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, 1997
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
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial 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
Page 1 of
<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.
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.
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 Registrant is engaged solely in the business of investing in Mortgages and
equity loans; therefore, 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, 1998:
<TABLE>
<CAPTION>
Original Interest
Mortgage Rate on
Date of Loan Equity Loan 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 4,420,000 680,00 9.657% 35 years
----------- ----------
$26,158,190 $3,062,135
=========== ==========
</TABLE>
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<PAGE>
(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, 1998, 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 1, 1998. The property achieved Final Endorsement during February 1992. The
Registrant has received approximately $ 205,900 as of December 31, 1997 from
Mortenson representing principal payments of the mortgage loan. 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 subordinate
the management fee 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 interest, if any, and certain amounts from
sale or refinancing proceeds. Default Interest payments of approximately
$563,000 for the years ended December 31, 1993 to 1997 have not been received
and, as a result, an allowance for uncollectability amounted to approximately
$538,000 and $442,000 at December 31, 1997 and 1996, respectively.
(4) Cost certification on Windemere occurred in June 1992 and amortization of
the loan began the same month. The property was 99% occupied as of March 1,
1998. Windemere achieved Final Endorsement during July 1992. The Registrant has
received approximately $194,400 as of December 31, 1997 from Windemere
representing principal payments 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
$65,000 for the period July 1997 to December 1997 expected to be received during
the second quarter of 1998. 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
92% occupied as of March 1, 1998. Final endorsement was achieved during November
1992 and amortization of the loan began the same month. The Registrant has
received approximately $63,700 as of December 31, 1997 from Fieldcrest
representing principal payments 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. 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 1997 to December 1997 is
expected to be received during the second quarter of
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<PAGE>
1998. 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
1, 1998. The fully insured 221(d)(4) mortgage loan is for $5,310,100. An equity
loan of $684,400 was also advanced to the borrower. The Registrant has received
approximately $64,900 as of December 31, 1997 from Holly Ridge representing
principal payments of the mortgage loan. The mortgage loan has a term of 40
years 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 $51,000 for the period July 1997 to
December 1997 is expected to be received during the second quarter of 1998.
(7) On June 18, 1993, the Registrant closed the investment in Willow Trace, a
152 unit project, located in Tuscaloosa, Alabama. The property was 98% occupied
as of March 1, 1998. 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 $112,300 as of December 31, 1997 from Willow Trace representing
principal payments 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 $28,000 for
the period July 1997 to December 1997 is expected to be received during the
second quarter of 1997. In addition, the Registrant expects to receive
approximately $15,000 during the second quarter of 1998, 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.
(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.
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<PAGE>
Following is the interest income from mortgage loans as a percentage of total
revenues.
1997 1996 1995
---- ---- ----
Mortenson 16% 16% 16%
Windemere 31 31 31
Fieldcrest 13 12 13
Holly Ridge 21 21 20
Willow Trace 18 18 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.
PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder
Matters.
As of December 31, 1997, 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 represents 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.
-5-
<PAGE>
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.
Distribution Information
Cash distributions per BAC made to the limited partners or BACs holders for the
following quarters in 1997, 1996 and 1995 were as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
1997 .3452 .3490 .3529 .3529
1996 .3452 .3490 .3529 .3529
1995 .3452 .3490 .3529 .3529
Quarterly distributions are made 45 days following the close of the calendar
quarter.
A total of $7,713,991 was distributed to the limited partners or BACs holders in
1997, 1996 and 1995. 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 1997,
1996 and 1995 distributions (which is considered to be a return of capital).
Approximately $706,000, $897,000 and $669,000 paid to the limited partners or
BACs holders in each of the years ended December 31, 1997, 1996 and 1995,
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 $157,428 was distributed to the General Partner in
1997, 1996 and 1995.
Since contingent interest on some of the mortgage loans is paid semi-annually, a
portion of the 1997 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,
1998 through the distribution date, February 14, 1998. 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 final
Guaranteed Rate Guaranty Period on the distributions.
-6-
<PAGE>
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the
Registrant. Additional financial information is set forth in the audited
financial statements and footnotes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
OPERATIONS 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income
Mortgage loans $ 2,471,273 $ 2,423,058 $ 2,448,891 $ 2,477,238 $ 2,161,784
Temporary investments 14,658 39,064 64,534 57,421 211,561
REMIC certificates 0 0 0 0 0
Other income 2,252 2,202 1,952 2,002 1,604
----------- ----------- ----------- ----------- -----------
Total revenues 2,488,183 2,464,324 2,515,377 2,536,661 2,374,949
Operating expenses 584,796 598,701 574,172 579,336 536,559
Provision for bad debts 96,079 157,138 0 285,000 0
----------- ----------- ----------- ----------- -----------
Total Expenses 680,875 755,839 574,172 1,672,325 536,559
Net income $ 1,807,308 $ 1,708,485 $ 1,941,205 $ 1,672,325 $ 1,838,390
=========== =========== =========== =========== ===========
Net income per BAC $ 0.96 $ 0.91 $ 1.04 $ 0.89 $ 0.98
=========== =========== =========== =========== ===========
December 31,
-------------------------------------------------------------------
FINANCIAL POSITION 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
Total assets $28,597,517 $29,292,812 $30,383,120 $30,973,591 $31,989,902
=========== =========== =========== =========== ===========
CASH DISTRIBUTIONS
Distributions per BAC $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.40
=========== =========== =========== =========== ===========
</TABLE>
-7-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Capital Resources and Liquidity
Sources of Registrant funds included interest earned on (1) investments in
mortgage loans (see also Item 1, Business) and (2) the working capital reserve.
During the year ended December 31, 1997, cash and cash equivalents of the
Registrant decreased by approximately $350,000. Cash provided by operating
activities and collections of principal on mortgage loans were approximately
$2,130,000 and $145,000, 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 $279,000.
In addition, the General Partner has allowed the accrual without payment of the
partnership management fee through 1992 and for the Quarter ended December 31,
1997 in aggregate amounts equal to approximately $268,000 and 38,000,
respectively. 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
1997 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 will be sufficient to cover anticipated expenses in 1998.
Distributions of approximately $2,571,000 made to the limited partners or BACs
holders for each of the years ended December 31, 1997 and 1996 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. Approximately $52,000
was distributed to the General Partner for each of the years ended December 31,
1997 and 1996.
The level of future distributions will depend on results of operations.
Furthermore, the expiration of the final Guaranteed Rate Guaranty Periods in
1997 (see Item 1, Business) may have an adverse affect on future distributions
if contingent interest is not realized on the mortgage loans. Beginning in the
first quarter of 1998 the Partnerships distribution policy will call for
quarterly distributions which reflect collections of interest payments.
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
1997 vs. 1996
Results of operations for the years ended December 31, 1997 and 1996 consisted
primarily of interest income of approximately $2,471,000 and $2,423,000,
respectively, earned from investments in mortgage loans.
Interest income from mortgage loans increased approximately $48,000 for the year
ended December 31, 1997 as compared to 1996 primarily due to the receipt of an
annual yield payment form Fieldcrest in 1997.
Interest income from temporary investments decreased approximately $24,000
primarily due to lower cash and cash equivalents balances.
Total expenses, excluding provision for bad debts, remained fairly constant with
a decrease of approximately 2% for the year ended December 31, 1997 as compared
to 1996.
A provision for bad debts of approximately $96,079 and $157,000 was charged for
the year ending December 31, 1997 and 1996, respectively, representing the
1995-1997 Guaranteed Interest due from Mortenson.
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.
Recent Financial Accounting Standards
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share. Statement No. 129,
"Disclosure of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure. The adoption of
these standards in 1997 has not materially affected the Company's reported
operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive
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<PAGE>
income to be displayed separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial position.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no
impact on the Company's financial position or results of operations.
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The Advisor is in the process of working with the Company's
service providers to prepare for the year 2000. Based on information currently
available, the Company does not expect that it will incur significant operating
expenses or be required to incur material costs to be year 2000 compliant.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
Page
----
(a)1. Financial Statements
Independent Auditors' Report 12
Statements of Financial Condition as of December 31, 1997
and 1996 13
Statements of Income for the years ended December 31, 1997, 1996
and 1995 14
Statements of Changes in Partners' Capital (Deficit)
for the years ended December 31, 1997, 1996 and 1995 15
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 16
Notes to Financial Statements 17
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<PAGE>
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, 1997 and
1996 and the related statements of income, changes in partners' capital
(deficit) and cash flows for each of the three years ended December 31, 1997.
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, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years ended December 31, 1997 in conformity with
generally accepted accounting principles.
Boston, Massachusetts REZNICK, FEDDER & SILVERMAN
January 29, 1998
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<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Investments in mortgage loans (Note 3) $ 27,085,493 $ 27,485,450
Cash and cash equivalents 217,902 567,460
Accrued interest receivable (net of allowance
of $538,217 and $442,138, respectively) 443,267 365,663
Loan origination costs (net of accumulated
amortization of $141,883 and $118,499, respectively) 850,855 874,239
------------ ------------
Total Assets $ 28,597,517 $ 29,292,812
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and other liabilities $ 46,446 $ 27,704
Due to general partner and affiliates (Note 4) 400,298 297,828
------------ ------------
Total liabilities 446,744 325,532
------------ ------------
Partners' capital (deficit):
Limited Partners (1,836,660 BACs issued
and outstanding) (Note 1) 28,256,354 29,056,531
General Partner (105,581) (89,251)
------------ ------------
Total partners' capital 28,150,773 28,967,280
------------ ------------
Total Liabilities and Partners' Capital $ 28,597,517 $ 29,292,812
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Interest income:
Mortgage loans (Note 3) $2,471,273 $2,423,058 $2,448,891
Temporary investments 14,658 39,064 64,534
Other income 2,252 2,202 1,952
---------- ---------- ----------
Total revenues 2,488,183 2,464,324 2,515,377
---------- ---------- ----------
Expenses:
General and administrative 88,408 81,012 81,659
General and administrative-
related parties (Note 4) 216,208 237,509 212,333
Provision for bad debts 96,079 157,138 0
Amortization 280,180 280,180 280,180
---------- ---------- ----------
Total expenses 680,875 755,839 574,172
---------- ---------- ----------
Net income $1,807,308 $1,708,485 $1,941,205
========== ========== ==========
Net income per BAC $ 0.96 $ 0.91 $ 1.04
========== ========== ==========
</TABLE>
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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited General
Total Partners Partner
------------ ------------ ------------
<S> <C> <C> <C>
Partners' capital (deficit) - January 1, 1995 $ 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)
Net income 1,807,308 1,771,162 36,146
Distributions (2,623,815) (2,571,339) (52,476)
------------ ------------ ------------
Partners' capital (deficit) - December 31, 1997 $ 28,150,773 $ 28,256,354 $ (105,581)
============ ============ ============
</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,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,807,308 $ 1,708,485 $ 1,941,205
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debts 96,079 157,138 0
Amortization 280,180 280,180 280,180
Amortization of interest rate buydown (1,452) (1,452) (1,452)
Changes in operating assets and liabilities:
Increase in other assets (173,683) (130,290) (42,571)
Increase (decrease) in accounts payable
and other liabilities 18,743 (5,775) 3,479
Increase (decrease) in due to general partner
and affiliates 102,470 (169,203) 88,634
----------- ----------- -----------
Total adjustments 322,337 130,598 328,270
----------- ----------- -----------
Net cash provided by operating activities 2,129,645 1,839,083 2,269,475
----------- ----------- -----------
Cash flows from investing activities:
Investments in loans 0 0 (430,578)
Receipt of principal on mortgage loans 144,612 133,829 125,302
----------- ----------- -----------
Net cash provided by (used in) investing activities 144,612 133,829 (305,276)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (2,623,815) (2,623,815) (2,623,789)
----------- ----------- -----------
Net decrease in cash and cash equivalents (349,558) (650,903) (659,590)
Cash and cash equivalents at beginning of year 567,460 1,218,363 1,877,953
----------- ----------- -----------
Cash and cash equivalents at end of year $ 217,902 $ 567,460 $ 1,218,363
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 1997, 1996 and 1995. The 1997, 1996 and
1995 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.
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").
-17-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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) New Pronouncements
-18-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings per Share" establishes
standards for computing and presenting earnings per share. Statement No. 129,
"Disclosure of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure. The adoption of
these standards in 1997 has not materially affected the Company's reported
operating results, per share amounts, financial position or cash flows.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, were
issued. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a financial statement that is
displayed with the same prominence as other financial statements.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. The statement also requires the accumulated
balance of other comprehensive income to be displayed separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position.
SFAS No. 131 establishes standards for reporting information about operating
segments in annual and interim financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Categories required to be reported as well as reconciled to the
financial statements are segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 130 and No. 131 are effective for
fiscal years beginning after December 15, 1997.
Both SFAS No. 130 and 131 are disclosure related only and therefore will have no
impact on the Company's financial position or results of operations.
-19-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 and 1995
(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, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Amounts Advanced
---------------------------------------------------------------------------
No. of
Apart Date of Final Total Investments Investments
Property/ -ment Invest- Maturity Mortgage Amounts in Loans at in Loans at
Location Units ment Date Loans Equity Loans Advanced 12/31/97 (F) 12/31/96 (F)
- - -------- ----- ---- ---- ----- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortenson 104 8/90 8/30 $ 4,974,090 $ 577,885 $ 5,551,975 $ 5,009,020 $ 5,095,655
Manor
Apts./
Ames, IA
Windemere 204 9/90 9/30 8,110,300 736,550 8,846,850 8,222,672 8,325,535
Apts./
Wichita, KS
Fieldcrest III 112 8/91 8/31 3,343,700 383,300 3,727,000 3,467,130 3,513,361
Apts./
Dothan, AL
Holly Ridge II 144 3/93 3/33 5,310,100 684,400 5,994,500 5,656,344 5,734,738
Apts./
Gresham, OR
Willow Trace 152 6/93 6/28 4,420,000 680,000 5,100,000 4,730,327 4,816,161
Apts./
Tuscaloosa, AL
----------------------------------------------------------------------------
Total $26,158,190 $ 3,062,135 $29,220,325 $27,085,493 $27,485,450
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Interest earned by the Partnership during 1997
---------------------------------------------------------------------------------------
Non-contingent Contingent
--------------------------------------- -------------------------------------------
Cash Flow
Default Annual Partici-
Construc Base Interest Yield pation Total
Property/ tion Interest Amount/ Amount/ Amount/ Interest
Location Rate (A) Rate (B) Rate (C) Rate (D) Rate (E) Earned
- - --------- ------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortenson 13.00% $ 305,352 $ 96,079 $ 0 $ 0 $ 401,431
Manor 6.45% 1.98% 0.97% 30.00%
Apts./
Ames, IA
Windemere 13.00% 630,847 128,725 0 0 759,572
Apts./ 7.95% 1.60% 1.09% 30.00%
Wichita, KS
Fieldcrest III 10.18% 285,277 2,333 45,630 6,690 339,930
Apts./ 8.68% 0.07% 1.36% 30.00%
Dothan, AL
Holly Ridge II 10.25% 426,982 87,381 N/A 11,704 526,067
Apts./ 8.125% 1.64% 25.00%
Gresham, OR
Willow Trace N/A 358,663 56,395 N/A 29,215 444,273
Apts./ 8.37% 1.287% 30.00%
Tuscaloosa, AL
--------------------------------------------------------------------------------------
Total $ 2,007,121 $ 370,913 $ 45,630 $ 47,609 $ 2,471,273
======================================================================================
</TABLE>
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(A) The Partnership did not receive any construction interest during 1997, as
construction was completed prior to 1997 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, Willow Trace and Holly Ridge provided sufficient cash flow in 1996
to pay the Partnership a participation during 1997.
(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 $25,508,832
and $1,576,661 at December 31, 1997 and $25,651,993 and $1,833,457,
respectively, at December 31, 1996.
1997 1996
------------ ------------
Investment in loans January 1, $ 27,485,450 $ 27,874,623
Additions:
Fieldcrest III discount amortization 1,452 1,452
------------ ------------
1,452 1,452
------------ ------------
Deductions:
Amortization of equity loans (256,796) (256,796)
Collection of principal -Mortenson (38,478) (36,080)
-Windemere (41,485) (38,298)
-Fieldcrest III (14,123) (12,944)
-Holly Ridge (21,360) (19,674)
-Willow Trace (29,167) (26,833)
------------ ------------
(401,409) (390,625)
Investment in loans December 31, $ 27,085,493 $ 27,485,450
============ ============
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.
-21-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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, 1997, 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 $96,000, $85,000 and $98,000 for
the years ended December 31, 1997, 1996 and 1995, 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
$538,217 and $442,000 at December 31, 1997 and 1996, respectively.
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 1997 and 1996 of approximately $96,000 and
$97,000, respectively, has been accrued.
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31, 1997,
1996 and 1995 were as follows:
1997 1996 1995
-------- -------- --------
Partnership management fees (a) $153,065 $153,065 $153,065
Expense reimbursement (b) 63,143 84,444 59,268
-------- -------- --------
$216,208 $237,509 $212,333
======== ======== ========
(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, 1997, 1996 and 1995,
payments of $114,799, $267,864 and $65,668 were made, respectively. The
remaining balance of the 1995 fee of $114,799 was paid during January 1996. As
of December 31, 1997 and 1996, a balance of $305,822 and $267,556, 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
-22-
<PAGE>
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, 1997, 1996 and 1995, payments of $1,062,
$138,849 and $58,032 were made, respectively, relating to these costs. As of
December 31, 1997 and 1996, the General Partner and its affiliates were due
$94,476 and $30,271, 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
is 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.
Considerable judgment 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
At December 31, 1997, the estimated carrying value of the mortgage loans
approximated fair value. The estimated fair values at December 31, 1997 were
based on internal valuations of the five properties collateralizing these loans.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument which sets
forth the terms of a loan. This estimate is subjective in nature and involves
uncertainties and matters of significant judgment. Changes in assumptions could
significantly affect estimates. Due to the property-specific nature of the loans
and the lack of a ready market for such investments, this fair value estimate
does not necessarily represent the amount which the Partnership could realize
upon a current sale of its investments.
-23-
<PAGE>
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 6 - Subsequent Events
On February 12, 1998, a distribution of $648,164 and $13,228 was paid to BAC
holders and the General Partner, respectively, representing the 1997 fourth
quarter distributions.
-24-
<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, 53, 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.
-25-
<PAGE>
STEPHEN M. ROSS, 57, 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, 41, 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, 43, 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, 37, 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, 42, 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.
-26-
<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, 1998, 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, 1998, 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.
-27-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C> <C>
(a) 1. Financial Statements
Independent Auditors' Report 12
Statements of Financial Condition as of December 31, 1997 and 1996 13
Statements of Income for the years ended December 31, 1997, 1996 and
1995 14
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1997, 1996 and 1995 15
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995 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>
-28-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C> <C>
(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>
-29-
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C> <C>
(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) 35
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 36
(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.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL MORTGAGE PLUS L.P.
(Registrant)
By: CIP ASSOCIATES, INC.
General Partner
Date: By: ________________________________
J. Michael Fried
President and Director
(Principal Executive Officer)
<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:
Signature Title Date
--------- ----- ----
President (principal executive officer)
_____________________ and Director of CIP Associates, Inc.
J. Michael Fried (a General Partner of the Registrant)
Senior Vice President (principal
_____________________ financial officer) of CIP Associates, Inc.
Alan P. Hirmes (a General Partner of the Registrant)
Treasurer (principal accounting
_____________________ officer) of CIP Associates, Inc.
Richard A. Palermo (a General Partner of the Registrant)
_____________________ Director of CIP Associates, Inc.
Stephen M. Ross (a General Partner of the Registrant)
<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 30, 1998 By: /s/ J. Michael Fried
--------------------------------
J. Michael Fried
President and Director
(Principal Executive Officer)
<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:
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Michael Fried President (principal executive officer)
- - ------------------------ and Director of CIP Associates, Inc.
J. Michael Fried (a General Partner of the Registrant) March 30, 1998
/s/ Alan P. Hirmes Senior Vice President (principal
- - ------------------------ financial officer) of CIP Associates, Inc.
Alan P. Hirmes (a General Partner of the Registrant) March 30, 1998
/s/ Richard A. Palermo Treasurer (principal accounting
- - ------------------------ officer) of CIP Associates, Inc.
Richard A. Palermo (a General Partner of the Registrant) March 30, 1998
/s/ Stephen M. Ross Director of CIP Associates, Inc.
- - ------------------------ (a General Partner of the Registrant) March 30, 1998
Stephen M. Ross
</TABLE>
<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> Capital Mortgage Plus L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 217,902
<SECURITIES> 0
<RECEIVABLES> 27,528,760
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 850,855
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,597,517
<CURRENT-LIABILITIES> 446,744
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,150,773
<TOTAL-LIABILITY-AND-EQUITY> 28,597,517
<SALES> 0
<TOTAL-REVENUES> 2,488,183
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 680,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,807,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,807,308
<EPS-PRIMARY> .96
<EPS-DILUTED> 0
</TABLE>
WINDEMERE DEVELOPMENT, INC.
Table of Contents
December 31, 1997 and 1996
Page
Number
------
Certificate of Completeness 1
Independent Auditors' Report 2
Independent Auditors' Report on Internal Control 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 Fair Housing and Non-Discrimination 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
Supplementatry Information:
Statement of Pofit 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
Schedule of Findings and Questioned Costs 25
Other HUD Schedules 26
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Certificate of Completeness
HUD Project No. 102-36628
December 31, 1997 and 1996
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 3-10-98
- - ---------------------------------- ---------------
Management Agent, Date
Jerry A. Gaddis, President
Gaddis Properties, Inc.
/S/ JERRY A. GADDIS 3-10-98
- - ---------------------------------- ---------------
Jerry A. Gaddis, President Date
Windemere Development, Inc.
48-0782170
-1-
<PAGE>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
417 North Topeka Avenue
P.O. Box 1260
Wichita, Kansas 67201-1259 MEMBER OF THE
MARVIN W. NYE, C.P.A. TELEPHONE 316-262-8371 AMERICAN INSTITUTE OF
RODNEY E. PETERSON, C.P.A. FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
GREGORY B. SEVIER, C.P.A. Email [email protected]
JOHN B. GOSS, C.P.A.
----------
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
Consultants
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, 1997 and 1996, 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, 1997 and 1996, 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 16, 1998, on our
consideration of Windemere Development, Inc.'s internal control structure and
reports dated February 16, 1998 on its compliance with specific requirements
applicable to major HUD programs and specific requirements applicable to Fair
Housing and Non-Discrimination.
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 16, 1998
-2-
<PAGE>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
417 North Topeka Avenue
P.O. Box 1260
Wichita, Kansas 67201-1259 MEMBER OF THE
MARVIN W. NYE, C.P.A. TELEPHONE 316-262-8371 AMERICAN INSTITUTE OF
RODNEY E. PETERSON, C.P.A. FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
GREGORY B. SEVIER, C.P.A. Email [email protected]
JOHN B. GOSS, C.P.A.
----------
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
Consultants
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
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, 1997, and have issued our report thereon
dated February 16, 1998. 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 16, 1998.
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.
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 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.
-3-
<PAGE>
In planning and performing our audit for the year ended December 31, 1997,
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.
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.
Accordingly, we do not express such an opinion.
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 HUD-assisted
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 noted the following matters involving internal control and its
operation that we consider to be material weaknesses as defined above. These
-4-
<PAGE>
conditions were considered in determining the nature, timing, and extent of the
procedures to be performed in our audits of the financial statements of
Windemere Development, Inc. and of its compliance with requirements applicable
to its major programs for the year ended December 31, 1997, and this report does
not affect our reports thereon dated February 16, 1998.
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 16, 1998
-5-
<PAGE>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
417 North Topeka Avenue
P.O. Box 1260
Wichita, Kansas 67201-1259 MEMBER OF THE
MARVIN W. NYE, C.P.A. TELEPHONE 316-262-8371 AMERICAN INSTITUTE OF
RODNEY E. PETERSON, C.P.A. FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
GREGORY B. SEVIER, C.P.A. Email [email protected]
JOHN B. GOSS, C.P.A.
----------
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
Consultants
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, 1997, and have issued our report thereon
dated February 16, 1998.
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, 1997.
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, 1997.
-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 16, 1998
-7-
<PAGE>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
417 North Topeka Avenue
P.O. Box 1260
Wichita, Kansas 67201-1259 MEMBER OF THE
MARVIN W. NYE, C.P.A. TELEPHONE 316-262-8371 AMERICAN INSTITUTE OF
RODNEY E. PETERSON, C.P.A. FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
GREGORY B. SEVIER, C.P.A. Email [email protected]
JOHN B. GOSS, C.P.A.
----------
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
Consultants
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS
APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION
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, 1997, and have issued our report thereon
dated February 16, 1998.
We have also applied procedures to test Windemere Development, Inc.'s
compliance with the Fair Housing and Non-Discrimination requirements applicable
to its HUD assisted programs, for the year ended December 31, 1997.
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 Fair Housing and
Non-Discrimination 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 16, 1998
-8-
<PAGE>
WINDMERE DEVELOPMENT, INC.
Balance Sheet
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Petty cash (1110) $ 100 $ 100
Cash in bank and interest-bearing deposits (1120) 112,143 56,265
Rent receivable (1130) -- 1,220
Accounts receivable, related party (1140) 4,348 2,459
----------- -----------
Total current assets 116,591 60,044
Deposits held in trust - funded:
Tenant security deposits - Note 3(1191) 44,695 48,281
Restricted deposits and funded reserves:
Mortgagee escrow deposits - Note 2 (1310) 66,022 59,769
Reserve for replacements - Note 4(1320) 47,484 110,507
----------- -----------
Total deposits 113,506 170,276
Fixed assets-Note 5
Land and special assessments 1410) 727,549 718,633
Buildings and improvements (1420) 7,780,984 7,744,800
Furniture and equipment (1450) 62,127 57,814
----------- -----------
8,570,660 8,52 1,247
Less accumulated depreciation 1,143,527 940,709
----------- -----------
Total fixed assets 7,427,133 7,580,538
Other assets:
Loan costs, net of aniortization of $79,377
and $62,857 564,866 581,385
----------- -----------
Total $ 8,266,791 $ 8,440,524
=========== ===========
See notes to financial statements
<CAPTION>
Liabilities and Stockholders Equity
1997 1996
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable, trade (2110) $ 5,051 $ 6,505
Accrued management fee (2190) 21,524 13,173
Accrued interest payable - Note 5(2130) 246,716 184,104
Accrued real estate taxes - Note 6 (2150) 50,825 51,531
Accrued mortgage insurance (2190) 29,691 29,846
Mortgage payable, current portion (2320) 44,937 41,485
Rent deferred credits (2210) 6,445 500
----------- -----------
Total current liabilities 405,189 327,144
Deposit liabilities:
Tenant security deposits - Note 3(2191) 44,277 36,000
Long-term liabilities - Note 5:
Mortgage payable (2320) 7,915,895 7,957,379
Less current portion 44,937 41,485
----------- -----------
Total long-term liabilities 7,870,958 7,915,894
Stockholders equity (deficit):
Common stock, authorized 1,000 shares;
issued - 1,000 shares 1,000 1,000
Additional paid-in capital 736,650 736,650
Retained deficit (791,283) (576,164)
----------- -----------
Total stockholders equity (deficit) (3130) (53,633) 161,486
----------- -----------
Total $ 8,266,791 $ 8,440,524
=========== ===========
</TABLE>
-9-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Income
Years Ended December 31, 1997 and 1996
1997 1996
----------- -----------
Operating income:
Rental $ 1,455,851 $ 1,358,839
Operating expenses:
Interest 763,208 769,333
Mortgage insurance 59,227 54,555
Bank charges 146 361
Property taxes 93,151 95,980
Insurance 27,454 23,334
Equipment leasing - Note 7 14,499 19,407
Management fees 87,351 81,419
Salaries and wages 88,002 64,524
Contract labor -- 2,668
Payroll taxes 5,586 4,817
Utilities 72,092 67,944
Professional fees 10,365 10,963
Repairs and maintenance 188,659 123,219
Advertising 12,754 15,509
Office supplies and postage 9,472 7,526
Donation 400 --
Miscellaeous 13,998 12,039
Depreciation and amortization 219,337 219,538
----------- -----------
Total operating expenses 1,665,701 1,573,136
----------- -----------
Loss from operations (209,850) (214,297)
Other income:
Interest 6,400 6,969
----------- -----------
Net Loss $ (203,450) $ (207,328)
=========== ===========
See notes to financial statements.
-10-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1,000 $ 736,650 $(360,690) $ 376,960
Net loss (207,328) (207,328)
Distributions (8,146) (8,146)
--------- --------- --------- ---------
Balance at December 3l, 1996 1,000 736,650 (576,164) 161,486
Net loss (203,450) (222,385)
Distributions (11,669) (11,669)
--------- --------- --------- ---------
Balance at December 31, 1997 $ 1,000 $ 736,560 $(791,283) $ (72,568)
========= ========= ========= =========
</TABLE>
See notes to financial statements.
-11-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Rental receipts $ 1,463,016 $ 1,356,994
Interest receipts 6,400 6,969
----------- -----------
1,469,416 1,363,963
Administrative (47,720) (47,128)
Management fees (81,500) (68,247)
Utilities (72,239) (73,289)
Salaries and wages (88,002) (64,752)
Operating and maintenance (203,305) (135,996)
Real estate taxes and escrow deposits (99,638) (88,695)
Property insurance (27,454) (23,334)
Miscellaneous taxes and insurance (6,021) (5,007)
Tenant security and other deposits 11,863 (475)
Interest on mortgage (700,597) (705,315)
Mortgage insurance premium (59,382) (59,692)
----------- -----------
(1,373,995) (1,271,930)
----------- -----------
Net cash provided by operating activities 95,421 92,033
Cash flows from investing activities:
Purchase of furnishings and equipment (49,413) (22,644)
Deposits into reserve for replacement (32,925) (33,970)
Transfer to cash escrow 95,948 22,070
----------- -----------
Net cash provided by (used in)
investing activities 13,610 (34,544)
Cash flows from financing activities:
Mortgage principal payments (41,484) (38,298)
Distribution to stockholder (11,669) (8,146)
----------- -----------
Net cash used in financing activities (53,153) (46,444)
----------- -----------
Net increase in cash and cash equivalents 55,878 11,045
Cash and cash equivalents, beginning of year 56,365 45,320
----------- -----------
Cash and cash equivalents, end of year $ 112,243 $ 56,365
=========== ===========
</TABLE>
-12-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(203,450) $(207,328)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 219,337 219,538
Decrease in rent receivable 1,220 181
Increase in accounts receivable, related party (1,889) --
(Increase) decrease in cash restricted for tenant
security deposits 3,586 (2,200)
Increase in mortgagee escrow deposits (6,253) (1,696)
Increase (decrease) in accounts payable (1,454) 3,463
Increase in accrued liabilities 70,102 80,376
Increase in tenant security deposits 8,277 1,725
Increase (decrease) in deferred revenue 5,945 (2,026)
--------- ---------
Net cash provided by operating activities $ 95,421 $ 92,033
========= =========
</TABLE>
See notes to financial statements.
-13-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1997 and 1996
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, INC.
Notes to Financial Statements
December 31, 1997 and 1996
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
expense as incurred. Advertising expense was $12,754 and $15,509 for the
years ended December 31, 1997 and 1996, respectively.
2. Restricted Deposits and Funded Reserves
The Company has deposited with the lender the following amounts:
Mortgagee escrow deposits 1997 1996
------------------------- ------- -------
Mortgage and Property Insurance,
Real estate taxes and special assessments $66,022 $59,769
======= =======
An evaluation of the adequacy of certain escrow's is as follows:
Estimated amount required as of December 31, 1997 for future payment
of:
1997 1996
------- -------
Property insurance $22,501 $21,316
Mortgage insurance 29,691 29,846
------- -------
52,192 51,162
Total confirmed by mortgagee 66,022 59,769
------- -------
Amount on deposit in excess of
estimated requirements $13,830 $ 8,607
======= =======
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 $418 in excess of the
deposits held for tenants.
-15-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1997 and 1996
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:
1997 1996
--------- ---------
Balance at beginning of year $ 110,507 $ 98,607
Monthly deposits 30,031 30,031
Transfer (95,948) (22,070)
--------- ---------
44,590 106,568
Interest earned 2,894 3,939
--------- ---------
Balance confirmed by mortgagee $ 47,484 $ 110,507
========= =========
5. Long-Term Liabilities
Long-term debt at December 31, 1997 and 1996 consisted of the
following obligations:
1997 1996
--------- ---------
Mortgage loan payable in
monthly installments 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, 1997 and
1996 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. $7,915,895 $7,957,379
Less current portion 44,937 41,485
---------- ----------
$7,870,958 $7,915,894
========== ==========
-16-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1997 and 1996
5. Long-Term Liabilities (continued)
Maturities of debt are as follows:
1997 1996
---------- ----------
1997 $ -- $ 41,485
1998 44,937 44,937
1999 48,676 48,676
2000 52,727 52,727
2001 57,114 57,114
2002 61,867 --
Later years 7,650,574 7,712,440
---------- ----------
$7,915,895 $7,957,379
========== ==========
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 1997 consist of the
following:
Description Basis for Period Amount
of Tax Accrual Covered Due Date Accrued
---------- ------------ ------------ -------- --------
Real estate Second-half January 1 June 21, $50,825
taxes and due for 1998 to Decem- 1998
special ber 31, 1997
assessments
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 1997 were $87,351.
The following summarizes other related party transactions for 1997:
Related Party Classification Amount
------------- -------------- ---------
C.G. Interiors, Inc. Equipment lease $ 12,877
Maintenance 1,997
Landscaping 1,392
---------
16,266
-17-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1997 and 1996
7. Related Party Transactions (continued)
Carolyn Gaddis Salaries and wages 19,000
Brian Gaddis Salaries and wages 18,650
---------
Total $ 53,916
=========
-18-
<PAGE>
Profit and Loss Office of Housing
Federal Housing Commissioner
OMB Approval 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
Office, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600 and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
- - --------------------------------------------------------------------------------
For Month Period Project Number: Project Name:
Beginning: Ending:
1-1-97 12-31-97 102-36628 Windemere Development, Inc.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No. Amount
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $1,643,640
-------------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121
-------------------------------------------------------------------------------------------------------
Furniture and Equipment 5130
Rental -------------------------------------------------------------------------------------------------------
Income Stores and Commercial 5140
5100 -------------------------------------------------------------------------------------------------------
Garage and Parking Spaces 5170
-------------------------------------------------------------------------------------------------------
Flexible Subsidy Income 5180
-------------------------------------------------------------------------------------------------------
Miscellaneous (specify) 5190
-------------------------------------------------------------------------------------------------------
Total Rent Revenue Potential at 100% Occupancy $ 1,643,640
- - ---------------------------------------------------------------------------------------------------------------------------
Apartments 5220 (187,789)
-------------------------------------------------------------------------------------------------------
Furniture and Equipment 5230
-------------------------------------------------------------------------------------------------------
Stores and Commercial 5240
Vacancies -------------------------------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270
-------------------------------------------------------------------------------------------------------
Miscellaneous (specify) 5290
-------------------------------------------------------------------------------------------------------
Total Vacancies (187,789)
-------------------------------------------------------------------------------------------------------
Net Rental Revenue Rent Revenue Less Vacancies $1,455,851
- - ---------------------------------------------------------------------------------------------------------------------------
Elderly and Congregate Services Income -- 5300
-------------------------------------------------------------------------------------------------------
Total Service Income (Schedule Attached) 5300
- - ---------------------------------------------------------------------------------------------------------------------------
Interest Income -- Project Operations 5410
-------------------------------------------------------------------------------------------------------
Income from Investments -- Residual Receipts 5430
Financial -------------------------------------------------------------------------------------------------------
Revenue Income from Investments -- Reserve for Replacement 5440 $ 2,893
5400 -------------------------------------------------------------------------------------------------------
Income from Investments -- Miscellaneous 5490 $ 3,507
-------------------------------------------------------------------------------------------------------
Total Financial Revenue $ 6,400
- - ---------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910
-------------------------------------------------------------------------------------------------------
NSF and Late Charges 5920
-------------------------------------------------------------------------------------------------------
Damages and Cleaning Fees 5930
Other -------------------------------------------------------------------------------------------------------
Revenue Forfeited Tenant Security Deposits 5940
5900 -------------------------------------------------------------------------------------------------------
Other Revenue (specify) 5990
-------------------------------------------------------------------------------------------------------
Total Other Revenue
-------------------------------------------------------------------------------------------------------
Total Revenue $ 1,462,251
- - ---------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 12,754
-------------------------------------------------------------------------------------------------------
Other Administrative Expense 6250
-------------------------------------------------------------------------------------------------------
Office Salaries 6310 $ 71,851
-------------------------------------------------------------------------------------------------------
Office Supplies 6311 $ 9,472
-------------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312
-------------------------------------------------------------------------------------------------------
Management 6320 $ 87,351
-------------------------------------------------------------------------------------------------------
Administrative Manager or Superintendent Salaries 6330
Expenses -------------------------------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331
-------------------------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 4,262
-------------------------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,250
-------------------------------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $ 8,543
-------------------------------------------------------------------------------------------------------
Telephone and Answering Service 6360 $ 13,369
-------------------------------------------------------------------------------------------------------
Bad Debts 6370
-------------------------------------------------------------------------------------------------------
Miscellaneous Administrative Expenses (specify) 6390 $ 11,026
-------------------------------------------------------------------------------------------------------
Total Administrative Expenses $ 223,878
- - ---------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $ 4,383
-------------------------------------------------------------------------------------------------------
Utilities Electricity (Light and Misc. Power) 6450 $ 15,878
Expenses -------------------------------------------------------------------------------------------------------
6400 Water 6451 $ 26,044
-------------------------------------------------------------------------------------------------------
Gas 6452 $ 1,833
-------------------------------------------------------------------------------------------------------
Sewer 6453
-------------------------------------------------------------------------------------------------------
Total Utilities Expenses $ 48,138
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*All amounts must be rounded to the nearest dollar; form HUD-92410 (7/91)
$.50 and over, round up -- $.49 and below, round down. ref Handbook 4370 2
Page 1 of 2
-19-
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No. Amount
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Janitor and Cleaning Supplies 6515 $ 31,353
-------------------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 6,024
-------------------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519
-------------------------------------------------------------------------------------------------------
Exterminating Supplies 6520 $ 33
-------------------------------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 9,745
-------------------------------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 1,622
-------------------------------------------------------------------------------------------------------
Grounds Payroll 6535 $ 16,151
-------------------------------------------------------------------------------------------------------
Grounds Supplies 6536 $ 9,268
-------------------------------------------------------------------------------------------------------
Grounds Contract 6537 $ 17,476
Operating and -------------------------------------------------------------------------------------------------------
Maintenance Repairs Payroll 6540
Expenses -------------------------------------------------------------------------------------------------------
6500 Repairs Material 6541 $ 52,407
-------------------------------------------------------------------------------------------------------
Repairs Contract 6542 $ 71,854
-------------------------------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545
-------------------------------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546
-------------------------------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 3,868
-------------------------------------------------------------------------------------------------------
Snow Removal 6548 $ 655
-------------------------------------------------------------------------------------------------------
Decorating Payroll/Contract 6560
-------------------------------------------------------------------------------------------------------
Decorating Supplies 6561 $ 58
-------------------------------------------------------------------------------------------------------
Other 6570 $ 2,334
-------------------------------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 1,895
-------------------------------------------------------------------------------------------------------
Total Operating and Maintenance Expenses $ 224,743
- - ---------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 92,716
-------------------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 5,585
-------------------------------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 1,270
-------------------------------------------------------------------------------------------------------
Taxes Property and Liability Insurance (Hazard) 6720 $ 27,036
and -------------------------------------------------------------------------------------------------------
Insurance Fidelity Bond Insurance 6721
6700 -------------------------------------------------------------------------------------------------------
Workmen's Compensation 6722 $ 114
-------------------------------------------------------------------------------------------------------
Health Insurance and Other Employee Benefits 6723 $ 304
-------------------------------------------------------------------------------------------------------
Other Insurance (specify) 6729
-------------------------------------------------------------------------------------------------------
Total Taxes and Insurance $ 127,025
- - ---------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810
-------------------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 763,208
-------------------------------------------------------------------------------------------------------
Financial Interest on Notes Payable (Long-Term) 6830
Expenses -------------------------------------------------------------------------------------------------------
6800 Interest on Notes Payable (Short-Term) 6840
-------------------------------------------------------------------------------------------------------
Mortgage Insurance Premium/Service Charge 6850 $ 59,226
-------------------------------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890 $ 146
-------------------------------------------------------------------------------------------------------
Total Financial Expenses $ 822,580
- - ---------------------------------------------------------------------------------------------------------------------------
Total Service Expenses -- Schedule Attached 6900
-------------------------------------------------------------------------------------------------------
Elderly & Total Cost of Operations Before Depreciation $(1,446,364)
Congregate -------------------------------------------------------------------------------------------------------
Service Profit (Loss) Before Depreciation $ 15,887
Expenses -------------------------------------------------------------------------------------------------------
7100 Depreciation (Total) -- 660 (specify) 6600 $ 219,337
-------------------------------------------------------------------------------------------------------
Operating Profit or (Loss) $ (203,450)
- - ---------------------------------------------------------------------------------------------------------------------------
Officer Salaries 7100
-------------------------------------------------------------------------------------------------------
Corporate or Legal Expenses (Entity) 7120
Mortgagor -------------------------------------------------------------------------------------------------------
Entity Taxes (Federal-State-Entity) 7130-32
Expenses -------------------------------------------------------------------------------------------------------
7100 Other Expenses (Entity) 7190
-------------------------------------------------------------------------------------------------------
Total Corporate Expenses
-------------------------------------------------------------------------------------------------------
Net Profit or (Loss) $ (203,450)
- - ---------------------------------------------------------------------------------------------------------------------------
</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, 5890, and 7190) exceed the Account Grouping 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. $ 44,937
- - ---------------------------------------------------------------------------------------------------------------------------
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 releases which are included as expense
items on this Profit and Loss statement.
- - ---------------------------------------------------------------------------------------------------------------------------
4. Project improvement Reserve Releases under the Flexible Subsidy Program
that are included as expense items on this Profit and Loss Statement.
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
form HUD-92410 (7/91)
ref Handbook 4370 2
Page 2 of 2
-20-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Profit and Loss
Form HUD-92410
December31, 1997
Miscellaneous Account Detail
Income from investments - 5490:
Related Mortgage Corp. -
Yield Maintenance Escrow $ 1,065
Southwest Securities, Inc.-
Tenant Security Deposits 2,414
Intrust Bank -
Business Maximizer Account 28
---------
$ 3,507
=========
Miscellaneous Administrative Expense - 6390:
Leasing - furniture $ 11,976
Miscellaneous fee 90
Credit application fee 145
Donation 400
Miscellaneous (1,585)
---------
$ 11,026
=========
Depreciation - 6600:
Depreciation - buildings and improvements $ 195,772
Depreciation - furniture and equipment 7,046
Amortization of loan costs 16,519
---------
$ 219,337
=========
See notes to financial statements
-21-
<PAGE>
<TABLE>
<CAPTION>
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
HOUSING - FEDERAL HOUSING COMMISSIONER
OFFICE OF MULTIFAMILY HOUSING MANAGEMENT AND OCCUPANCY
COMPUTATION OF SURPLUS CASH, DISTRIBUTION AND
RESIDUAL RECEIPTS
- - -----------------------------------------------------------------------------------------------------------------
PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER
Windmere Development, Inc. 12/31/97 102-36628
- - -----------------------------------------------------------------------------------------------------------------
PART A - COMPUTE SURPLUS CASH
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH 1. Cash (Accounts 1110, 1120, 1191, 1192) $ 156,938
----------------------------------------------------------------------------------------------
2. Tenant subsidy vouchers due for period covered
by financial statement
----------------------------------------------------------------------------------------------
3. Other (described)
----------------------------------------------------------------------------------------------
(a) Total Cash (Add Lines 1, 2, and 3) $ 156,938
- - -----------------------------------------------------------------------------------------------------------------
CURRENT 4. Accrued mortgage interest payable $ 52,180
OBLIGATIONS ----------------------------------------------------------------------------------------------
5. Delinquent mortgage principal payments
----------------------------------------------------------------------------------------------
6. Delinquent deposits to reserve for replacements
----------------------------------------------------------------------------------------------
7. Accounts payable (due within 30 days) $ 5,051
----------------------------------------------------------------------------------------------
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) $ 44,277
----------------------------------------------------------------------------------------------
13. Other (Described)
----------------------------------------------------------------------------------------------
(b) Less Total Current Obligations (Add Lines 4 through 13) $ 101,508
----------------------------------------------------------------------------------------------
(c) Surplus Cash (Deficiency)(Line (a) minus Line (b)) $ 55,430
- - -----------------------------------------------------------------------------------------------------------------
PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS
- - -----------------------------------------------------------------------------------------------------------------
1. Surplus Cash $ 55,430
- - -----------------------------------------------------------------------------------------------------------------
LIMITED 2a. Annual Distribution Earned During Final Period
DIVIDEND Covered by the Statement
PROJECTS ----------------------------------------------------------------------------------------------
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 $ 55,430
- - -----------------------------------------------------------------------------------------------------------------
5. Deposit Due Residual Receipts
(Must be deposited with Mortgage within 60 days after Fiscal Period ends)
- - -----------------------------------------------------------------------------------------------------------------
PREPARED BY REVIEWED BY
- - -----------------------------------------------------------------------------------------------------------------
LOAN TECHNICIAN LOAN SERVICER
- - -----------------------------------------------------------------------------------------------------------------
DATE DATE
- - -----------------------------------------------------------------------------------------------------------------
(See Reverse for Instructions)
</TABLE>
HUD-93486 (12-80)
-22-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Fixed Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Assets
-------------------------------------------------
Balance Balance
January 1, December 31,
1997 Additions Deductions 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Land ..................... $ 684,376 $ -- $ $ 684,376
Special assessments ...... 34,257 8,916 43,173
Buildings and improvements 7,744,800 36,184 7,780,984
Furniture and equipment .. 57,814 4,313 62,127
---------- ---------- ---------- ----------
$8,521,247 $ 49,413 $ -- $8,570,660
========== ========== ========== ==========
<CAPTION>
Accumulated Depreciation
------------------------------------------------- Net
Balance Balance Book Value
January 1, Current December 31, December 31,
1997 Provisions Deductions 1997 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
Land ..................... $ $ $ $ $ 684,376
Special assessments ...... 43,173
Buildings and improvements 915,628 195,772 1,111,400 6,669,584
Furniture and equipment .. 25,081 7,046 32,127 30,000
---------- ---------- ---------- ---------- ----------
$ 940,709 $ 202,818 $ -- $1,143,527 $7,427,133
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements
<PAGE>
WINDMERE DEVELOPEMNT, INC.
Statement of Receipts and Disbursements
HUD Project No. 102-36628
Windemere Apartments
Year Ended December 31, 1997
Source of funds:
Operations:
Revenues:
Rental income $ 1,463,016
Interest income 6,400 1,469,416
-----------
Expenses:
Administrative expenses 47,051
Management fees 81,500
Operating expenses 72,239
Payrolls 88,002
Maintenance expenses 203,305
Taxes, real estate 93,385
Taxes, other 6,021
Insurance 27,454
Mortgage insurance premium 59,382
Interest on mortgage loan 700,597 1,378,936
----------- -----------
Cash provided by operations before amortization 90,480
Amortization of mortgage 41,484
-----------
Cash provided by operations after debt service 48,996
Other:
Distribution to shareholder 11,669
-----------
37,327
Application of funds:
Reserve for replacements - expended (63,023)
Tenant security deposits - refunded (3,586)
Increase in taxes and insurance escrow 6,253
Increase in accounts receivable, related party 1,889
Purchase of furnishings and equipment 49,413
Increase in tenant security deposits (8,277)
Decrease in rent receivable (1,220) (18,551)
----------- -----------
Increase in cash 55,878
Unrestricted cash at beginning of year 56,365
-----------
Unrestricted cash at end of year $ 112,243
===========
See notes to financial statements
-24-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Schedule of Findings and Questioned Costs
December 31, 1997
1. Segregation of Duties:
Condition: Receipt of cash, preparation of checks and control over
accounting record reconciliation functions are performed by two people most
of the time.
Criteria: Proper internal controls would have each function performed by a
different individual.
Effect: The effect, although not measurable, is a reduction in the internal
control structure.
Recommendation: As the Company grows and adds additional personnel, we
recommend the separation of the above duties accordingly.
Response: The Company concurs with the recommendation. Such personnel will
be added as the Company grows.
2. Undocumented disbursements:
Condition: Disbursements totaling $6,745 recorded as contract labor for
painting did not have documentation supporting the transactions.
Criteria: Proper documentation of disbursements should be maintained for
all such transactions with the Company maintaining a vendor invoice in
their records.
Recommendation: A vendor invoice be obtained from contract laborers when
possible.
Response: The Company recognized the need to obtain vendor invoices for
contracted laborers however, this is not always possible.
-25-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1997
Schedule of Identity of Interest Firms and Activities:
<TABLE>
<CAPTION>
Company or Person Service Amount
- - ------------------------------------------ ---------------------------- --------------
<S> <C> <C>
Gaddis Properties, Inc. Management $ 87,351
C.G. Interiors, Inc. Equipment lease 12,877
Maintenance 1,997
Landscaping 1,392
--------------
16,266
Carolyn Gaddis Salary 19,000
Brian Gaddis Salary 18,650
Schedule of Accrued Taxes:
See Note 6 to Financial Statements.
Schedule of Unauthorized Distributions of Project Income:
Jerry Gaddis 11,669
Audit Firm:
Peterson, Peterson & Goss, L.C.
P.O. Box 1259
Wichita, KS 67201
48-0542098
John Goss
Schedule of Funds in Financial Institutions:
Funds held by Mortgagor, regular operating account:
Intrust Bank, N.A., checking - confirmed 2-12-98 87,341
Intrust Bank, N.A., money maximizer - confirmed 2-12-98 1,256
--------------
88,597
Funds held by Mortgagor in Trust, Tenant Security Deposit:
Southwest Securities, Inc., money market - confirmed 2-12-98 44,695
--------------
Funds held by mortgagor $133,292
==============
</TABLE>
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<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1997
<TABLE>
<S> <C>
Funds held by Mortgagee, in trust:
Tax, insurance and MIP Escrow $ 66,022
Replacement reserve 47,484
Cash escrow 23,546
--------------
Funds held by mortgagee confirmed by Related Mortgage
Corporation 2-16-98 $137,052
==============
Corrective Action Plan:
The Company did not change any internal control
policies in conjunction with the material weakness.
</TABLE>
See notes to financial statements.
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