximates capital contributions
recognized by the LLC (for the 4.17% interest) amounting to
$1,361,445. Such capital contributions were valued based on
management's (unaudited) estimated values of the contributed
properties. The LLC interest has been valued in these financial
statements at $1,000, the partnership's carrying value in the DR/US
investment.
The partnership's income (loss) from its joint venture investments is
determined as follows:
1996 1995 1994
Distributions from Prudential/Daniel
Office Venture, LLC $20,845 $ 10,000 $ -
Provisions for loss on invetment in
DR/US West End General Partnership - (10,118) (25,174)
$20,845 $ (118) $(25,174)
10<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
4. Related Party Transactions
Administration expenses (fees and other costs and expenses) paid to
the general partner or its affiliates amounted to $65,000 in 1996,
$36,000 in 1995 and $36,000 in 1994.
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services.
5. Note Payable
The Partnership has a note payable to a financial institution
amounting to $3,600,032 and $3,642,603 as of December 31, 1996 and
1995. The note bears an interest rate of 10% per annum with monthly
installments of principal and interest of $33,743 payable until
February 1, 1997, when the remaining balance will be due. The note is
collateralized by a deed of trust on the Bellevue Plaza property.
Subsequent to year-end, the maturity date on the note payable was
extended until August 1, 1997.
6. Reconciliation of Financial Statements and Tax Returns
1996 1995 1994
Net loss, per financial
statements $ (52,640) $ (68,378) $ (85,202)
Items treated differently
on the tax return:
Pass - through income
(expenses) from
investment in
joint-venture:
Net operating loss (4,003) (16,080) (48,993)
Write-down in value of
investment - 118 25,174
Amortization (14,149) (14,151) (23,131)
Other-accrued
administrative expenses - - (29,000)
$(70,792) $ (98,491) $(161,152)
The Partnership's federal income tax return is subject to audit and
possible adjustment by the Internal Revenue Service.
11<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
7. Other Assets
Other assets consist of:
Acquisition fees $ 328,447 $ 328,447
Mortgage financing costs 101,089 146,339
Deferred commissions 41,968 37,478
471,504 512,264
Less accumulated amortization (206,170) (181,005)
265,334 331,259
Accounts receivable from affiliate 1,650 1,650
$ 266,984 $ 332,909
Acquisition fees are amortized over the life of the acquired property,
which is 31.5 years. Loan costs are amortized over the life of the
loan, which is 7 years. Deferred commissions are amortized over the
terms of the related leases.
8. Leases of Lessor
Bellevue Plaza leases property to others under noncancellable
operating leases requiring fixed monthly payments over various terms.
At December 31, 1996, future minimum lease receipts were as follows:
Year Ending December 31:
1997 $ 526,818
1998 328,702
1999 185,251
2000 92,205
2001 38,032
$1,171,008
9. Supplemental Cash Flow Information
Interest paid totaled $362,845 in 1996, $366,378 in 1995 and $370,034
in 1994.
12<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
10. Financial Instruments
The estimated fair values of the partnership's financial instruments,
as of December 31, 1996 and 1995, were as follows (in thousands):
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets:
Cash and cash equivalents $292 $ 292 $155 $ 155
Receivables 6 6 4 4
Investment in joint
venture 1 1,361 1 1,361
$299 $1,659 $160 $1,520
Financial liabilities:
Notes payable $3,600 $3,600 $3,643 $3,643
Accounts payable 3 3 3 3
Deposits 15 15 14 14
$3,618 $3,618 $3,660 $3,660
Methods and assumptions used in estimating fair values are summarized
as follows:
Cash and cash equivalents - Carrying amounts represent a reasonable
estimate of fair values.
Trade accounts receivable and payable, accrued expenses and deposits -
Carrying values of these accounts approximate fair value due to their
short maturities.
Investment in joint venture - Management's estimate of fair value, as
of December 31, 1996, is based on unaudited estimated values of the
underlying real estate (note 3).
13<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the Years Ended December 31, 1996, 1995 and 1994
11. Environmental Contingency
The shopping center property the partnership controls (described in
note 1) has environmental problems due to a current tenant.
Management has no estimate for the cost of this cleanup, however,
management believes that the current tenant is responsible for bearing
the cost of the cleanup.
14<PAGE>
INDEPENDENT AUDITORS' REPORT
ON ACCOMPANYING SCHEDULES
Members of the Partnership
U.S. Realty Income Partners, L.P.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements of taken as a whole. Schedule V -
Property and Improvements and Schedule VI - Accumulated
Depreciation of Property and Improvements are presented for
purposes of additional analysis and are 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 our opinion, is fairly stated
in all material respects in relation to the basic financial
statements taken as a whole.
January 21, 1997
Murfreesboro, Tennessee
<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
SCHEDULE V - PROPERTY AND IMPROVEMENTS
Balance at Balance,
Beginning Additions at end
Classification of Period At Cost Retirements of Period
1991 $5,289,022 $12,000 $ - $5,301,022
1992 5,301,022 5,570 - 5,306,592
1993 5,306,592 2,400 - 5,308,992
1994 5,308,992 935 - 5,309,927
1995 5,309,927 - - 5,309,927
1996 5,309,927 - - 5,309,927
16<PAGE>
U.S. Realty Income Partners, L.P.
(A Limited Partnership)
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND IMPROVEMENTS
Additions
Balance at Charged to Balance,
Beginning Costs and at end
Classification of Period Expenses Retirements of Period
1991 $ 337,412 $154,947 $ - $ 492,359
1992 492,359 155,308 - 647,667
1993 647,667 155,340 - 803,007
1994 803,007 155,427 - 958,434
1995 958,434 155,430 - 1,113,864
1996 1,113,864 155,430 - 1,269,294
Depreciation is provided for by the required tax method of depreciating
commercial real estate; i.e. MACRS. The Partnership believes this provides for
a depreciation provision similar to standard book depreciation methods.
17<PAGE>
U.S. Realty Income Partners, L.P.
P. O. Box 50507
Nashville, TN 37205-0507
January 21, 1997
Dempsey, Wilson & Co., P.C.
630 South Church Street
Murfreesboro, TN 37130
In connection with your audit of the financial statements of U.S.
Realty Income Partners, L.P. as of December 31, 1996, and for the
year then ended for the purpose of expressing an opinion as to
whether the financial statements present fairly, in all material
respects, the financial position, results of operations, and cash
flows of U.S. Realty Income Partners, L.P. in conformity with
generally accepted accounting principles. We confirm, to the
best of our knowledge and belief, the following representations
made to you during your audit.
1. We are responsible for the fair presentation in the
financial statements of financial position, results of
operations, and cash flows in conformity with generally
accepted accounting principles.
2. We have made available to you all -
a. Financial records and related data.
b. Minutes of the meetings of partners, directors, and
committees of directors, or summaries of actions of
recent meetings for which minutes have not yet been
prepared.
3. There have been no -
a. Irregularities involving management or employees who
have significant roles in the internal control
structure.
b. Irregularities involving other employees that could
have a material effect on the financial statements.
c. Communications from regulatory agencies concerning
noncompliance with, or deficiencies in, financial
reporting practices that could have a material effect
on the financial statements.
4. We have no plans or intentions that may materially affect
the carrying value or classification of assets and
liabilities.
5. The following have been properly recorded or disclosed in
the financial statements:
a. Related party transactions and related accounts
receivable or payable, including sales, purchases,
loans, transfers, leasing arrangements, and guarantees.
b. Arrangements with financial institutions involving
compensating balances or other arrangements involving
restrictions on cash balances and line-of-credit or
similar arrangements.
c. Agreements to repurchase assets previously sold.
6. There are no -
a. Violations or possible violations of laws or
regulations whose effect should be considered for
disclosure in the financial statements or as a basis
for recording a loss contingency.
b. Other material liabilities or gain or loss
contingencies that are required to be accrued or
disclosed by Statement of Financial Accounting
Standards No. 5.
7. We are not aware of any pending or threatened litigation,
claims, or assessments or unasserted claims or assessments
that are required to be accrued or disclosed in the
financial statements in accordance with Statement of
Financial Accounting Standards No. 5, and we have not
consulted a lawyer concerning litigation, claims, or
assessments.
8. There are no material transactions that have not been
properly recorded in the accounting records underlying the
financial statements.
9. The company has satisfactory title to all owned assets, and
there are no liens or encumbrances on such assets nor has
any asset been pledged except as made known to you and
disclosed in the notes to the financial statements.
10. We have complied with all aspects of contractual agreements
that would have a material effect on the financial
statements in the event of noncompliance.
11. We have identified all accounting estimates that could be
material to the financial statements, including the key
factors and significant assumptions underlying those
estimates, and we believe the estimates are reasonable in
the circumstances.
12. There are no such estimates that may be subject to material
change in the near term that have not been properly
disclosed in the financial statements. We understand that
near term means the period within one year of the date of
the financial statements.
13. No events have occurred subsequent to the balance sheet date
that would require adjustment to, or disclosure in, the
financial statements.
Signature:
Title:
<PAGE>
U.S. Realty Income Partners, L.P.
Partners in Bellevue Plaza Partners, L.P.
224 White Bridge Road
Nashville, TN 37209
February 3, 1997
Stokes & Bartholomew
Ms. Darlene Marsh
424 Church St., Suite 2800
Nashville, TN 37219
Our auditors, Dempsey, Wilson & Co., P.C., 630 South Church
Street, Murfreesboro, TN 37130, are conducting an audit of our
financial statements. Please furnish to them the information
requested below involving matters as to which you have been
engaged and to which you have devoted substantive attention on
behalf of the Partnership in the form of legal consultation or
representation.
Pending or Threatened Litigation, Claims, and Assessments
(excluding unasserted claims and assessments)
Please prepare a description of all litigation, claims, and
assessments (excluding unasserted claims and assessments). The
description of each case should include:
a. the nature of the litigation,
b. the progress of the case to date,
c. how management is responding or intends to respond to the
litigation, e.g., to contest the case vigorously or to seek
an out-of-court settlement, and
d. an evaluation of the likelihood of an unfavorable outcome
and an estimate, if one can be made, of the amount or range
of potential loss.
Also, please identify any pending or threatened litigation,
claims, and assessments with respect to which you have been
engaged but as to which you have not yet devoted substantive
attention.
Unasserted Claims and Assessments
We have represented to our auditors that there are no unasserted
possible claims or assessments that you have advised us are
probable of assertion and must be disclosed in accordance with
Statement of Financial Accounting Standards No. 5 (excerpts of
which can be found in the ABA's Auditor's Letter Handbook).
We understand that whenever, in the course of performing legal
services for us with respect to a matter recognized to involve an
unasserted possible claim or assessment that may call for
financial statement disclosure, if you have formed a professional
conclusion that we should disclose or consider disclosure
concerning such possible claim or assessment, as a matter of
professional responsibility to us, you will so advise us and will
consult with us concerning the question of such disclosure and
the applicable requirements of Statement of Financial Accounting
Standards No. 5. Please specifically confirm to our auditors
that our understanding is correct.
Response
Your response should include matters that existed as of December
31, 1996, and during the period from that date to the effective
date of your response. Please specify the effective date of your
response if it is other than the date of reply.
Please specifically identify the nature of, and reasons for, any
limitations on your response.
Other Matters
Please also indicate the amount we were indebted to you for
services and expenses (billed or unbilled) on December 31, 1996.
Very truly yours,
Miles W. Warfield
Bellevue Plaza Partners, Ltd.
Owned 66-2/3% by
U.S. Realty Income Partners, Ltd.
<PAGE>
February 4, 1997
Brookside Properties
Attn: Becky Trainer
224 White Bridge Road
Nashville, TN 37209
Becky:
I have enclosed the letter to the attorneys that I spoke with you
about. Please have Miles sign a copy and return to me in the
envelope provided. I spoke with Chip Christianson about sending
this letter and he said that it was fine to mail to the
attorneys. Thank you for your help.
If there are any questions, please call.
Tim Montgomery
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 291,829
<SECURITIES> 0
<RECEIVABLES> 6,035
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,309,927
<DEPRECIATION> 1,269,294
<TOTAL-ASSETS> 4,606,481
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 920,409
<TOTAL-LIABILITY-AND-EQUITY> 4,606,481
<SALES> 0
<TOTAL-REVENUES> 746,901
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 445,224
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,845
<INCOME-PRETAX> (52,640)
<INCOME-TAX> (52,640)
<INCOME-CONTINUING> (52,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,640)
<EPS-PRIMARY> (10.29)
<EPS-DILUTED> (10.29)
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