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 0-18491
CAPITAL MORTGAGE PLUS L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3502020
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 Assignment 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
Registrant's prospectus dated May 10, 1989, as supplemented July 7, 1989,
January 8, 1990, February 9, 1990, May 18, 1990, and October 24, 1990, as filed
with the Commission pursuant to Rules 424(b) and 424(c) of the Securities Act of
1933, but only to the extent expressly incorporated by reference in Parts I, II,
III and IV.
Index to exhibits may be found on page 27.
Page 1 of 62
<PAGE>
PART I
Item 1. Business.
General
Capital Mortgage Plus L.P. (the "Registrant") is a limited partnership
which was formed under the laws of the State of Delaware on November 23, 1988.
The sole general partner of the Registrant is CIP Associates, Inc., a Delaware
corporation (the "General Partner"). The General Partner manages and controls
the affairs of the Registrant. See Item 10, Directors and Executive Officers of
the Registrant, below.
On May 10, 1989 the Registrant commenced a public offering (the "Offering")
representing assignments of Beneficial Assignment Certificates of limited
partnership interests ("BACs"), managed by IDS Financial Services Inc. (the
"Dealer Manager"), a subsidiary of IDS Financial Corporation, pursuant to a
prospectus dated May 10, 1989, as supplemented (the "Prospectus").
Pursuant to the Offering, the Registrant received $36,733,200 of Gross
Proceeds from 3,545 investors, resulting in net proceeds of approximately
$32,031,000 available for investment, after payment of sales commissions,
offering and organization expenses, loan origination fees and establishment of a
working capital reserve. The final closing of the Offering occurred on May 23,
1991 and no further issuance of BACs is anticipated. See also Item 5, Market for
the Registrant's Common Equity and Related Security Holder Matters.
The Registrant's principal investment objectives are to: (i) preserve and
protect the Registrant's capital; (ii) provide quarterly cash distributions of
adjusted cash from operations; and (iii) provide additional distributions from
additional interest arising from participations in the annual cash flow of the
developments and/or the sale or refinancing of a development. Due to the
depressed state of the real estate market in recent years, there can be no
assurance that all of the objectives can be achieved. Although there have been
some payments of additional interest, they have not yet been sufficient to
increase distributions.
The Registrant has originated federally insured and co-insured first
mortgage construction and permanent loans ("Mortgages") to finance multi-family
residential rental properties ("Developments") developed by unaffiliated
entities. All base interest and initially at least 90% in the aggregate of the
principal of the Mortgages in which the Registrant invests are insured or
coinsured by the Department of Housing and Urban Development ("HUD") and Related
Mortgage Corporation ("RMC"), an affliate of the General Partner. The remaining
10% of the Registrant's portfolio is comprised of uninsured non-interest bearing
equity loans made directly to the same developers as the Mortgages for, among
other purposes, defrayal of certain specific cash requirements of the
properties. The Registrant has made five mortgage loans in the aggregate amount
of $26,158,190 and five non-interest bearing equity loans in the aggregate
amount of $3,062,135 in connection with five multi-family projects. The balance
of the Gross Proceeds, $2,810,675, was temporarily invested and is being
utilized as a working capital reserve.
The Registrant is engaged solely in the business of investing in Mortgages
and equity loans; therefore,
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<PAGE>
presentation of industry segment information is not applicable.
The following table lists the mortgage loans and equity loans which the
Registrant holds as of March 3, 1997:
<TABLE>
<CAPTION>
Mortgage Equity Interest Rate
Date of Loan Loan on Mortgage
Project Location Investment Amount (2) Amount(10) Loan(1) (9) Term(8)
- - ------- -------- ---------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Mortenson Manor Ames, 8.43%-
Apartments (3) Iowa 8/31/90 $ 4,974,090 $ 577,885 9.4% 40 years
Windemere Wichita, 9.55%-
Apartments (4) Kansas 9/28/90 $ 8,110,300 $ 736,550 10.64% 40 years
Fieldcrest Dothan, 8.75%-
III Apartments (5) Alabama 8/27/91 $ 3,343,700 $ 383,300 10.11% 40 years
Holly Ridge II Gresham,
Apartments (6) Oregon 3/16/93 $ 5,310,100 $ 684,400 9.89% 40 years
Willow Trace Tuscaloosa,
Apartments (7) Alabama 6/18/93 $ 4,420,000 $ 680,000 9.657% 35 years
----------- ------------
$ 26,158,190 $ 3,062,135
============ =============
</TABLE>
(1) The minimum interest rate shown above includes interest payable under
the first mortgage note plus additional interest payable pursuant to the terms
of a Limited Operating Guaranty agreement for Fieldcrest III Apartments
("Fieldcrest") and the Additional Interest Guaranty agreements for Mortenson
Manor Apartments ("Mortenson"), Windemere Apartments ("Windemere"), Holly Ridge
II Apartments ("Holly Ridge") and Willow Trace Apartments ("Willow Trace").
(2) The Mortenson and Windemere mortgage loans are co-insured by HUD and
RMC. The Fieldcrest, Holly Ridge and Willow Trace mortgage loans are fully
insured by HUD. As of March 9, 1997, all loan amounts have been disbursed.
(3) Cost certification on Mortenson occurred in November 1991 and
amortization of the loan began during September 1991. The property was 100%
occupied as of March 9, 1997. The property achieved Final Endorsement during
February 1992. The Registrant has received approximately $168,400 as of December
31, 1996 from Mortenson representing partial repayment of the mortgage loan.
Default Interest payments of approximately $85,000, $98,000, $119,000 and
$165,000 for the years ended December 31, 1996, 1995, 1994 and 1993,
respectively, have not been received and, as a result, an allowance for
uncollectability amounted to approximately $442,000 and $285,000 at December 31,
1996 and 1995, respectively. The operations of Mortenson have not been able to
support the payment of the required interest. Accordingly, effective January 1,
1995 the Registrant entered into a modification agreement whereby the annual
yield was modified to a cumulative yield of 9.4% per annum from the Permanent
Loan Date and the Default Rate was redefined as 8.43% per annum. The
modification agreement also provided that pre-1995 accrued interest shall not
accrue further interest on and after January 1, 1995, and shall be paid solely
out of Capital Proceeds prior to the calculation of participation percentages.
Mortenson also agreed to defer the management fee payable up to the Default
Rate. Since the Guaranteed Rate Guaranty Period expired, pursuant to its terms,
payment of interest in excess of 8.43% is contingent upon the amount of the
distributable cash, which is dependent upon the future results of operations, or
net proceeds of the capital transactions of the mortgagor. In addition to the
interest rate during the post-construction period, the Registrant will be
entitled to 30% of cash flow remaining after payment of 9.4% interest and
accrued
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<PAGE>
interest, if any, and certain amounts from sale or refinancing proceeds. During
the first quarter of 1997, the Registrant received a Default Interest Payment
of approximately $25,000, representing partial payment for 1996.
(4) Cost certification on Windemere occurred in June 1992 and amortization
of the loan began the same month. The property was 95% occupied as of March 9,
1997. Windemere achieved Final Endorsement during July 1992. The Registrant has
received approximately $153,000 as of December 31, 1996 from Windemere
representing partial repayment of the mortgage loan. The interest rate during
the Guaranteed Rate Guaranty period was 10.64%. Since the Guaranteed Rate
Guaranty Period expired at the end of August 1993, payment of interest in excess
of 9.55% is contingent upon the amount of the distributable cash, which is
dependent upon the future results of operations, or net proceeds of capital
transactions of the mortgagor. A Default Interest payment of approximately
$130,000 for the period January 1996 to December 1996 expected to be received
during the second quarter of 1997. In addition to the interest rate during the
post-construction period, the Registrant will be entitled to 30% of cash flow
remaining after payment of 10.64% interest and accrued interest, if any, and
certain amounts from sale or refinancing proceeds.
(5) Cost certification on Fieldcrest occurred in August 1992. The property
was 95% occupied as of March 9, 1997. Final endorsement was achieved during
November 1992 and amortization of the loan began the same month. The Registrant
has received approximately $49,400 as of December 31, 1996 from Fieldcrest
representing partial repayment of the mortgage loan. The mortgage loan has a
term of 40 years and bears interest at a rate ranging from 8.75% to 10.11%
during the post-construction period of which 8.75% is insured by HUD. The
interest rate during the Guaranteed Rate Guaranty Period is 10.11%. The
Guaranteed Rate Guaranty Period terminated in November 1995. As a result, any
amount of the Default Rate of 8.75% is contingent on the property's ability to
produce cash flow in excess of this amount. A Default Interest payment of
approximately $2,300 for the period January 1996 to December 1996 is expected to
be received during the second quarter of 1997. In addition to the interest rate
during the post-construction period, the Registrant will be entitled to receive
payment of 30% of cash flow remaining after payment of 10.11% interest and
accrued interest, if any, and certain amounts from sale or refinancing proceeds.
(6) Cost certification on Holly Ridge occurred in July 1994 and
amortization of the loan began during September 1994. The property was 97%
occupied as of March 9, 1997. The fully insured 221(d)(4) mortgage loan is for
$5,310,100. In connection with this loan, $5,994,500 was advanced to the
borrower as of December 31, 1995, of which $684,400 represented the equity loan.
The Registrant has received approximately $43,500 as of December 31, 1996 from
Holly Ridge representing partial repayment of the mortgage loan. The mortgage
loan has a term of 40 years and bore interest at 10.25% during the construction
period and bears interest at 8.25% to 9.89% during the post-construction period
of which 8.25% is insured by HUD. In addition to the interest rate during the
post-construction period, the Registrant will be entitled to 30% of cash flow
remaining after payment of 9.89% interest and accrued interest, if any, and
certain amounts from sale or refinancing proceeds. Payments at the rate of 9.89%
are guaranteed by the developer for three years after September 1, 1994. A
Guaranteed Interest payment of approximately $22,000 for the period October 1996
to December 1996 is expected to be received during the second quarter of 1997.
(7) On June 18, 1993, the Registrant closed the investment in Willow Trace,
a 152 unit project, which had completed construction, located in Tuscaloosa,
Alabama. The property was 95% occupied as of March 9, 1997. The 223(f) mortgage
loan in the amount of $4,420,000 is fully insured by HUD. The Registrant
provided an additional $680,000 as a non-interest bearing equity loan to the
developer. The Registrant has received approximately $83,100 as of December 31,
1996 from Willow Trace representing partial repayment of the mortgage loan. The
mortgage loan has a term of 35 years and bears interest at 8.37% to 9.65% during
the permanent period of which 8.37% is insured by HUD. In addition to the
interest rate during the permanent period, the Registrant is entitled to 30% of
cash flow remaining after payment of 9.657% interest and accrued interest, if
any, and certain amounts from sale or refinancing proceeds. A Default Interest
payment of approximately $19,000 for the period September 1996 to December
1996 is expected to be received during the first quarter of 1997. In addition,
the Registrant expects to receive approximately $15,000 during March 1997,
representing 30% of cash flow after payment of Default Interest. Payments at
the rate of 9.657% are guaranteed by the developer for three years
after June 18, 1993.
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<PAGE>
(8) All loans have call provisions effective ten years following final
endorsement and a grace period. The Registrant, in order to enforce such
provisions, 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.
(9) Construction has been completed on all properties.
(10) Equity loans are non-interest bearing.
Following is the interest income from mortgage loans as a percentage of
total revenues.
1996 1995 1994
---- ---- ----
Mortenson 16% 16% 19%
Windemere 31 31 28
Fieldcrest 12 13 14
Holly Ridge 21 20 20
Willow Trace 18 17 17
Competition
The Registrant's business is affected by competition to the extent that the
underlying properties from which it is to derive interest and principal payments
may be subject to competition from neighboring properties. In particular, the
receipt of additional interest and the repayment of the equity loans, neither of
which is insured or guaranteed by government or quasi-government agencies, is
dependent upon the economic performance of the underlying properties which could
be adversely affected by competitive conditions.
Employees
The Registrant does not directly employ anyone. All services are performed
for the Registrant by its General Partner and its affiliates. The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition, the Registrant reimburses the General Partner and
certain of its affiliates for expenses incurred in connection with the
performance by their employees of services for the Registrant in accordance with
the Partnership Agreement.
Item 2. Properties.
The Registrant does not own or lease any property.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or
involving the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fiscal
year covered by this report through the solicitation of proxies or otherwise.
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder
Matters.
As of December 31, 1996, the Registrant had issued and outstanding
1,836,660 limited partnership interests ("Limited Partnership Interests"), each
representing a $20 capital contribution to the Registrant, for aggregate gross
proceeds of $36,733,200. All of the issued and outstanding Limited Partnership
Interests have been issued to Related FI BUC$ Associates, Inc. (the "Assignor
Limited Partner"), which has issued Beneficial Assignment Certificates ("BACs"),
each BAC representing all of the economic and virtually all of the ownership
rights attributable to a Limited Partnership Interest held by the Assignor
Limited Partner. BACs may be converted into Limited Partnership Interests at no
cost to the holder, but Limited Partnership Interests are not convertible back
into BACs. There is currently no established public trading market for BACs and
it is not anticipated that BACs will be listed for trading on any securities
exchange or included for quotation on the Nasdaq National Market.
All of the Registrant's general partnership interests, representing an
aggregate capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions upon the Registrant's present or
future ability to make distributions in accordance with the provisions of the
Registrant's Amended and Restated Agreement of Limited Partnership. The
Registrant currently expects that cash distributions will be paid in the future
from revenues from operations, reserves and the accrual without payment of fees
and certain expense reimbursements, however, distributions may decrease after
the expiration of the remaining Guaranteed Rate Guaranty Periods which are
outstanding for two of the Registrant's investments. See also Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 1, Business.
Distribution Information
Cash distributions per BAC made to the limited partners or BACs holders for
the following quarters in 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996 .3452 .3490 .3529 .3529
1995 .3452 .3490 .3529 .3529
1994 .3452 .3490 .3529 .3529
</TABLE>
Quarterly distributions are made 45 days following the close of the
calendar quarter.
A total of $7,713,992 was distributed to the limited partners or BACs
holders in 1996, 1995 and 1994. The Registrant utilized the original working
capital reserve, in the aggregate amount of $477,532, for distributions from
1989 through 1991, which is considered to be a return of capital. An additional
working capital reserve of approximately $2,800,000 was formed from uninvested
offering proceeds, a portion of which was applied to pay a part of the 1996,
1995 and 1994 distributions (which is considered to be a return of capital).
Approximately $897,000, $669,000 and $932,000 of the $2,571,000 paid to the
limited partners or BACs holders in each of the years ended December 31, 1996,
1995 and 1994, respectively, represented a return of capital on a generally
accepted accounting principles (GAAP) basis (the return of capital on a GAAP
basis is calculated as BACs holder distributions less net income allocated to
the limited partners or BACs holders). A total of $157,429 was distributed to
the General Partner in 1996, 1995 and 1994.
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<PAGE>
Since Guaranteed Rate Guaranty Period Interest or contingent interest, when
such period has expired, on some of the mortgage loans is paid semi-annually, a
portion of the 1996 fourth quarter distribution (of which approximately $648,000
and $13,000 was paid to BACs holders and the General Partner, respectively) has
been funded from cash provided from earnings during the period from January 1,
1997 through the distribution date, February 14, 1997. See Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, for a
discussion of the effect of fee deferments and the expiration of the Guaranteed
Rate Guaranty Period on the distributions.
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 audited
financial statements and footnotes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------
OPERATIONS 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Mortgage loans $2,423,058 $2,448,891 $2,477,238 $2,161,784 $1,654,204
Temporary investments 39,064 64,534 57,421 211,561 258,382
REMIC certificates 0 0 0 0 536,133
Other income 2,202 1,952 2,002 1,604 154,763
---------- ---------- ---------- ---------- ----------
Total revenues 2,464,324 2,515,377 2,536,661 2,374,949 2,603,482
Operating expenses 755,839 574,172 864,336 536,559 543,279
---------- ---------- ---------- ---------- ----------
Net income $1,708,485 $1,941,205 $1,672,325 $1,838,390 $2,060,203
========== ========== ========== ========== ==========
Net income per BAC $ 0.91 $ 1.04 $ 0.89 $ 0.98 $ 1.10
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------
FINANCIAL POISTION 1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 29,292,812 $ 30,383,120 $ 30,973,591 $ 31,989,902 $ 32,748,464
============= ============= ============= ============= ==============
CASH DISTRIBUTIONS
Distributions per BAC $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.40
============= ============= ============= ============= ==============
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Capital Resources and Liquidity
The Registrant received $36,733,200 in gross proceeds for BACs pursuant to
twenty-one investor closings during the period July 28, 1989 through May 23,
1991, resulting in net proceeds of approximately $32,031,000 available for
investment, after payment of sales commissions, offering and organization
expenses, loan origination fees and establishment of a working capital reserve.
As of December 31, 1996, $29,220,325 of the net proceeds available for
investment have been disbursed. The remaining proceeds of the Offering of
approximately $2,800,000 were temporarily invested and are being utilized as a
working capital reserve. No further issuance of BACs is anticipated.
Other sources of Registrant funds included interest earned on (1)
investments in mortgage loans (see also Item 1, Business), (2) net offering
proceeds which were invested pending investment of mortgage loans and (3) the
working capital reserve.
During the year ended December 31, 1996, cash and cash equivalents of the
Registrant decreased by approximately $651,000. Cash provided by operating
activities and collections of principal on mortgage loans were approximately
$1,839,000 and $134,000, respectively, and distributions paid to partners
approximated $2,624,000. Included in the adjustments to reconcile the net income
to cash flow from operations is amortization of approximately $280,000 and
provision for bad debts of approximately $157,000.
In addition, the General Partner has allowed the accrual without payment of
the partnership management fee through 1992 in an aggregate amount equal to
approximately $268,000. Since 1992, substantially all partnership management
fees and expense reimbursements have been paid. See Note 4-Related Parties, in
Notes to Financial Statements, included in Item 8 below. In future years, a
portion of the working capital reserve may be used to pay accrued and unpaid
fees and/or distributions in the event that cash generated from operations is
not sufficient to maintain current distribution levels and repay such fees.
Distributions in 1996 and prior years have been supplemented by a portion of
working capital reserves.
The Registrant anticipates that cash generated from operations and invested
in temporary investments, including the working capital reserve, will be
sufficient to cover anticipated expenses in 1997.
Distributions of approximately $2,571,000 made to the limited partners or
BACs holders for each of the years ended December 31, 1996 and 1995 were made
from adjusted cash flow from operations and, to a lesser extent, from working
capital reserves, which is considered to be a return of capital. A total of
approximately $52,000 was distributed to the General Partner for each of the
years ended December 31, 1996 and 1995.
The level of future distributions will depend on results of operations.
Furthermore, the expiration of the Guaranteed Rate Guaranty Periods, two of
which expired in 1993, one of which expired in 1995, one of which expired in
1996, and one of which will expire during 1997 (see Item 1, Business) may have
an adverse affect on future distributions if contingent interest is not realized
on the mortgage loans.
Management is not aware of any trends or events, commitments or
uncertainties that will impact liquidity in a material way. Management believes
the only impact would be from laws that have not yet been adopted. All base
interest and the principal of the Registrant's investments in mortgage loans are
insured or co-insured by HUD and a private mortgage lender (which is an
affiliate of the General Partner). The Registrant's investments in uninsured
non-interest bearing equity loans (which represent approximately 10% of the
Registrant's portfolio) are secured by a Registrant interest in properties which
are diversified by location so that if one area of the counrty is experiencing
downturns in the economy, the remaining properties may be experiencing upswings.
However, the geographic diversification of the portfolio may not protect against
a general downturn in the national economy.
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<PAGE>
Results of Operations
1996 vs. 1995
Results of operations for the years ended December 31, 1996 and 1995
consisted primarily of interest income of approximately $2,423,000 and
$2,449,000, respectively, earned from investments in mortgage loans.
Interest income from mortgage loans remained fairly constant for the year
ended December 31, 1996 as compared to 1995. Interest income from temporary
investments decreased approximately $25,000 for 1996 as compared to 1995
primarily due to lower cash and cash equivalents balances.
General and administrative expenses-related parties increased approximately
$25,000 for the year ended December 31, 1996 as compared to 1995 primarily due
to higher expense reimbursements to the General Partner in 1996 as well as an
underaccrual of such reimbursements at December 31, 1995.
A provision for bad debts of approximately $157,000 was charged for the
year ending December 31, 1996 representing the 1996 and 1995 Guaranteed Interest
due from Mortenson.
1995 vs. 1994
Results of operations for the years ended December 31, 1995 and 1994
consisted primarily of interest income of approximately $2,449,000 and
$2,477,000, respectively, earned from investments in mortgage loans.
Interest income from mortgage loans remained fairly constant for the year
ended December 31, 1995 as compared to 1994. Interest income from temporary
investments increased approximately $7,000 for 1995 primarily due to higher
interest rates.
General and administrative expenses increased approximately $26,000 for the
year ended December 31, 1995 as compared to 1994. This was mainly due to an
overaccrual of legal expenses at December 31, 1993, which was reversed in the
fourth quarter of 1994. General and administrative expenses-related parties
decreased approximately $29,000 for the year ended December 31, 1995 as compared
to 1994 primarily due to lower expense reimbursements to the General Partner in
1995.
There was no additional provision for bad debts charged for the year ended
December 31, 1995 due to the modification agreement with the guarantors of the
Mortenson mortgage.
Recent Financial Accounting Standards
On January 1, 1996, the Registrant adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
On January 1, 1996, the Registrant adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights". This standard eliminates the distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions.
The adoption of these standards has not materially affected the
Registrant's reported earnings, financial condition or cash flows, because this
is essentially the same method utilized previously to measure and record asset
impairments or to record mortgage servicing rights.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" and in December, 1996 issued
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<PAGE>
SFAS No. 127 "Deferral of the Effective Date of Certain Provisions of SFAS No.
125. SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishment of liabilities occurring after December 31, 1996, and
is to be applied prospectively and earlier or retroactive application is not
permitted. SFAS No. 127, defers the effective date of SFAS No. 125 for certain
transactions to be after December 31, 1997 for the transfers of certain
financial assets and certain other transactions and established all transfers of
financial assets into two broad categories.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure". SFAS No. 128 provides accounting and reporting standards for
the amount of earnings per share. SFAS No. 129 requires the disclosure in
summary form within the financial statements the pertinent rights and privileges
of the various securities outstanding. SFAS No. 128 and SFAS No. 129 are
effective for fiscal years ending after December 15, 1997 and earlier
application is not permitted.
The implementation of these standards is not expected to materially affect
the Registrant's financial statements because retroactive application is not
permitted relating to its servicing of financial assets and the Registrant is
essentially utilizing the same method for the reporting of transfers and
extinguishments of liabilities, and the Registrant's earnings per share (BAC)
would not be significantly affected and the disclosures regarding the capital
structure in the financial statements would not be significantly changed.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<S> <C> <C>
(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
</TABLE>
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[Letterhead of Reznick, Fedder & Silverman]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Capital Mortgage Plus L.P.
We have audited the accompanying statement of financial condition of
Capital Mortgage Plus 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 ended December 31,
1996. These financial statements are the responsibility of the General
Partners. 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. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Mortgage Plus 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 ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Reznick, Fedder & Silverman
Boston, Massachusetts REZNICK, FEDDER & SILVERMAN
March 26, 1997
-12-
<PAGE>
[Letterhead of Reznick, Fedder, Silverman]
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Investments in loans (Note 3) $ 27,485,450 $ 27,874,623
Cash and cash equivalents 567,460 1,218,363
Accrued Interest Receivable (net of allowance of $442,138
and $285,000, respectively) 365,663 392,511
Loan origination costs (net of accumulated amortization
of $118,499 and $95,115, respectively) 874,239 897,623
------------ ------------
Total Assets $ 29,292,812 $ 30,383,120
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 27,704 $ 33,479
Due to general partner and affiliates (Note 4) 297,828 467,031
------------ ------------
Total liabilities 325,532 500,510
------------ ------------
Partners' capital (deficit):
Limited Partners (1,836,660 BACs issued and outstanding) (Note 1) 29,056,531 29,953,555
General Partner (89,251) (70,945)
------------ ------------
Total partners' capital 28,967,280 29,882,610
------------ ------------
Total Liabilities and Partners' Capital $ 29,292,812 $ 30,383,120
============ ============
</TABLE>
See accompanying notes to financial statements
-13-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Revenues:
Interest income:
Mortgage loans (Note 3) $2,423,058 $2,448,891 $2,477,238
Temporary investments 39,064 64,534 57,421
Other income 2,202 1,952 2,002
---------- ---------- ----------
Total revenues 2,464,324 2,515,377 2,536,661
---------- ---------- ----------
Expenses:
General and administrative 81,012 81,659 55,294
General and administrative-
related parties (Note 4) 237,509 212,333 241,769
Provision for bad debts 157,138 0 285,000
Amortization 280,180 280,180 282,273
---------- ---------- ----------
Total expenses 755,839 574,172 864,336
---------- ---------- ----------
Net income $1,708,485 $1,941,205 $1,672,325
========== ========== ==========
Net income per BAC $ 0.91 $ 1.04 $ 0.89
========== ========== ==========
See accompanying notes to financial statements
-14-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Total Limited Partners General Partner
------------ ---------------- ---------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1994 $ 31,516,686 $ 31,554,948 $ (38,262)
Net income 1,672,325 1,638,879 33,446
Distributions (2,623,817) (2,571,340) (52,477)
------------ ------------ ------------
Partners' capital (deficit) - December 31, 1994 30,565,194 30,622,487 (57,293)
Net income 1,941,205 1,902,381 38,824
Distributions (2,623,789) (2,571,313) (52,476)
------------ ------------ ------------
Partners' capital (deficit) - December 31, 1995 29,882,610 29,953,555 (70,945)
Net income 1,708,485 1,674,315 34,170
Distributions (2,623,815) (2,571,339) (52,476)
------------ ------------ ------------
Partners' capital (deficit) - December 31, 1996 $ 28,967,280 $ 29,056,531 $ (89,251)
============ ============ ============
</TABLE>
See accompanying notes to financial statements
-15-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,708,485 $ 1,941,205 $ 1,672,325
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 157,138 0 285,000
Amortization 280,180 280,180 282,273
Amortization of interest rate buydown (1,452) (1,452) (1,452)
Changes in operating assets and liabilities:
Increase in other assets (130,290) (42,571) (117,635)
Increase (decrease) in accounts payable
and other liabilities (5,775) 3,479 (35,804)
Increase (decrease) in due to general partner
and affiliates (169,203) 88,634 (29,015)
----------- ----------- -----------
Total adjustments 130,598 328,270 383,367
----------- ----------- -----------
Net cash provided by operating activities 1,839,083 2,269,475 2,055,692
----------- ----------- -----------
Cash flows from investing activities:
Investments in loans 0 (430,578) (603,041)
Receipt of principal on mortgage loans 133,829 125,302 101,419
----------- ----------- -----------
Net cash provided by (used in) investing activities 133,829 (305,276) (501,622)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (2,623,815) (2,623,789) (2,623,817)
----------- ----------- -----------
Net decrease in cash and cash equivalents (650,903) (659,590) (1,069,747)
Cash and cash equivalents at beginning of year 1,218,363 1,877,953 2,947,700
----------- ----------- -----------
Cash and cash equivalents at end of year $ 567,460 $ 1,218,363 $ 1,877,953
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
-16-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - General
Capital Mortgage Plus L.P., a Delaware limited partnership (the
"Partnership") commenced a public offering (the "Offering") on May 10, 1989 of
5,000,000 ($100,000,000) Beneficial Assignment Certificates ("BACs")
representing assignments of limited partnership interests. The BACs represent an
assignment of all of the economic and virtually all of the ownership rights
attributable to the limited partnership interests in the Partnership. The BACs
holders have virtually the same rights and, for all practical purposes, are
limited partners of the Partnership.
Pursuant to the Offering, the Partnership received $36,733,200 of gross
proceeds from the BACs holders representing 1,836,660 BACs. The final close of
the Offering occurred on May 23, 1991 and no further issuance of BACs is
anticipated.
The Partnership was organized on November 23, 1988 and will continue until
December 31, 2041 unless terminated sooner under the provisions of its
Partnership Agreement.
The general partner of the Partnership is CIP Associates, Inc., a Delaware
corporation (the "General Partner"). Related FI BUC$ Associates, Inc. is the
Assignor Limited Partner of the Partnership. CIP Associates, Inc. and Related FI
BUC$ Associates, Inc. are under substantially common ownership.
The Partnership was formed to invest in insured or guaranteed mortgage
investments. The Partnership has invested in first mortgage construction and
permanent loans ("Mortgages") to finance multifamily residential rental
properties ("Developments") developed by unaffiliated entities. After an initial
period, a substantial portion of the Mortgages is expected to provide for
additional interest based on the annual cash flow from the Developments and the
proceeds of prepayments, sales or other dispositions. All base interest and
initially at least 90% of the principal of the Mortgages is insured or coinsured
by the Department of Housing and Urban Development ("HUD") and a private
mortgage lender (which is an affiliate of the General Partner). The Partnership
has also invested in uninsured equity loans made directly to developers of
developments on which the Partnership holds a first mortgage.
Net income and distributions of the Partnership are allocated 2% to the
General Partner and 98% to the limited partners, until the limited partners have
received an 11% per annum non-cumulative non-compounded return on their adjusted
contributions as defined in the Amended and Restated Agreement of Limited
Partnership. Thereafter, net income and distributions will be allocated 90% to
the limited partners and 10% to the General Partner.
The distributions per BAC were $1.40 for 1996, 1995 and 1994. The 1996,
1995 and 1994 distributions were made from adjusted cash flow from operations
and to a lesser extent were supplemented from working capital reserves, which
was considered to be a return of capital. The General Partner has waived or
allowed the accrual without payment of certain fees. See Note 4-Related Parties.
-17-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - 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
("GAAP").
The preparation of financial statements in conformity with GAAP requires
the General Partner 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.
Costs incurred to organize the Partnership, including but not limited to
legal and accounting, were considered deferred organization costs. These costs
were capitalized and were amortized over a 60 month period.
Acquisition expenses incurred for the investment of mortgage loans have
been capitalized and are included in loan origination costs, which are being
amortized over the average expected lives of the respective mortgages when
acquired.
The equity loans are considered to be premiums paid to obtain the mortgage
loans and are being amortized over the average expected lives of the respective
mortgages.
Interest rate buydowns are being amortized as an adjustment to the
effective interest rate over the average expected lives of the respective
mortgages.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original
maturity dates of less than 3 months when acquired and are carried at cost plus
accrued interest, which approximates market.
c) Income Taxes
The Partnership is not required to provide for, or pay, any federal income
taxes. Income tax attributes that arise from its operation are passed directly
to the individual partners. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
d) Reclassification
Certain balances have been reclassified from the prior years to conform to
the current year's presentation.
e) Changes in Accounting Principles
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
-18-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - Accounting Policies (continued)
On January 1, 1996, the Partnership adopted SFAS No. 122, "Accounting for
Mortgage Servicing Rights". This standard eliminates the distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions.
The adoption of these standards has not materially affected the
Partnership's reported earnings, financial condition or cash flows, because this
is essentially the same method utilized previously to measure and record asset
impairments or to record mortgage servicing rights.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" and in December, 1996 issued SFAS No. 127 "Deferral of the
Effective Date of Certain Provisions of SFAS No. 125. SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. SFAS No. 125 is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively and earlier or retroactive application is not permitted. SFAS No.
127, defers the effective date of SFAS No. 125 for certain transactions to be
after December 31, 1997 for the transfers of certain financial assets and
certain other transactions and established all transfers of financial assets
into two broad categories.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" and SFAS No. 129 "Disclosure of Information about
Capital Structure". SFAS No. 128 provides accounting and reporting standards for
the amount of earnings per share. SFAS No. 129 requires the disclosure in
summary form within the financial statements the pertinent rights and privileges
of the various securities outstanding. SFAS No. 128 and SFAS No. 129 are
effective for fiscal years ending after December 15, 1997 and earlier
application is not permitted.
The implementation of these standards is not expected to materially affect
the Partnership's financial statements because retroactive application is not
permitted relating to its servicing of financial assets and the Partnership is
essentially utilizing the same method for the reporting of transfers and
extinguishments of liabilities, and the Partnership's earnings per share (BAC)
would not be significantly affected and the disclosures regarding the capital
structure in the financial statements would not be significantly changed.
-19-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 and 1994
(Unaudited)
Note 3 - Investments in Loans
The Partnership has funded five mortgage loans and originated five noninterest
bearing equity loans in the aggregate amount of $29,220,325.
Information relating to investments in mortgage loans and equity loans as of
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Amounts Advanced
--------------------------------------------------------------------
Number of Date of Final Total Investments Investments
Apartment Invest- Maturity Mortgage Amounts in Loans at In Loans at
Property/Location Units ment Date Loans Equity Loans Advanced 12/31/96 (F) 12/31/95 (F)
- - ----------------- ----- ---- ---- ----- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortenson Manor 104 8/90 8/30 $ 4,974,090 $ 577,885 $ 5,551,975 $ 5,095,655 $ 5,179,892
Apts./
Ames, IA
Windemere Apts./ 204 9/90 9/30 8,110,300 736,550 8,846,850 8,325,535 8,425,212
Wichita, KS
Fieldcrest III Apts./ 112 8/91 8/31 3,343,700 383,300 3,727,000 3,513,361 3,558,414
Dothan, AL
Holly Ridge II 144 3/93 3/33 5,310,100 684,400 5,994,500 5,734,738 5,811,445
Apts./
Gresham, OR
Willow Trace 152 6/93 6/28 4,420,000 680,000 5,100,000 4,816,161 4,899,660
Apts./
Tuscaloosa, AL
----------- ----------- ----------- ----------- -----------
Total $26,158,190 $ 3,062,135 $29,220,325 $27,485,450 $27,874,623
=========== =========== =========== =========== ===========
<CAPTION>
Interest earned by the Partnership during 1996
-----------------------------------------------------------------------------
Non-contingent Contingent
----------------------------------- -----------------------------------
Default Annual Cash Flow
Construc- Base Interest Interest Yield Participation Total
tion Amount/ Amount/ Amount/ Amount/ Interest
Rate (A) Rate (B) Rate (C) Rate (D) Rate (E) Earned
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Mortenson Manor 13.00% $ 307,736 $ 97,095 $ 0 $ 0 $ 404,831
Apts./ 6.45% 1.98% 0.97% 30.00%
Ames, IA
Windemere Apts./ 13.00% 634,027 129,729 0 0 763,756
Wichita, KS 7.95% 1.60% 1.09% 30.00%
Fieldcrest III Apts./ 10.18% 286,455 2,349 0 8,216 297,020
Dothan, AL 8.68% 0.07% 1.36% 30.00%
Holly Ridge II 10.25% 428,654 87,964 N/A 0 516,618
Apts./ 8.125% 1.64% N/A 25.00%
Gresham, OR
Willow Trace N/A 360,995 56,914 N/A 22,924 440,833
Apts./ 8.37% 1.287% N/A 30.00%
Tuscaloosa, AL
----------- -------- ------ --------- -----------
Total $ 2,017,867 $374,051 $ 0 $ 31,140 $ 2,423,058
=========== ======== ====== ========= ===========
</TABLE>
(A) The Partnership did not receive any construction interest during 1996, as
construction was completed prior to 1996 on all properties.
(B) Base interest on the Mortgages is that amount that is insured/co-insured by
HUD and is being shown net of service fee.
(C) Default Interest is the minimum amount due over the base rate, and is not
contingent upon cash flow. This interest is secured by Partnership
interests. Fieldcrest's default rate was reduced during 11/95, as per the
Additional Interest documents, to 0.07% over the Base Rate.
(D) Annual Yield is the amount over the default rate and is contingent upon
property cash flow.
(E) Cash Flow Participation is the percent of cash flow due to the Partnership
after payment of the Annual Yield and is contingent upon property cash
flow. Fieldcrest and Willow Trace provided sufficient cash flow in 1995 to
pay the Partnership a participation during 1996.
(F) The Investments in Loans amount reflects the unpaid balance of the
Mortgages and the unamortized balance of the equity loans in the amounts
of $25,651,993 and $1,833,457, respectively, at December 31, 1996 and
$25,784,370 and $2,090,253, respectively, at December 31, 1995.
-20-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Investment in Loans (continued)
1996 1995
----------- -----------
Investment in loans January 1, $27,874,623 $27,824,691
Additions:
Construction draws -Holly Ridge 0 430,578
Fieldcrest III discount amortization 1,452 1,452
----------- -----------
1,452 432,030
----------- -----------
Deductions:
Amortization of equity loans (256,796) (256,796)
Collection of principal -Mortenson (36,080) (33,833)
-Windemere (38,298) (35,356)
-Fieldcrest III (12,944) (11,863)
-Holly Ridge (19,674) (19,565)
-Willow Trace (26,833) (24,685)
----------- -----------
(390,625) (382,098)
----------- ------------
Investment in loans December 31, $27,485,450 $27,874,623
=========== ===========
The Mortenson Manor and Windemere Mortgages are co-insured by HUD and
Related Mortgage Corporation ("RMC"), an affiliate of the General Partner. The
Fieldcrest III, Holly Ridge and Willow Trace Mortgages are insured by HUD.
In addition to the interest rate during the post-construction periods, the
Partnership will be entitled to payment of 30% of cash flow remaining after
payment of the permanent loan interest and accrued interest, if any, and certain
amounts from sale or refinancing proceeds.
The equity loans are non-interest bearing and are secured by the assignment
of the owner/developers' interests in the projects. The equity loans are not
insured by HUD or any other party and, for financial statement reporting
purposes, are considered to be premiums paid to obtain the Mortgages. These
premiums are being amortized over the average expected lives of the respective
Mortgages.
The Fieldcrest general partner paid $17,440 to the Partnership as an
interest rate buydown during the construction period. For financial reporting
purposes, the fee is treated as an adjustment to the effective interest rate on
the Mortgage.
At December 31, 1996, all of the loans due to the Partnership are current
(when taking into account the modification agreement discussed below). Mortenson
has not paid its default interest of approximately $85,000, $98,000 and $119,000
for the years ended December 31, 1996, 1995 and 1994, respectively. During the
first quarter of 1997, the Partnership received default interest of
approximately $25,000, representing partial payment for 1996. As a result, an
allowance for uncollectability relating to the default interest amounted to
Approximately $442,000 and $285,000 at December 31, 1996 and 1995, respectively.
-21-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Investment in Loans (continued)
The operations of Mortenson have not been able to support the payment of
the required interest. Accordingly, effective January 1, 1995 the Partnership
entered into a modification agreement whereby the annual yield was modified to a
cumulative yield of 9.4% per annum from the Permanent Loan Date and the Default
Rate was redefined as 8.43% per annum. The modification agreement also provided
that pre-1995 accrued interest not accrue further interest on and after January
1, 1995, and shall be paid solely out of Capital Proceeds prior to the
calculation of participation percentages. Mortenson also agreed to defer the
management fee payable up to the Default Rate. Pursuant to this modification
agreement, default interest for 1996 and 1995 of approximately $97,000 and
$98,000, respectively, has been accrued.
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Partnership management fees (a) $ 153,065 $ 153,065 $ 153,065
Expense reimbursement (b) 84,444 59,268 88,704
--------- --------- ---------
$ 237,509 $ 212,333 $ 241,769
========= ========= =========
</TABLE>
(a) A Partnership management fee for managing the affairs of the
Partnership equal to .5% per annum of invested assets is payable out of cash
flow to the General Partner. During the years ended December 31, 1996, 1995 and
1994, payments of $267,864, $65,668 and $125,664 were made, respectively. The
remaining balance of the 1995 fee of $114,799 was paid during January 1996. As
of December 31, 1996 and 1995, a balance of $267,556 and $382,355, respectively,
was due to the General Partner for these fees.
(b) The General Partner and its affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management, register, transfer and assignment functions, asset management,
investor communications, printing services and other administrative services.
The amount of reimbursement from the Partnership is limited by the provisions of
the Partnership Agreement. An affiliate of the General Partner performs assets
monitoring for the Partnership. These services include site visits and
evaluations of the performance of the properties securing the loans. During the
years ended December 31, 1996, 1995 and 1994, payments of $138,849, $58,032 and
$145,120 were made, respectively, relating to these costs. As of December 31,
1996 and 1995, the General Partner and its affiliates were due $30,271 and
$84,676, respectively.
RMC is a co-insurer on the Mortenson and Windemere Mortgages in which the
Partnership has invested. RMC is entitled to a mortgage insurance premium which
will be paid by the mortgagors.
NOTE 5 - Fair Value of Financial Instruments
Financial Accounting Standards Board SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments" requires that the estimated fair value of
financial instruments, as defined by SFAS No. 107, be disclosed. Financial
instruments are defined as cash, evidence of an ownership interest in an entity
or a contract which creates obligations and rights to exchange cash and/or other
financial instruments. SFAS No. 107 also requires disclosures of the methods and
significant assumptions used to estimate the fair value of financial
instruments.
-22-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 5 - Fair Value of Financial Instruments (continued)
Considerable judgement is required in interpreting data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Partnership could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The following methods/assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and cash equivalents
Fair value is determined to be the carrying value because they mature in
three months or less and do not represent unanticipated credit concerns.
Investments in loans
Fair value is estimated based on market quotes provided by an independent
mortgage company. The carrying value of the mortgage loans approximates
fair value.
NOTE 6 - Subsequent Events
On February 14, 1997, a distribution of $648,164 and $13,228 was paid to
BAC holders and the General Partner, respectively, representing the 1996 fourth
quarter distributions.
-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.
The Registrant has no directors or executive officers. The Registrant's
affairs are managed and controlled by the General Partner. The General Partner
was organized in Delaware in November 1988. The executive officers and director
of the General Partner have held their positions as indicated below. Certain
information concerning the director and executive officers of the General
Partner is set forth below.
The Registrant, the General Partner and its directors and executive
officers, and any BACs holder holding more than ten percent of the Registrant's
BACs are required to report their initial ownership of such BACs 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 BACs holders who own
more than ten percent of the BACs. 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 Partner
on a timely basis. In making these disclosures, the Registrant has relied solely
on written representations of the General Partner's 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.
CIP Associates Inc.
Name Position Position Held Since
---- -------- -------------------
J. Michael Fried President and Director 1988
Stephen M. Ross Director 1988
Stuart J. Boesky Senior Vice President 1988
Alan P. Hirmes Senior Vice President 1988
Richard A. Palermo Treasurer 1996
Lynn A. McMahon Secretary 1988
J. MICHAEL FRIED, 52, is President and a Director of the General Partner.
Mr. Fried is President, a Director and a principal shareholder of Related
Capital Company ("Capital"), an affiliate of the General Partner, a real estate
finance and acquisition affiliate of the 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.
-24-
<PAGE>
STEPHEN M. ROSS, 56, is a Director of the 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
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.
STUART J. BOESKY, 40, is Vice President of the 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 & Strook & 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 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. 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. 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.
LYNN A. McMAHON, 41, is Secretary of the 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.
-25-
<PAGE>
Item 11. Executive Compensation.
The Registrant has no officers or directors. The Registrant does not pay or
accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partner for their services. Certain directors and
officers of the General Partner receive compensation from the General Partner
and its affiliates for services performed for various affiliated entities which
may include services performed for the Registrant. Such compensation may be
based in part on the performance of the Registrant; however, the General Partner
believes that any compensation attributable to services performed for the
Registrant is immaterial. See also Note 4-Related Parties, in Notes to the
Financial Statements, included in Item 8 above.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 1997, no person was known by the Registrant to be the
beneficial owner of more than five percent of the Limited Partnership Interests
and/or BACs; and neither the General Partner nor any director or officer of the
General Partner owns any Limited Partnership Interests or BACs.
As of March 3, 1997, the directors and officers of the General
Partner as a group own, in the aggregate, 95.2% of the common stock of CIP
Associates Inc.
Item 13. Certain Relationships and Related Transactions.
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11, Executive
Compensation and as set forth below. However, there have been no direct
financial transactions between the Registrant and the directors and officers of
the General Partner. See Note 4-Related Parties, in Notes to the Financial
Statements, included in Item 8 above.
The General Partner has allowed the accrual without payment of the
partnership management fee through 1992 in an aggregate amount equal to
approximately $268,000. Since 1992, substantially all partnership management
fees and expense reimbursements have been paid. See Note 4-Related Parties, in
Notes to Financial Statements, included in Item 8 above.
-26-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<S> <C> <C>
Sequential
Page
(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
All schedules have been omitted because they are not required or
because the required information is contained in the financial
statements or notes hereto.
(a) 3. Exhibits
(3A) The Registrant's Amended and Restated Agreement of Limited
Partnership, incorporated by reference to Exhibit A to the
Registrant's Prospectus, dated May 10, 1989 (the "Prospectus"),
filed pursuant to Rule 424(b) under the Securities Act of 1933,
File No. 33-26690.
(3B) The Registrant's Certificate of Limited Partnership, as amended,
incorporated by reference to Exhibits 3B and 3C to the
Registrant's Registration Statement on Form S-11, File No.
33-26690, dated January 24, 1989 and to Exhibit 3D to Amendment
No. 1 to such Registration Statement dated April 28, 1989
(3C) Amendment No. 1, dated July 7, 1989, to the Registrant's Amended
and Restated Agreement of Limited Partnership
(10A) Mortgage Note, dated August 31,1990, with respect to Mortenson
Manor Apartments in Ames, Iowa, in the principal amount of
$4,974,900 (incorporated by reference to Exhibit 10(a) in the
Registrant's Current Report on Form 8-K dated August 31, 1990)
(10B) Equity Loan Note dated August 31, 1990, with respect to Mortenson
Manor Apartments in Ames, Iowa, in the principal amount of
$577,885 (incorporated by reference to Exhibit 10(b) in the
Registrant's Current Report on Form 8-K dated August 31, 1990)
</TABLE>
-27-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
<TABLE>
<S> <C> <C>
Sequential
Page
----------
(10C) Subordinated Promissory Note, dated August 31, 1990 with respect
to Mortenson Manor Partnership (incorporated by reference to
Exhibit 10(c) in the Registrant's Current Report on Form 8-K dated
August 31, 1990)
(10D) Mortgage Note, dated September 27, 1990, with respect to Windemere
Apartments in Wichita, Kansas, in the principal amount of
$8,110,300 (incorporated by reference to Exhibit 10(a) in the
Registrant's Form 8 Amendment dated October 30, 1990 to Current
Report on Form 8-K dated September 28, 1990)
(10E) Equity Loan Note, dated September 27, 1990, with respect to
Windemere Apartments in Wichita, Kansas, in the principal amount
of $736,500 (incorporated by reference in Exhibit 10(b) in the
Registrant's Form 8 Amendment dated October 30, 1990 to Current
Report on Form 8-K dated September 28, 1990)
(10F) Subordinated Promissory Note, dated September 27, 1990 with
respect to Windemere Development, Inc. (incorporated by reference
to Exhibit 10(c) in the Registrant's Form 8 Amendment dated
October 30, 1990 to Current Report on Form 8-K dated September 28,
1990)
(10G) Mortgage Note, dated August 23, 1991, with respect to Fieldcrest
III Apartments in Dothan, Alabama, in the principal amount of
$3,450,200 (incorporated by reference to Exhibit 10(a) in the
Registrant's Current Report on Form 8-K dated August 27, 1991)
(10H) Equity Loan Note, dated August 27, 1991, with respect to
Fieldcrest III Apartments in Dothan, Alabama, in the principal
amount of $383,300 (incorporated by reference to Exhibit 10(b) in
the Registrant's Current Report on Form 8-K dated August 27, 1991)
(10I) Subordinated Promissory Note, dated August 27, 1991 with respect
to Fieldcrest III Apartments (incorporated by reference to Exhibit
10(c) in the Registrant's Current Report on Form 8-K dated August
27, 1991)
(10J) Mortgage Note, dated March 1, 1993, with respect to Holly Ridge
Apartments in Gresham, Oregon, in the principal amount of
$5,310,000 (incorporated by reference to Exhibit 10(a) in the
Registrant's Current Report on Form 8-K dated March 16, 1993)
(10K) Equity Loan dated March 16, 1993, with respect to Holly Ridge
Apartments in Gresham, Oregon, in the principal amount of $684,000
(incorporated by reference to Exhibit 10(b) in the Registrant's
Current Report on Form 8-K dated March 16, 1993)
(10L) Subordinated Promissory Note, dated March 16, 1993, with respect
to Holly Ridge Apartments in Gresham, Oregon (incorporated by
reference to Exhibit 10(c) in the Registrant's Current Report on
Form 8-K dated March 16, 1993)
</TABLE>
-28-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
<TABLE>
<S> <C> <C>
Sequential
Page
----------
(10M) Mortgage Note, dated June 18, 1993, with respect to Willow Trace
Apartments in Tuscaloosa, Alabama, in the principal amount of
$4,420,000 (incorporated by reference to Exhibit (10M) in the
Registrant's Form 10-K for the fiscal year ended December 31,
1993)
(10N) Equity Loan dated June 18, 1993, with respect to Willow Trace
Apartments in Tuscaloosa, Alabama, in the principal amount of
$680,000 (incorporated by reference to Exhibit (10N) in the
Registrant's Form 10-K for the fiscal year ended December 31,
1993)
(10O) Subordinated Promissory Note, dated June 18, 1993, with respect to
Willow Trace Apartments in Tuscaloosa, Alabama (incorporated by
reference to Exhibit (10O) in the Registrant's Form 10-K for the
fiscal year ended December 31, 1993)
(10P) Modification Agreement, dated January 1, 1995, with respect to
Mortenson Manor Apartments in Ames, Iowa (incorporated by
reference to Exhibit (10P) in the Registrant's Form 10-K for the
fiscal year ended December 31, 1995)
(10Q) Guaranty made for the benefit of the Registrant, dated January 1,
1995, with respect to the Modification Agreement regarding
Mortenson Manor Apartments (incorporated by reference to Exhibit
(10Q) in the Registrant's Form 10-K for the fiscal year ended
December 31, 1995)
27 Financial Data Schedule (filed herewith) 32
99. Additional Exhibits
(99A) The Financial Statements of Windemere Development, Inc., which
owns and operates an apartment complex known as Windemere at
Tallgrass located in Wichita, Kansas, as required by Staff
Accounting Bulletin No. 71 43 33
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
</TABLE>
-29-
<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.
CAPITAL MORTGAGE PLUS L.P.
(Registrant)
By: CIP ASSOCIATES, INC.
General Partner
Date: March 27, 1997 By: /s/ J. Michael Fried
--------------------
J. Michael Fried
President and Director
(Principal Executive Officer)
Date: March 27, 1997 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
-30-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President (principal executive officer) and
/s/ J. Michael Fried Director of CIP Associates, Inc.
- - ------------------------ (a General Partner of the Registrant) March 27, 1997
J. Michael Fried
Senior Vice President (principal financial
/s/ Alan P. Hirmes officer) of CIP Associates, Inc.
- - ------------------------ (a General Partner of the Registrant) March 27, 1997
Alan P. Hirmes
Treasurer (principal accounting
/s/ Richard A. Palermo officer) of CIP Associates, Inc.
- - ------------------------ (a General Partner of the Registrant) March 27, 1997
Richard A. Palermo
/s/ Stephen M. Ross Director of CIP Associates, Inc.
- - ------------------------ (a General Partner of the Registrant) March 27, 1997
Stephen M. Ross
</TABLE>
-31-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Capital Mortgage Plus L.P. and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000845875
<NAME> Art. 5 FDS For 4th Quarter 10.K
<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> 567,460
<SECURITIES> 0
<RECEIVABLES> 27,851,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 874,239
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,292,812
<CURRENT-LIABILITIES> 325,532
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,967,280
<TOTAL-LIABILITY-AND-EQUITY> 29,292,812
<SALES> 0
<TOTAL-REVENUES> 2,464,324
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 598,701
<LOSS-PROVISION> 157,138
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,708,485
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,708,485
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0
</TABLE>
WINDEMERE DEVELOPMENT, INC.
Financial Statements
December 31, 1996 and 1995
with
INDEPENDENT AUDITORS' REPORT
PETERSON, PETERS0N & GROSS, L.C.,
CERTIFIED PUBLIC ACCOUNTANTS
417 N. TOPEKA AVENUE
P.O. BOX 1259
WICHITA, KANSAS, 67201-1259
<PAGE>
WINDEMERE DEVEOPMENT, INC.
Table of Contents
December 31, 1996 and 1995
Page
Number
------
Certificate of Completeness 1
Independent Auditors' Report 2
Independent Auditors' Report on the Internal Control Structure 3
Independent Auditors' Report on Compliance With Specific
Requirements Applicable to Major HUD Programs 6
Independent Auditors' Report on Compliance With Specific
Requirements Applicable to Affirmative Fair Housing 8
Financial Statements:
Balance Sheet 9
Statement of Income 10
Statement of Changes in Stockholders' Equity 11
Statement of Cash Flows 12
Notes to Financial Statements 14
Supplementary Information:
Statement of Profit and Loss - HUD-92410 19
Computation of Surplus Cash, Distributions and
Residual Receipts - HUD-93486 22
Statement of Changes in Fixed Assets 23
Statement of Receipts and Disbursements 24
Other HUD Schedules 25
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Certificate of Completeness
HUD Project No. 102-36628
December 31, 1996 and 1995
I hereby certify that I have examined the accompanying financial statements
and supplemental data of Windemere Development, Inc. and, to the best of my
knowledge and belief, the same is complete and accurate.
/s/Jerry A. Gaddis 3-26-97
- - ----------------------------- Date
Management Agent,
Jerry A. Gaddis, President
Gaddis Properties, Inc.
/s/Jerry A. Gaddis 3-26-97
- - ----------------------------- Date
Jerry A. Gaddis, President
Windemere Development, Inc.
48-0782170
-1-
<PAGE>
[LETTERHEAD]
PETERSON, PETERSON & GOSS, L.C.
INDEPENDENT AUDITORS' REPORT
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the accompanying balance sheet of Windemere Development,
Inc. (a subchapter S corporation), as of December 31, 1996 and 1995, and the
related statements of income, changes in stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Windemere Development, Inc.
as of December 31, 1996 and 1995, and the results of its operations, changes in
stockholders equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 12, 1997, on our
consideration of Windemere Development, Inc. internal control structure and
reports dated February 12, 1997 on its compliance with specific requirements
applicable to major HUD programs and specific requirements applicable to
Affirmative Fair Housing.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supporting information included in
the report (shown on pages 19 through 26) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of Windemere Development, Inc. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly presented in all material respects in relation to
the financial statements taken as a whole.
/s/ PETERSON, PETERSON & GOSS, L.C.
-----------------------------------
February 12, 1997
-2-
<PAGE>
[LETTERHEAD]
PETERSON, PETERSON & GOSS, L.C.
INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the financial statements of Windemere Development, Inc. as
of and for the year ended December 31, 1996, and have issued our report thereon
dated February 12, 1997. We have also audited Windemere Development, Inc.'s
compliance with requirements applicable to its major HUD-assisted programs and
have issued our report thereon dated February 12, 1997.
We conducted our audit in accordance with generally accepted auditing
standards and 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 The Inspector General in July, 1993. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and about whether
Windemere Development, Inc. complied with laws and regulations, noncompliance
with which would be material to HUD-assisted programs.
In planning and performing our audit for the year ended December 31, 1996,
we considered Windemere Development, Inc.'s internal control structure in order
to determine our auditing procedures for the purpose of expressing our opinions
on Windemere Development, Inc.'s basic financial statements and on its
compliance with requirements applicable to major HUD-assisted programs and not
to provide assurance on the internal control structure.
The management of the Company 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 and 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
-3-
<PAGE>
nevertheless occur and not be detected. Also, projections 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.
For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
Accounting applications:
1. General ledger
2. Cash activities (receipts and disbursements)
3. Rents and charges
Controls used in administering compliance with laws and regulations:
1. Reporting
For all of the internal control structure categories listed above, we
obtained an understanding of the design of relevant policies and procedures and
determined whether they have been placed in operation and we assessed control
risk.
We 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 we considered relevant to preventing or detecting material
noncompliance with specific requirements applicable to the Company's
HUD-assisted programs. Our procedures were less in scope than would be necessary
to render an opinion on internal control structure policy and procedures. Thus,
we do not express our opinion on those policies and procedures.
We noted certain matters involving the internal control structure and its
operations that we consider to be reportable conditions under standards
established by the American Institute of Certified Public Accountants.
Reportable conditions involve matters coming to our attention relating to
significant deficiencies in the design or operation of the internal control
structure that, in our judgment, could adversely affect the organization's
ability to record, process, summarize and report financial data consistent with
management's assertions in the financial statements or to administer
HUD-assisted programs, in accordance with applicable laws and regulations
A material weakness is a reportable condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited or that
noncompliance with laws and regulations that would be material to a HUDassisted
program may occur and not be detected within a timely period by employees in the
normal course of performing their assigned functions.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be reportable
conditions and, accordingly, would not necessarily disclose all reportable
conditions that are also considered to be material weaknesses as defined above.
However, we believe the reportable condition described below is a material
weakness.
-4-
<PAGE>
Segregation of Duties - Proper internal control would have the
preparation of checks and control over the reconciliation of accounting records
performed by different employees. However, the inherent problems of justifying
the cost of such a system when the work can be performed by one individual have
to be addressed. Windemere Development, Inc. operates with one individual
performing many, if not all, of these functions at all times. Therefore, from an
internal control standpoint, this is a reportable condition, but one that is
found in any small office situation.
This report is intended for the information of the mortgagor,
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/PETERSON, PETERSON & GOSS, L.C.
----------------------------------
February 12, 1997
-5-
<PAGE>
[LETTERHEAD]
PETERSON, PETERSON & GOSS, L.C.
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC
REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the financial statements of Windemere Development, Inc. as
of and for the year ended December 31, 1996, and have issued our report thereon
dated February 12, 1997.
We have also audited Windemere Development, Inc.'s compliance with the
specific program requirements governing federal financial reports, mortgage
status, replacement reserve, residual receipts, tenant security deposits, cash
receipts and disbursements, distribution to owners, tenant applications,
eligibility and recertification and management functions that are applicable to
each of its major HUD-assisted programs for the year ended December 31, 1996.
The management of the Company is responsible for compliance with those
requirements. Our responsibility is to express an opinion on compliance with
those requirements based on our audit.
We conducted our audit of compliance with those 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 we 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 the Company's compliance with those requirements. We
believe that our audit provides a reasonable basis for our opinion.
The results of our audit procedures concerning cash disbursements and
management functions disclosed immaterial instances of noncompliance with the
requirements referred to above, which are described in the accompanying schedule
of findings and questioned costs. We considered these instances of noncompliance
in forming our opinion on compliance, which is expressed in the following
paragraph.
In our opinion, Windemere Development, Inc. complied, in all material
respects, with the requirements described above that are applicable to its major
HUD-assisted programs for the year ended December 31, 1996.
-6-
<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/PETERSON, PETERSON & GOSS, L.C.
----------------------------------
February 12, 1997
-7-
<PAGE>
[LETTERHEAD]
PETERSON, PETERSON & GOSS, L.C.
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC
REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the financial statements of Windemere Development, Inc. as
of and for the year ended December 31, 1996, and have issued our report thereon
dated February 12, 1997.
We have also applied procedures to test Windemere Development, Inc.'s
compliance with the Affirmative Fair Housing requirements applicable to its HUD
assisted programs, for the year ended December 31, 1996.
Our procedures were limited to the applicable compliance requirement
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. Our procedures were substantially less in
scope than an audit, the objective of which is the expression of an opinion on
Windemere Development, Inc.'s compliance with the Affirmative Fair Housing
requirements. Accordingly, we do not express such an opinion.
The results of our 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/PETERSON, PETERSON & GOSS, L.C.
----------------------------------
February 12, 1997
-8-
<PAGE>
WINDEMERE DEVELOPMENT. INC.
Balance Sheet
December 31. 1996 and 1995
Assets
1996 1995
---------- ----------
Current assets
Petty cash (1110) $ 100 $ 100
Cash in bank and interest-bearing deposits (1120) 56,265 45,220
Rent receivable (1130) 1,220 1,401
Accounts receivable, related party (1140) 2.459 2,459
---------- ----------
Total current assets 60,044 49,180
Deposits held in trust - funded:
Tenant security deposits - Note 3 (1191) 48,281 46,081
Restricted deposits and funded reserves:
Mortgagee escrow deposits-Note 2 (1310) 59,769 58,073
Reserve for replacements - Note 4 (1320) 110,507 98,607
---------- ----------
Total deposits 170,276 156,680
Fixed assets - Note 5:
Land and special assessments (1410) 718,633 709,644
Buildings and improvements (1420) 7,744,800 7,734,117
Furniture and equipment (1450) 57,814 54,842
---------- ----------
8,521,247 8,498,603
Less accumulated depreciation 940,709 739,257
---------- ----------
Total fixed assets 7,580,538 7,759,346
Other assets:
Loan costs, net of amortization of $62,857
and $46,338 581,385 597,904
Organization costs, net of amortization of $6,238 -- 1,567
---------- ----------
Total other assets 581,385 599,471
---------- ----------
Total $8,440,524 $8,610,758
========== ==========
See notes to financial statements.
<PAGE>
Liabilities and Stockholders' Equity
------------------------------------
1996 1995
----------- -----------
Current liabilities:
Accounts payable, trade (2110) $ 6,505 $ 3,042
Accrued management fee (2190) 13,173 --
Accrued interest payable-Note 5 (2130) 184,104 120,086
Accrued real estate taxes - Note 6 (2150) 51,531 43,209
Accrued mortgage insurance (2190) 29,846 34.983
Mortgage payable, current portion (2320) 41,485 38,298
Rent deferred credits (2210) 500 2,526
----------- -----------
Total current liabilities 327,144 242.144
Deposit liabilities:
Tenant security deposits - Note 3 (2191) 36,000 34,275
Long-term liabilities - Note 5:
Mortgage payable (2320) 7,957,379 7,995,677
Less current portion 41,485 38,298
----------- -----------
Total long-term liabilities 7,915,894 7,957,379
Stockholders' equity:
Common stock, authorized 1,000 shares;
issued- 1,000 shares 1,000 1,000
Additional paid-in capital 736,650 736,650
Retained earnings (576,164) (360.690)
----------- -----------
Total stockholders' equity (3130) 161,486 376.960
----------- -----------
Total $ 8,440,524 $ 8,610,758
=========== ===========
-9-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Income
Years Ended December 31, 1996 and 1995
1996 1995
----------- ------------
Operating income:
Rental $ 1,358,839 $ 1,342,091
Operating expenses:
Interest 769,333 773,457
Mortgage insurance 54,555 59,970
Bank charges 361 714
Property taxes 95,980 80,292
Insurance 23,334 27,690
Equipment leasing - Note 7 19,407 19,404
Management fees 81,419 78,487
Salaries and wages 64,524 61,117
Contract labor 2,668 927
Payroll taxes 4,817 5,297
Utilities 67,944 44,954
Professional fees 10,963 8,865
Repairs and maintenance 123,219 80,995
Advertising 15,509 11,115
Office supplies and postage 7,526 6,375
Miscellaeous 12,039 9,453
Depreciation and amortization 219,538 218,451
Other operating expense - Note 8 -- 4,512
----------- -----------
Total operating expenses 1,573,136 1,492,075
----------- -----------
Loss from operations (214,297) (149,984)
Other income:
Interest 6,969 7,991
Miscellaneous -- 250
---------- -----------
Total other income 6,969 8,241
----------- -----------
Net Loss $ (207,328) $ (141,743)
=========== ===========
See notes to financial statements.
-10-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1996 and 1995
Additional
Common Paid-In Retained
Stock Capital Earnings Total
--------- --------- --------- ---------
Balance at January 1, 1995 $ 1,000 $ 736,650 $(198,486) $ 539,164
Net loss (141,743) (141,743)
Distributions (20,461) (20,461)
--------- --------- --------- ---------
Balance at December 31, 1995 1,000 736,650 (360,690) 376,960
Net loss (207,328) (207,328)
Distributions (8,146) (8,146)
--------- --------- --------- ---------
Balance at December 31, 1996 $ 1,000 $ 736,560 $(576,164) $ 161,486
========= ========= ========= =========
See notes to financial statements.
-11-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Rental receipts $ 1,356,994 $ 1,343,532
Interest receipts 6,969 7,991
Other receipts -- 250
----------- -----------
1,363,963 1,351,773
Administrative (47,128) (37,130)
Management fees (68,247) (85,121)
Utilities (73,289) (49,115)
Salaries and wages (64,752) (60,889)
Operating and maintenance (135,996) (96,484)
Real estate taxes and escrow deposits (88,695) (80,147)
Property insurance (23,334) (27,690)
Miscellaneous taxes and insurance (5,007) (6,065)
Tenant security and other deposits (475) (7,253)
Interest on mortgage (705,315) (772,781)
Mortgage insurance premium (59,692) (59,978)
Other operating expense (4,512)
----------- -----------
(1,271,930) (1,287,165)
----------- -----------
Net cash provided by operating activities 92,033 64,608
Cash flows from investing activities:
Purchase of furnishings and equipment (22,644) (53,075)
Deposits into reserve for replacement (33,970) (33,500)
Transfer to yield maintenance 22,070 3,277
----------- -----------
Net cash used in investing activities (34,544) (83,298)
Cash flows from financing activities:
Mortgage principal payments (38,298) (35,355)
Distribution to stockholder (8,146) (20,461)
----------- -----------
Net cash used in financing activities (46,444) (55,816)
----------- -----------
Net increase (decrease) in cash and cash equivalents 11,045 (74,506)
Cash and cash equivalents, beginning of year 45,320 119,826
----------- -----------
Cash and cash equivalents, end of year $ 56,365 $ 45,320
=========== ===========
</TABLE>
-12-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1996 and 1995
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss $(207,328) $(141,743)
Adjustments to reconcile net income to net cash
provided.by operating activities:
Depreciation and amortization 219,538 218,451
(Increase) decrease in rent receivable 181 (1,085)
Increase in cash restricted for tenant
security deposits (2,200) (2,178)
Increase in mortgagee escrow deposits (1,696) (835)
Increase in accounts payable 3,463 100
Increase (decrease) in accrued liabilities 80,376 (5,553)
Increase (decrease) in tenant security deposits 1,725 (5,075)
Increase (decrease) in deferred revenue (2,026) 2,526
--------- ---------
Net cash provided by operating activities $ 92,033 $ 64,608
========= =========
See notes to financial statements.
-13-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies
Method of Accounting
The Company maintains its books and records on the basis of accounting used
for income tax purposes. This basis includes the use of cash basis accounting
and Internal . Revenue Service (IRS) depreciation lives and methods. The Company
uses this basis because it is the most meaningful for the use of management in
maintaining its operations. The Company has made the adjustments necessary to
present these financial statements in accordance with generally accepted
accounting principles.
History and Business Activity
Windemere Development, Inc. was founded in 1991 to develop and operate a
206-unit apartment complex in Wichita, Kansas, known as Windemere at Tallgrass.
The apartments are located at 8220 East Oxford Circle, Wichita, Kansas
67226 and consist of one and two bedroom units.
Property and Equipment
Depreciation is computed by using the straight-line method over the
following estimated useful lives:
Buildings - 40 years
Landscape improvements - 20 years
Furniture and equipment - 10 years
Expenditures for maintenance and repairs are charged to income as incurred.
Expenditures which materially extended the useful lives of assets or increase
their productivity are capitalized.
Income Taxes
An income tax provision has not been included in the financial statements
since the income or loss of the Company is required to be reported by the
shareholder on his respective income tax return.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
-14-
<PAGE>
WINDEMERE DEVELOPMENT
Notes to Financial Statements
December 31, 1996 and 1995
1. Summary of Significant Accounting Policies (continued)
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.
Advertising
The Company follows the policy of charging the costs of advertising to
expanse as incurred. Advertising expense was $15,509 and S11,115 for the years
ended December 31, 1996 and 1995, respectively.
2. Restricted Deposits and Funded Reserves
The Company has deposited with the lender the following amounts:
Mortgagee escrow deposits 1996 1995
- - ------------------------- -------- --------
Mortgage and Property Insurance,
Real estate taxes and special assessments $ 59,769 $ 58,073
======== ========
An evaluation of the adequacy of certain escrow's is as follows:
Estimated amount required as of December 31, 1996 for future payment of:
1996 1995
---- ----
Property insurance $21,316 $20,386
Mortgage insurance 29.846 34.983
------ ------
51,162 55,369
Total confirmed by mortgagee 59.769 58.073
------ ------
Amount on deposit in excess of
estimated requirement $ 8,607 $ 2,704
======= =======
3. Tenant Security Deposits and Funded Reserves
Tenant security deposits are held in a separate account in the name of the
project. The total held in the account is $12,281 in excess of the deposits held
for tenants.
-15-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1996 and 1995
4. Reserve for Replacements
In accordance with the provisions of the Regulatory Agreement restricted
cash is held by the mortgagee to be used for replacement of property with the
approval of HUD as follows:
1996 1995
--------- ---------
Balance at beginning of year $ 98,607 $ 68,384
Monthly deposits 30,031 30,031
Transfer (22,070) (3,276)
--------- ---------
106,568 95,139
Interest earned 3,939 3.468
--------- ---------
Balance confirmed by mortgagee $ 110,507 $ 98,607
========= =========
5. Long-Term Liabilities
Long-term debt at December 31, 1996 and 1995 consisted of the
following obligations:
1996 1995
---------- ----------
Mortgage loan payable in monthly install-
ments of $56,514 including interest at
8.02%and principal. The loan is due May
1, 2032 and is secured by a first mortgage
on the land and buildings. The debt also
includes a subordinated promissory note
which provides that additional interest
shall be payable semiannually in an amount
that will provide a maximum cumulative yield
(uncompounded) of 10.70% on the principal
amount of the mortgage loan outstanding
The amounts for the years ending December 31,
1996 and 1995 were $129,729 and $129,973,
respectively (at 1.60%) and are included in
accrued interest payable
The subordinated promissory note is
secured by a second mortgage on the
land and buildings $7,957,379 $7,995,677
Less current portion 41.485 38,298
---------- ----------
$7,915,894 $7.957,379
========== ==========
-16-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1996 and 1995
5. Long-Term Liabilities (continued)
Maturities of debt are as follows:
1996 1995
1996 $ -- $ 38,298
1997 41,485 41,485
1998 44 937 44 937
1999 48,676 48,676
2000 52,727 52,727
2001 57,114 --
Later years 7,712,440 7,769,554
----------- ----------
$ 7,957,379 $7,995,677
=========== ==========
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
Description Basis for Period Amount
of Tax Accrual Covered Due Date Accrued
- - -------------- --------------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Real estate Second-half January 1 June 21, $51,531
taxes and due for 1997 to Decem- 1997
special ber 31, 1996
assessments
</TABLE>
7. Related Party Transactions
The Apartments are managed by Gaddis Properties, Inc., a related entity
controlled by Jerry A. Gaddis. Under the terms of the management agreement with
Gaddis Properties, Inc. a management fee not in excess of 6% of cash basis
rental revenue, is payable monthly for management services. The total management
fees paid in 1996 were $81,419.
During the year ended December 31, 1996, the Company did not pay any
compensation to officers or shareholders of the Company.
The following summarizes other related party transactions for 1996:
Related Party Classification Amount
C.G. Interiors, Inc. Equipment lease $ 14,007
Advertising 68
Maintenance 6,713
Building supplies 653
Miscellaneous 192
------
21,633
-17-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1996 and 1995
7. Related Party Transactions (continued)
Carolyn Gaddis Salaries and wages 12,000
Office supplies 290
Miscellaneous 192
--------
12,482
Jerry A. Gaddis Building supplies 61
Doug Gaddis Salaries and wages 4,200
Gaddis Properties, Inc. Data processing 7,344
Truck rental 5.400
--------
12.744
--------
Total $ 51,120
========
-18-
<PAGE>
Statement of U.S. Department of Housing
Profit and Loss and Urban Development
Office of Housing 0MB Approval
Federal Housing Commissioner No. 2502-0052 (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 sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600 and to the Office of
Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
For Monthly Period Project Number: Project Name:
Beginning: Ending:
01/01/96 12/31/96 102-36628 WINDEMERE APARTMENTS
- - ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No. Amount
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $ 1,527,129
Rental Tenant Assistance Payments 5121 $
Income Furniture and Equipment 5130 $
5100 Stores and Commercial 5140 $
Garage and Parking Spaces 5170 $
Flexible Subsidy Income 5180 $
Miscellaneous (specify) 5190 $
Total Rent Revenue Potential at 100% Occupancy $ 1,527,129
- - ------------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 ( 168,290)
Furniture and Equipment 5230 ( )
Vacancies Stores and Commercial 5240 ( )
5200 Garage and Parking Spaces 5270 ( )
Miscellaneous (Specify) 5290 ( )
Total Vacancies (168,290)
Net Rental Revenue Rent Revenue Less Vacancies $ 1,328,839
- - ------------------------------------------------------------------------------------------------------------------------------------
Elder 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 $ 3,939
5400 Income from Investments-Miscellaneous 5490 $ 3,030
Total Financial Revenue $ 6,969
- - ------------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
NSF and Late Charges 5920 $
Other Damages and Cleaning Fees 5930 $
Revenue Forfeited Tenant Security Deposits 5940 $
Revenue Other Revenue (specify) 5990 $
5900 Total Other Revenue $ l ,365,808
Total Revenue
- - ------------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 15,509
Other Administrative Expense 6250 $
Office Salaries 6310 $ 18,067
Office Supplies 6311 $ 7,081
Office or Model Apartment Rent 6312 $
Administrative Management 6320 $ 81,419
Expenses Manager or Superintendent Salaries 6330 $ 15,452
6200/6300 Manager or Superintendent Rent Free Unit 6331 $
Legal Expenses (Project) 6340 $ 6,163
Auditing Expenses (Project) 6350 $ 4,800
Bookkeeping Fees/Accounting Services 6351 $ 7,344
Telephone and Answering Service 6360 $ 4,959
Bad Debts 6370 $
Miscellaneous Administrative Expenses (specify) 6390 $ 16,984
Total Administrative Expenses $ 177,778
- - ------------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
Utillties Electricity (Light and Misc. Power) 6450 $ 20,168
Expenses Water 6451 $ 22,167
6400 Gas 6452 $ 6,403
Sewer 6453 $
Total Utilities Expenses $ 48,738
- - ------------------------------------------------------------------------------------------------------------------------------------
* All amounts must be rounded to the nearest Page 1 of 2 form HUD-9240 (7/91)
dollar; $.50 and over , round up--$.49, round down rel Handbook 4370.2
</TABLE>
-19-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ 11,846
Janitor and Cleaning Supplies 6515 $ 37,650
Janitor and Cleaning Contract 6517 $
Exterminating Payroll/Contract 6519 $ 48
Exterminating Supplies 6520 $
Garbage and Trash Removal 6525 $ 12,994
Security Payroll/Contract 6530 $ 2,163
Grounds Payroll 6535 $
Operating and Grounds Supplies 6536 $ 30
Maintenance Grounds Contract 6537 $ 18,610
Expenses Repairs Payroll 6540 $ 19,159
6500 Repairs Material 6541 $
Repairs Contract 6542 $ 65,577
Elevator Maintenance/Contract 6545 $
Heating/Cooling Repairs and Maintenance 6546 $
Swimming Pool Maintenance/Contract 6547 5,572
Snow Removal 6548 $ 3,801
Decorating Payroll/Contract 6560 $
Decorating Supplies 6561 $
Other 6570 $
Miscellaneous Operating and Maintenance Expenses 6590 $ 1,252
Total Operating and Maintenance Expenses $ 178,702
- - ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 94,073
Payroll Taxes (FICA) 6711 $ 4,817
Miscellaneous Taxes, Licenses and Permits 6719 $ 1,907
Taxes Property and Liability Insurance (Hazard) 6720 $ 21,316
and Fidelity Bond Insurance 6721 $
Insurance Workmen's Compensation 6722 $ 2,018
6700 Health Insurance and Other Employee Benefits 6723 $
Other Insurance (specify) 6729 $
Total Taxes and Insurance $ 124,131
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
Financial Interest on Mortgage Payable 6820 $ 769,333
Expenses Interest on Notes Payable (Long-Term) 6830 $
6800 Interest on Notes Payable (Short Term) 6840 $
Mortgage Insurance Premium/Service Charge 6850 $ 54,555
Miscellaneous Financial Expenses 6890 $ 361
Total Financial Expenses $ 824,249
- - ------------------------------------------------------------------------------------------------------------------------------------
Elderly Total Service Expenses-Schedule Attached 6900 $
&
Congregate Total Cost of Operations Before Depreciation $ 1,353,598
Service Profit (Loss) Before Depreciation $ 12,210
Expenses Depreciation (Total)_6600 (specify) 6600 $ 217,971
6900 Operating Profit or (Loss) $ (205,761)
- - ------------------------------------------------------------------------------------------------------------------------------------
Corporate or Officer Salaries 7110 $
Mortgagor Legal Expenses (Entity) 7120 $
Entity Taxes (Federal-State-Entity) 7130-32 $
Expenses Other Expenses (Entity) Amount. of Organization Costs 7190 $ 1,567
7100 Total Corporate Expenses $ 1,567
Net Profit or (Loss) $ (207,328)
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802)
- - --------------------------------------------------------------------------------
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous
or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590,
6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a
separate schedule describing or explaining the miscellaneous income or expense.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Part II
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments
under a Workout Agreement are less or more than those required under the
mortgage $ 30,132
- - ------------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or
waived. $ 30,031
- - ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve release which are included as expense items
on this Profit and Loss statement. $
- - ------------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Release under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement. $
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
form HUD-9241 (7/91)
ref Handbook 4370.2
Page 2 of 2
-20-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Profit and Loss
Form HUD-92410
December 31, 1996
Miscellaneous Account Detail
Income from investments - 5490:
Related Mortgage Corp. -
Yield Maintenance Escrow $ 804
Southwest Securities, Inc. -
Tenant Security Deposits 2,199
Intrust Bank -
Business Maximizer Account 27
--------
$ 3,030
========
Miscellaneous Administrative Expense - 6390:
Leasing - furniture $ 14,007
Miscellaneous 2,977
--------
$ 16,984
========
Depreciation - 6600:
Depreciation - buildings and improvements $193,923
Depreciation - furniture and equipment 7,529
Amortization of loan costs 16,519
--------
$217,971
========
See notes to financial statements
-21-
<PAGE>
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
HOUSING - FEDERAL HOUSING COMMISSIONER
OFFICE Of MULTIFAMILY HOUSING management AND OCCUPANCY
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND
RESIDUAL RECEIPTS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER
Windemere Development, Inc. 12/ 31/ 96 102-36628
- - ------------------------------------------------------------------------------------------------------------------------------------
PART A - COMPUTE SURPLUS CASH
- - ------------------------------------------------------------------------------------------------------------------------------------
CASH
<S> <C> <C>
1. Cash (Accounts 1110, 1120, 1191, 1192) $ 104,646
2. Tenant subsidy vouchers due for period covered $
by financial statement
3. Other (describe)
$
. (a) Total Cash (Add Lines 1, 2, and 3) $ 104,646
- - ------------------------------------------------------------------------------------------------------------------------------------
4. Accrued mortgage interest payable $ 54,375
5. Delinquent mortgage principal payments $
6. Delinquent deposits to reserve for replacements $
7. Accounts payable (due within 30 days) $ 6,505
8. Loans and notes payable
(due within 30 days) $
9. Deficient Tax Insurance or MIP Escrow Deposits $
10.Accrued expenses (not escrowed) $
11.Prepaid Rents (Account 2210) $
12.Tenant security deposits liability (Account 2191) $ 36,000
13.Other (Describe) $
(b) Less Total Current Obligations (Add Lines 4 through 13) $ 96,880
(c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ 7,766
- - ------------------------------------------------------------------------------------------------------------------------------------
PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO REQUIRED DEPOSIT TO RESIDUAL RECEIPTS
1. Surplus Cash $ 7,766
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 $ 7,766
5. Deposit Due Residual Receipts
(Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $
</TABLE>
- - --------------------------------------------------------------------------------
PREPARED BY REVIEWED BY
- - --------------------------------------------------------------------------------
LOAN TECHNICIAN LOAN SERVICER
- - --------------------------------------------------------------------------------
DATE DATE
- - --------------------------------------------------------------------------------
{See Reverse for Instructions)
HUD-93486 (12-80)
-22-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Fixed Assets
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Assets
----------------------------------------------------------------------------
Balance Balance
January 1, December 31,
1996 Additions Deductions 1996
--------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Land $ 684,376 $ $ $ 684,376
Special Assessments 25,268 8,989 34,257
Buildings and improvements 7,734,117 10,683 7,744,800
Furniture and equipment 54,842 2,972 57,814
--------------- -------------- ------------ --------------
$ 8,498,603 $ 22,644 $ -- $ 8,521,247
=============== ============== ============ ==============
</TABLE>
See notes to financial statements.
-23-
<PAGE>
<TABLE>
<CAPTION>
Accumulated Depreciation
- - --------------------------------------------------------------------------------
Net
Balance Balance Book Value
January 1, Current December 31, December 31,
1996 Provisions Deductions 1996 1996
- - ------------- -------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
$ $ $ $ $ 684,376
34,257
721,705 193,923 915,628 6,829,172
17,552 7,529 25,081 32,733
------------- -------------- ------------- --------------- ---------------
$ 739,257 $ 201,452 $ -- $ 940,709 $ 7,580,538
============= ============== ============= =============== ===============
</TABLE>
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Receipts and Disbursements
HUD Project No. 102-36628
Windemere Apartments
Year Ended December 31, 1996
Source of funds:
Operations:
Revenues:
Rental income $ 1,356,994
Interest income 6,969 1,363,963
----------- -----------
Expenses:
Administrative expenses 47,309
Management fees 68,247
Operating expenses 73,289
Payrolls 64,752
Maintenance expenses 135,996
Taxes, real estate 86,999
Taxes, other 5,007
Insurance 23,334
Mortgage insurance premium 59,692
Interest on mortgage loan 705,315 1,269,940
----------- -----------
Cash provided by operations before amortization 94,023
Amortization of mortgage 38,298
-----------
Cash provided by operations after debt service 55,725
Other:
Distribution to shareholder 8,146
-----------
47,579
Application of funds:
Reserve for replacements - funded 11,900
Tenant security deposits - funded 2,200
Increase in taxes and insurance escrow 1,696
Purchase of furnishings and equipment 22,644
Increase in tenant security deposits (1,725)
Decrease in rent receivable (181) 36,534
----------- -----------
Increase in cash 11,045
Unrestricted cash at beginning of year 45,320
-----------
Unrestricted cash at end of year $ 56,365
===========
See notes to financial statements.
-24-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1996
Schedule of Identity of Interest Firms and Activities:
<TABLE>
<CAPTION>
Company or Person Service Amount
----------------- ------- ------
<S> <C> <C>
Gaddis Properties, Inc. Management $ 68,247
Data Processing 7,344
Truck Rental 5,400
---------
80,991
Gaddis Construction Company Insurance Reimbursement 2,018
Repairs Reimbursement 141
C.G. Interiors, Inc. Equipment lease 14,007
Advertising 68
Maintenance 6,713
Building supplies 653
Miscellaneous 192
---------
21,633
Carolyn Gaddis Salary 12,000
Office supplies 290
Miscellaneous 192
---------
12,482
Jerry Gaddis Building supplies 61
Doug Gaddis Salary 4,200
Schedule of Accrued Taxes:
See Note 6 to Financial Statements.
Schedule of Unauthorized Distributions of Project Income:
Jerry Gaddis 8,146
Audit Firm:
Peterson, Peterson & Goss, L.C.
P.O. Box 1259
Wichita, KS 67201
48-0542098
John Goss
</TABLE>
-25-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1996
Schedule of Funds in Financial Institutions:
Funds held by Mortgagor, regular operating account:
Intrust Bank, N.A., checking - confirmed 2-17-97 $ 32,379
Intrust Bank. N.A., money maximizer - confirmed 2-17-97 1,229
--------
33,608
Funds held by Mortgagor in Trust, Tenant Security Deposit:
Southwest Securities, Inc., money market - confirmed 2-19-97 48,281
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Funds held by mortgagor $ 81,889
=========
Funds held by Mortgagee, in trust:
Tax, insurance and MIP Escrow $ 59,769
Replacement reserve 110,507
Yield maintenance 22,657
--------
Funds held by mortgagee confirmed by Related Mortgage
Corporation 2-18-97 $192,933
========
Corrective Action Plan:
The Company did not change any internal control
policies in conjunction with the material weakness
See notes to financial statements.
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