Exhibit
Number Exhibit Description
EX - 21.1 Financial Statements of Yreka Investment Group, for the years ended
December 31, 1999 and 1998 together with Independent Auditors'
Report Thereon; a significant subsidiary of the Partnership.
39
<PAGE>
Yreka Investment Group
Table of Contents
Page
Independent Auditors' Report 41
Financial Statements
Balance Sheets 42
Statements of Operations 43
Statements of Changes in Partners Capital 46
Statements of Cash Flows 47
Notes to Financial Statements 49
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Yreka Investment Group
A California Limited Partnership
We have audited the accompanying balance sheets of Yreka Investment Group,
a California Limited Partnership, as of December 31, 1999 and 1998, and the
related statements of operations, changes in partners' capital, and cash flows
for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards issued by the Comptroller General of
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 Yreka Investment Group as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
In accordance with Government Auditing Standards, we have also issued a
report dated January 13, 2000, on our consideration of Yreka Investment Group's
internal control over financial reporting and our tests of its compliance with
certain provisions of laws, regulations, contracts and grants.
/s/ Tate, Propp, Beggs & Sugimoto
An Accountancy Corporation
January 13, 2000
Sacramento, California
41
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------- ------------
<S> <C> <C>
Current Project Assets:
Cash $ 696 $ 10,035
Restricted cash:
Tenant security deposits - Note 2 8,750 8,750
Taxes and insurance - Note 3 21,361 24,651
USDA/RD reserve - Note 4 124,813 113,617
Accounts receivable 4,861 5,147
Prepaid expenses 2,280 2,214
------------ ------------
Total current project assets 162,761 164,414
Property and equipment - Note 5 1,589,673 1,626,528
------------ ------------
Total Assets $ 1,752,434 $ 1,790,942
============ ============
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
<S> <C> <C>
Current Project Liabilities:
Accounts payable - Note 7 $ - $ 7,950
Tenant security deposits - Note 2 8,750 8,750
Note payable, current portion - Note 6 4,324 3,963
------------ ------------
Total current project liabilities 13,074 20,663
Long-Term Project Liabilities:
Note payable, less current portion - Note 6 1,466,798 1,471,122
Non-Project Liabilities:
Due to related party - Note 7 2,400 2,400
------------ ------------
Total liabilities 1,482,272 1,494,185
Partners' capital 270,162 296,757
------------ ------------
Total Liabilities and Partners' Capital $ 1,752,434 $ 1,790,942
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements
42
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Project Operating Income:
Gross rent $ 69,801 $ 65,101
Rental assistance 86,951 91,299
Less vacancies (1,567) (2,935)
----------- ----------
Net rent 155,185 153,465
Other project income:
Late charges 218 350
Laundry income 1,991 2,294
Tenant damages 2,241 1,501
Interest income 4,115 3,223
Miscellaneous income - 9,800
----------- ----------
Total project operating income 163,750 170,633
----------- ----------
Project Operating Expenses:
Maintenance and operating:
Caretaker 5,561 7,681
Supplies 4,981 3,658
Painting and decorating 402 77
General maintenance and repairs 2,624 4,178
Snow removal (400) -
Elevator maintenance - -
Grounds maintenance 2,204 498
Services 484 772
Furniture and furnishings replacement 3,208 2,982
Other operating expenses - -
----------- ----------
Total maintenance and operating 19,064 19,846
----------- ----------
Utilities:
Electricity 1,205 1,544
Water 5,183 1,253
Sewer 6,534 2,405
Heating fuel/other 3,837 2,935
Garbage and trash removal 3,307 3,158
----------- ----------
Total utilities 20,066 11,295
----------- ----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
43
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Project Operating Expenses (continued):
Administrative:
Manager $ 11,465 $ 9,242
Management fees 17,712 17,280
Accounting/auditing 3,880 3,770
Bookkeeping 216 -
Legal - -
Advertising 931 467
Telephone 1,047 1,023
Office supplies 2,442 2,440
Office furniture and equipment 300 125
Training expense 231 776
Health insurance 1,508 1,509
Payroll taxes 1,712 1,931
Worker's compensation insurance 1,799 2,255
Other administrative expenses 1,332 1,463
---------- ----------
Total administrative 44,575 42,281
---------- ----------
Taxes and Insurance:
Real estate taxes 14,775 20,051
Special assessments - -
Other taxes, fees and permits 910 80
Property insurance 4,494 4,339
Other insurance - -
---------- ----------
Total taxes and insurance 20,179 24,470
---------- ----------
Total project operating expenses 103,884 97,892
---------- ----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
44
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF OPERATIONS (CONTINUED)
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Other Project Income (Expenses):
Interest subsidy - PASS Credit $ 94,672 $ 94,672
Depreciation and amortization (36,855) (35,720)
Interest expense:
USDA/RD 1% interest (34,242) (34,572)
Interest subsidy (94,672) (94,672)
Authorized capital improvements from USDA/RD reserve (6,804) (1,935)
Authorized capital improvements from unrestricted cash (4,864) (4,557)
Total other project income (expenses) (82,765) (76,784)
---------- ----------
Non-Project Expenses:
Partnership administration fee 2,400 2,400
Limited partnership tax - 800
Tax administration fee 800 -
---------- ----------
Total non-project expenses 3,200 3,200
---------- ----------
Net loss $ (26,099) $ (7,243)
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
45
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Limited
Partner
-----------
General WNC
Partner California
----------- Housing
Ronald Tax Credits
Bettencourt L.P. Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 1,858 $ 302,638 $ 304,496
Return on investment - Note 8 (5) (491) (496)
Net loss (72) (7,171) (7,243)
----------- ----------- -----------
Balance, December 31, 1998 1,781 294,976 296,757
Return on investment - Note 8 (5) (491) (496)
Net loss (261) (25,838) (26,099)
----------- ----------- -----------
Balance, December 31, 1999 $ 1,515 $ 268,647 $ 270,162
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
46
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999 and 1998
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Cash received from tenants for rent $ 155,471 $ 153,287
Cash received from tenants for security deposits - 250
Miscellaneous cash received 8,565 17,168
Cash paid to suppliers and employees
and for other restricted cash (122,678) (103,745)
Mortgage interest paid (34,242) (34,572)
Limited partnership tax paid (800) (800)
------------ ------------
Net cash provided by operating activities 6,316 31,588
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures - (7,950)
Deposits to the USDA/RD reserve (21,622) (20,637)
Withdrawals from the USDA/RD reserve 10,426 4,582
------------ ------------
Net cash used by investing activities (11,196) (24,005)
------------ ------------
Cash Flows From Financing Activities:
Principal payments on note payable (3,963) (3,632)
Return on investment (496) (496)
------------ ------------
Net cash used by financing activities (4,459) (4,128)
------------ ------------
Increase (decrease) in cash (9,339) 3,455
Cash, beginning of year 10,035 6,580
------------ ------------
Cash, end of year $ 696 $ 10,035
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements
47
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, 1999 and 1998
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Reconciliation of Net Loss to Net Cash
Provided By Operating Activities:
Net loss $ (26,099) $ (7,243)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 36,855 35,720
(Increase) decrease in accounts receivable 286 (178)
Increase in prepaid expenses (66) (89)
(Increase) decrease in other restricted cash 3,290 (4,822)
Increase (decrease) in accounts payable (7,950) 7,950
Increase in tenant security deposits - 250
----------- -----------
Net cash provided by operating activities $ 6,316 $ 31,588
=========== ===========
</TABLE>
48
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Yreka Investment Group, a California Limited Partnership, was
formed in October 1988 for the purpose of constructing and
operating a 36-unit rural rental housing project located in
Yreka, California, known as Siskiyou Valley Apartments. Project
construction began in February 1989 and was completed in November
1989. Rental operations commenced in November 1989.
The major activities of the Project are governed by the
Partnership agreement and the United States Department of
Agriculture/Rural Development (USDA/RD) pursuant to Sections 515
and 521 of the Housing Act of 1949, as amended, which provide for
interest and rental subsidies, respectively. USDA/RD has
contracted with the Partnership to make rental assistance
payments to the Partnership on behalf of qualified tenants. The
contract terminates upon total disbursement of the assistance
obligation.
The following is a summary of significant accounting policies:
(a) The financial statements are prepared on the accrual basis
of accounting.
(b) The Partnership is not an income tax paying entity although,
as a limited partnership, it is subject to a limited
partnership tax. The net income or loss of the Partnership
passes through to and is reportable by the partners
individually. Therefore, no provision for income taxes is
reflected in these financial statements.
(c) Property and equipment is stated at cost. Assets are
depreciated over their estimated useful lives using the
straight-line method. The estimated useful lives range from
5 to 50 years.
(d) Loan acquisition costs and construction period interest are
amortized over 50 years using the straight-line method.
(e) The Partnership maintains its cash balances in institutions
where they are insured, up to $100,000, by the Federal
Deposit Insurance Corporation (FDIC).
49
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) The presentation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2: TENANT SECURITY DEPOSITS
Tenant security deposits are maintained in a separate account at
a bank insured by the FDIC.
NOTE 3: TAXES AND INSURANCE RESERVE
A separate bank account has been established to accumulate cash
transfers for the payment of property taxes and insurance. During
1999 and 1998, $3,300 and $6,500, respectively, of unrestricted
cash was transferred from this interest bearing account. During
1998, a property tax refund of $9,800 was received and deposited
into this same account.
NOTE 4: USDA/RD RESERVE
The loan agreement with USDA/RD requires cash transfers to a
replacement reserve account each year until $149,380 has been
accumulated. Withdrawals from the reserve account may be made
only with the approval and countersignature of the USDA/RD.
50
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 4: USDA/RD RESERVE (CONTINUED)
Changes in the reserve for the years ended December 31, 1999 and
1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1997 $ 97,562
Deposits 18,000
Interest earned 2,637
Withdrawals (1,935)
Interest withdrawn (2,627)
Bank charges (20)
---------
Balance, December 31, 1998 113,617
Deposits 18,000
Interest earned 3,622
Withdrawals (6,804)
Interest withdrawn (3,622)
---------
Balance, December 31, 1999 $ 124,813
=========
</TABLE>
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 and 1998, was
comprised of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 157,378 $ 157,378
Building 1,786,004 1,786,004
Furniture and equipment 100,405 100,405
----------- -----------
2,043,787 2,043,787
Less accumulated depreciation and amortization 454,114 417,259
----------- -----------
Total property and equipment $ 1,589,673 $ 1,626,528
</TABLE>
NOTE 6: NOTE PAYABLE
The Partnership has a note payable to USDA/RD in monthly
installments of $11,073 including interest at 8.75% per annum,
due January 1, 2039. The note is secured by a deed of trust on
the apartment project.
51
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 6: NOTE PAYABLE (CONTINUED)
The Partnership has entered into an interest subsidy agreement
with USDA/RD. USDA/RD provides a monthly interest subsidy in the
amount of $7,889, which reduces the effective interest rate to
approximately 1% over the term of the loan. The subsidy is
credited to subsidy income, and interest at 8.75% is included in
interest expense. The USDA/RD regulatory agreement provides for
USDA/RD to establish and control the allowable rents.
Principal payments for the succeeding five years and thereafter
are as follows:
Year Ending December 31:
2000 $ 4,324
2001 4,718
2002 5,148
2003 5,617
2004 6,128
Thereafter 1,445,187
-------------
Total $1,471,122
=============
NOTE 7: RELATED PARTY TRANSACTIONS
Ronald Bettencourt, general partner of the Project, is also a
shareholder in The CBM Group, Inc. The CBM Group, Inc. provides
management services to the Project. Other related entities
include Consolidated Building Maintenance, a division of The CBM
Group, Inc., and Atlantic Vending Services, a division of Capital
Resources, Inc. The general partner of the Project is also a
shareholder in Capital Resources, Inc. Atlantic Vending Services
is responsible for laundry money collection and laundry facility
maintenance in accordance with USDA/RD procedures. Consolidated
Building Maintenance was formed to provide maintenance services
with prior USDA/RD approval. The general partner of the Project
is also a partner in CBM Management Group.
Partnership Administration Fee
In accordance with the Partnership agreement, the Partnership
accrued, as a non-project expense, $2,400 for each of the years
ended December 31, 1999 and 1998, payable to the general partner
for services rendered in connection with the administration of
the business and affairs of the Partnership. At December 31, 1999
and 1998, $2,400 was payable under this agreement.
52
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 7: RELATED PARTY TRANSACTIONS (CONTINUED)
Tax Administration Fee
During 1999, the Partnership paid The CBM Group, Inc. an $800 tax
administration fee from the 1998 earned return on investment,
which was charged to non-project operations.
Management Fees
Management fees paid to The CBM Group, Inc. during 1999 and 1998,
totaled $17,712 and $17,280, respectively.
Maintenance
At December 31, 1998, accounts payable consisted of $7,950
payable to Consolidated Building Maintenance for project
maintenance expenses incurred during 1998.
NOTE 8: PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS
Profits and losses, as adjusted for certain provisions of the
Partnership agreement, are allocated 1% to the general partner
and 99% to the limited partner. Under USDA/RD regulations,
distributions to partners may be made from project operations
only to the extent funds exceed the required contributions to the
cash reserve account. Annual distributions are limited to 8% of
the Partnership's initial capital investment. If the return on
investment is not paid in a given year, any unpaid portion may be
carried forward for one year and paid if earned. During 1999 and
1998, a portion of the 1998 and 1997 earned return on investment,
$3,200 each year, was used to pay non-project expenses and
liabilities.
53
<PAGE>
YREKA INVESTMENT GROUP
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 9: TAXABLE LOSS
A reconciliation of the financial statement net loss to the
taxable loss of the Partnership at December 31, 1999 and 1998, is
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Financial statement net loss $ (26,099) $ (7,243)
Adjustments:
Excess of tax depreciation and amortization
over financial statement depreciation and
amortization (30,628) (29,219)
Expenses reported on financial statements in
excess of tax return expenses 7,950 -
Expenses reported on tax return in excess of
financial statement expenses - (7,950)
Miscellaneous - 1
------------ ----------
Taxable loss $ (48,777) $ (44,411)
============ ==========
</TABLE>
NOTE 10: CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Project's operations are concentrated in the multifamily real
estate market. In addition, the Project operates in a heavily
regulated environment. The operations of the Project are subject
to the administrative directives, rules and regulations of
federal, state and local regulatory agencies, including, but not
limited to, USDA/RD. Such administrative directives, rules and
regulations are subject to change by an act of congress or an
administrative change mandated by USDA/RD. Such changes may occur
with little notice or inadequate funding to pay for the related
cost, including the additional administrative burden, to comply
with a change.
54
<PAGE>
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER
FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Partners
Yreka Investment Group
A California Limited Partnership
We have audited the financial statements of Yreka Investment Group, a California
Limited Partnership, as of and for the year ended December 31, 1999, and have
issued our report thereon dated January 13, 2000. We conducted our audit in
accordance with generally accepted auditing standards and the standards
applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States.
Compliance
As part of obtaining reasonable assurance about whether Yreka Investment Group's
financial statements are free of material misstatement, we performed tests of
its compliance with certain provisions of laws, regulations, contracts and
grants, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit, and,
accordingly, we do not express such an opinion. The results of our tests
disclosed no instances of noncompliance that are required to be reported under
Government Auditing Standards.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Yreka Investment Group's
internal control over financial reporting in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial statements
and not to provide assurance on the internal control over financial reporting.
Our consideration of the internal control over financial reporting would not
necessarily disclose all matters in the internal control over financial
reporting that might be material weaknesses. A material weakness is a condition
in which the design or operation of one or more of the internal control
components does not reduce to a relatively low level the risk that misstatements
in amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions. We noted no matters
involving the internal control over financial reporting and its operation that
we consider to be material weaknesses.
55
<PAGE>
This report is intended solely for filing with regulatory agencies and the
United States Department of Agriculture/Rural Development and is not intended to
be and should not be used by anyone other than these specific parties.
/s/ Tate, Propp, Beggs & Sugimoto
An Accountancy Corporation
January 13, 2000
Sacramento, California
56
