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
Amendment No. 1
For the fiscal year ended December 31, 1998
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 infor- mation 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 28
Page 1 of 103
<PAGE>
Item 14. Financial Statements and Supplementary Data.
Page
(a) 1. Financial Statements
WINDEMERE DEVELOPMENT, INC.
Wichita, Kansas
-----------------
Financial Statements
December 31, 1998 and 1997
with
INDEPENDENT AUDITORS' REPORT
-----------------
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
417 N. TOPEKA AVENUE
P.O. BOX 1259
WICHITA, KANSAS, 67201-1259
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Table of Contents
December 31, 1998 and 1997
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 Program 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 11
Statement of Cash Flows 12
Notes to Financial Statements 14
Supplementary Information
Statement of Profit and Loss - HUD-92410 20
Computation of Surplus Cash, Distributions and
Residual Receipts - HUD-93486 21
Statement of Changes in Fixed Assets 22
Statement of Receipts and Disbursements 23
Schedule of Findings and Questioned Costs 24
Other HUD Schedules 25
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Certificate of Completeness
HUD Project No. 102-36628
December 31, 1998 and 1997
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.
- ----------------------------- -------------
Management Agent, Date
Jerry A. Gaddis, President
Gaddis Properties, Inc.
- ----------------------------- -------------
Jerry A. Gaddis, President Date
Windemere Development, Inc.
48-0782170
-1-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
MARVIN W. NYE 417 N. TOPEKA AVENUE
RODNEY E. PETERSON, C.P.A. P.O. BOX 1259
GREGORY B. SEVIER, C.P.A. WICHITA, KANSAS, 67201-1259 MEMBER OF THE
JOHN B. GOSS, C.P.A. TELEPHONE 316-282-8371 AMERICAN INSTITUTE OF
________________ FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
Email [email protected]
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
CONSULTANTS
</TABLE>
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, 1998 and
1997, 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, 1998 and 1997, 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 26, 1999, on
our consideration of Windemere Development, Inc.'s internal control structure
and reports dated February 26, 1999 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 26, 1999
-2-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
MARVIN W. NYE 417 N. TOPEKA AVENUE
RODNEY E. PETERSON, C.P.A. P.O. BOX 1259
GREGORY B. SEVIER, C.P.A. WICHITA, KANSAS, 67201-1259 MEMBER OF THE
JOHN B. GOSS, C.P.A. TELEPHONE 316-282-8371 AMERICAN INSTITUTE OF
________________ FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
Email [email protected]
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
CONSULTANTS
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Windemere Development
Wichita, Kansas
We have audited the accompanying balance sheet of Windemere
Development, Inc. as of and for the year ended December 31, 1998, and have
issued our report thereon dated February 26, 1999. 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
26, 1999.
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 August 1997. 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 authorizations 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,
1998, 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, 1998, and this report does
not affect our reports thereon dated February 26, 1999.
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 26, 1999
-5-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
MARVIN W. NYE 417 N. TOPEKA AVENUE
RODNEY E. PETERSON, C.P.A. P.O. BOX 1259
GREGORY B. SEVIER, C.P.A. WICHITA, KANSAS, 67201-1259 MEMBER OF THE
JOHN B. GOSS, C.P.A. TELEPHONE 316-282-8371 AMERICAN INSTITUTE OF
________________ FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
Email [email protected]
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
CONSULTANTS
</TABLE>
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, 1998, and have issued our report
thereon dated February 26, 1999.
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 Unassisted programs for the year ended December 31, 1998. 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 August, 1997. 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, 1998.
-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 26, 1999
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PETERSON, PETERSON & GOSS, L.C.
CERTIFIED PUBLIC ACCOUNTANTS
MARVIN W. NYE 417 N. TOPEKA AVENUE
RODNEY E. PETERSON, C.P.A. P.O. BOX 1259
GREGORY B. SEVIER, C.P.A. WICHITA, KANSAS, 67201-1259 MEMBER OF THE
JOHN B. GOSS, C.P.A. TELEPHONE 316-282-8371 AMERICAN INSTITUTE OF
________________ FAX 316-262-5369 CERTIFIED PUBLIC ACCOUNTANTS
Email [email protected]
ERNEST A. PETERSON, C.P.A.
MILFORD J. PETERSON, C.P.A.
HORTON E. GOSS, C.P.A.
CONSULTANTS
</TABLE>
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, 1998, and have issued our report
thereon dated February 26, 1999.
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, 1998.
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 August, 1997. 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 26, 1999
-8-
<PAGE>
WINDEMERE DEVELOPMENT. INC.
Balance Sheet
December 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Petty cash (1110) $ 100 $ 100
Cash in bank and interest-bearing deposits (1120) 23,261 112,143
Rent receivable (1130) 1,640 --
Accounts receivable, related party (1140) 4,348 4,348
------------ ------------
Total current assets 29,349 116,591
Deposits held in trust - funded:
Tenant security deposits - Note 3 (1191) 43,313 44,695
Restricted deposits and funded reserves:
Mortgagee escrow deposits - Note 2 (1310) 68,388 66,022
Reserve for replacements - Note 4 (1320) 49,191 47,484
------------ ------------
Total deposits 117,579 113,506
Fixed assets - Note 5:
Land and special assessments (1410) 736,721 727,549
Buildings and improvements (1420) 7,788,022 7,780,984
Furniture and equipment (1450) 72,824 62,127
------------ ------------
8,597,567 8,570,660
Less accumulated depreciation 1,349,425 1,143,527
------------ ------------
Total fixed assets 7,248,142 7,427,133
Other assets:
Loan costs, net of amortization of $112,415
and $95,896 548,347 564,866
------------ ------------
Total $ 7,986,730 $ 8,266,791
============ ============
</TABLE>
See notes to financial statements.
-9-
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable, trade (2110) $ 8,856 $ 5,051
Accrued management fee (2190) 27,741 21,524
Accrued interest payable - Note 5 (2130) 246,058 246,716
Accrued real estate taxes - Note 6 (2150) 52,600 50,825
Accrued mortgage insurance (2190) 29,523 29,691
Mortgage payable, current portion (2320) 48,676 44,937
Rent deferred credits (2210) 15,980 6,445
Other current liabilities 25 --
----------- -----------
Total current liabilities 429,459 405,189
Deposit liabilities:
Tenant security deposits - Note 3 (2191) 37,358 44,277
Long-term liabilities - Note 5:
Mortgage payable (2320) 7,870,958 7,915,895
Less current portion 48,676 44,937
----------- -----------
Total long-term liabilities 7,822,282 7,870,958
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 (1,040,019) (791,283)
----------- -----------
Total stockholders' equity (deficit) (3130) (302,369) (53,633)
----------- -----------
Total $ 7,986,730 $ 8,266,791
=========== ===========
</TABLE>
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Income
Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
Operating income:
Rental $ 1,422,984 $ 1,455,851
Operating expenses:
Interest 760,952 763,208
Mortgage insurance 58,878 59,227
Bank charges 132 146
Property taxes 94,698 93,151
Insurance 33,469 27,454
Equipment leasing - Note 7 10,608 14,499
Management fees 84,767 87,351
Salaries and wages 126,366 88,002
Contract labor 7,500 --
Payroll taxes 9,513 5,586
Utilities 67,360 72,092
Professional fees 10,974 10,365
Repairs and maintenance 126,913 188,659
Advertising 22,780 12,754
Office supplies and postage 3,380 9,472
Donation 600 400
Miscellaneous 11,826 13,998
Meals and entertainment 1,502 --
Depreciation and amortization 222,417 219,337
----------- -----------
Total operating expenses 1,654,635 1,665,701
----------- -----------
Loss from operations (231,651) (209,850)
Other income (expense):
Interest and dividends 4,383 6,400
Gain on sale of assets 1,482 --
Unrealized loss on securities (4,550) --
----------- -----------
Total other income 1,315 6,400
----------- -----------
Net Loss $ (230,336) $ (203,450)
=========== ===========
See notes to financial statements.
-10-
<PAGE>
<TABLE>
<CAPTION>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Stockholders' Equity
Years Ended December 31, 1998 and 1997
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 1,000 $ 736,650 $ (576,164) $ 161,486
Net loss (203,450) (203,450)
Distributions (11,669) (11,669)
------------- ------------ ------------ ----------
Balance at December 31, 1997 $ 1,000 $ 736,650 $ (791,283) $ (53,633)
Net loss (230,336) (230,336)
Distributions (18,400) (18,400)
------------- ------------ ------------ ----------
Balance of December 31, 1998 $ 1,000 $ 736,650 $ (1,040,019) $ (302,369)
============= ============ ============ ==========
</TABLE>
See notes to financial statements.
-11-
<PAGE>
<TABLE>
<CAPTION>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Rental receipts $ 1,420,705 $ 1,463,016
Interest and dividend receipts 4,383 6,400
Capital gain dividends 2,770 --
----------- -----------
1,427,858 1,469,416
Administrative (51,395) (47,720)
Management fees (78,550) (81,500)
Utilities (67,746) (72,239)
Salaries and wages (116,166) (88,002)
Operating and maintenance (140,629) (203,305)
Real estate taxes and escrow deposits (95,002) (99,638)
Property insurance (33,469) (27,454)
Miscellaneous taxes and insurance (9,801) (6,021)
Tenant security and other deposits (10,087) 11,863
Interest on mortgage (761,610) (700,597)
Mortgage insurance premium (59,046) (59,382)
----------- -----------
(1,423,501) (1,373,995)
----------- -----------
Net cash provided by operating activities 4,357 95,421
Cash flows from investing activities:
Purchase of furnishings and equipment (26,907) (49,413)
Deposits into reserve for replacement (32,145) (32,925)
Transfer to cash escrow 30,438 95,948
Proceeds from sale of investments 43,879 --
Purchases of investments (45,167) --
----------- -----------
Net cash provided by (used in) investing activities (29,902) 13,610
Cash flows from financing activities:
Mortgage principal payments (44,937) (41,484)
Distribution to stockholder (18,400) (11,669)
----------- -----------
Net cash used in financing activities (63,337) (53,153)
----------- -----------
Net increase (decrease) in cash and cash equivalents (88,882) 55,878
Cash and cash equivalents, beginning of year 112,243 56,365
----------- -----------
Cash and cash equivalents, end of year $ 23,361 $ 112,243
=========== ===========
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
WINDEMERE DEVELOPMENT, INC.
Statement of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(230,336) $(203,450)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 222,417 219,337
Loss on sale of securities 1,288 --
Unrealized loss on securities 4,550 --
(Increase) decrease in rent receivable (1,640) 1,220
Increase in accounts receivable, related party -- (1,889)
(Increase) decrease in cash restricted for tenant
security deposits (3,168) 3,586
Increase in mortgagee escrow deposits (2,366) (6,253)
Increase (decrease) in accounts payable 3,805 (1,454)
Increase in accrued liabilities 7,191 70,102
Increase (decrease) in tenant security deposits (6,919) 8,277
Increase in deferred revenue 9,535 5,945
--------- ---------
Net cash provided by operating activities $ 4,357 $ 95,421
========= =========
</TABLE>
See notes to financial statements
-13-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1998 and 1997
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, 1998 and 1997
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 $17,152 and $12,754 for the
years ended December 3 1, 1998 and 1997, respectively.
2. Restricted Deposits and Funded Reserves
<TABLE>
<CAPTION>
The Company has deposited with the lender the following amounts:
Mortgagee escrow deposits 1998 1997
------------------------------------------------- ------------- -------------
Mortgage and Property Insurance,
<S> <C> <C>
Real estate taxes and special assessments $ 68,388 $ 66,022
============= =============
An evaluation of the adequacy of certain escrow's is as follows:
Estimated amount required as of December 31, 1998 for future payment
of:
1998 1997
------------- -------------
Property insurance $ 20,547 $ 22,501
Mortgage insurance 29,523 29,691
------------- -------------
50,070 52,192
Total confirmed by mortgagee 68,388 66,022
------------- -------------
Amount on deposit in excess of estimated
requirements $ 18,318 $ 13,830
============= =============
</TABLE>
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 $5,955 in excess of the
deposits held for tenants. The account consists of two mutual funds and has
been adjusted to market value at December 31, 1998. The cost basis of the
investments at December 31, 1998 was $47,863.
-15-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1998 and 1997
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:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Balance at beginning of year $47,484 $ 110,507
Monthly deposits 30,031 30,031
Transfer (30,438) (95,948)
------------- -------------
47,077 44,590
Interest earned 2,114 2,894
------------- -------------
Balance confirmed by mortgagee $49,191 $ 47,484
============= =============
5. Long-Term Liabilities
Long-term debt at December 31, 1998 and 1997 consisted of the
following obligations:
1998 1997
------------- -------------
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 3 1, 1998 and 1997
were $128,022 and 128,725 respectively (at
1.60%) and are included in accrued interest
payable.
<S> <C> <C>
The subordinated promissory note is secured
by a second mortgage on the land and
buildings. $ 7,870,958 $ 7,915,895
Less current portion 48,676 44,937
------------- -------------
$ 7,822,282 $ 7,870,958
============= =============
</TABLE>
-16-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 1998 and 1997
5. Long-Term Liabilities (continued)
Maturities of debt are as follows:
1998 1997
----------------- -----------------
1998 $ -- $ 44,937
1999 48,676 48,676
2000 52,727 52,727
2001 57,114 57,114
2002 61,867 61,867
2003 67,015 --
Later years 7,583,559 7,650,574
----------------- -----------------
$ 7,870,958 $ 7,915,895
================= =================
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 1998 consist of the
following:
Description of Basis for Period Amount
Tax Accrual Covered Due Date Accrued
-------------- --------- ------- ----------- -------
Real estate Second-half January 1 to June 20, 1999 $52,600
taxes and due for 1998 December 31, 1998
special
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 1998 were $84,767.
The following summarizes other related party transactions for 1998:
Related Party Classification Amount
------------- -------------- ------
C.G. Interiors, Inc. Equipment lease $ 10,503
Carolyn Gaddis Salaries and wages 21,500
Brian Gaddis Salaries and wages 32,500
Craig Gaddis Contract labor 5,000
Doug Gaddis Contract labor 1,000
Brian Gaddis Contract labor 1,500
--------------
Total $ 72,003
==============
-17-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Statement of U.S. DEPARTMENT OF HOUSING AND URBAN OMB Approval No. 2502-0052 (Exp. 9/30/98)
Profit and Loss DEVELOPMENT
Office of Housing
Federal Housing Commissioner
Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintain 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 the burden, to the Reports Management Officer, Paperwork Reduction Project (2502-0052). Office of
Information Technology, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600. This agency may not collect
the information, and you are not required to complete this form, unless it displays a currently valid OMD control number.
DO NOT SEND THIS FORM TO THE ABOVE ADDRESS.
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1-01-98 Ending: 12-31-98 102-36628 Windemere Development, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Part 1 Description of Account Acct. No. Amount*
- ------------------------------------------------------------------------------------------------------------------------------------
Apartments or Member Carrying Charts (Coops) 5120 $ 1,546,963
--------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $
--------------------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $
--------------------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------------------
Miscellaneous (Specify) 5190 $
-------------------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 1,546,963
- ------------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $ ( 123,979 )
--------------------------------------------------------------------------------------------
Furniture and Equipment 5230 $ ( )
--------------------------------------------------------------------------------------------
VACANCIES Stores and commercial 5240 $ ( )
--------------------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $ ( )
--------------------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $ ( )
--------------------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies ( 123,979)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ 1,422,984
--------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (Schedule Attached) 5300 $
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Income--Project Operations 5410 $
--------------------------------------------------------------------------------------------
FINANCIAL Income from Investments--Residual Receipts 5430 $
--------------------------------------------------------------------------------------------
REVENUE Income from Investments--Reserve for Replacement 5440 $ 2,114
--------------------------------------------------------------------------------------------
5400 Income from Investments--Miscellaneous 5490 $ (799)
--------------------------------------------------------------------------------------------
Miscellaneous (Specify)
--------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 1,315
- ------------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
--------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $
--------------------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
--------------------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $
--------------------------------------------------------------------------------------------
5900 Other Revenue (specify) 5990 $
--------------------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE
--------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 1,424,299
- ------------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 22,780
--------------------------------------------------------------------------------------------
Other Administrative Expenses 6250 $
--------------------------------------------------------------------------------------------
Office Salaries 6310 $ 51,463
--------------------------------------------------------------------------------------------
Office Supplies 6311 $ 3,380
--------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
--------------------------------------------------------------------------------------------
ADMINISTRATIVE Management 6320 $ 84,767
--------------------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 32,500
--------------------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $ 10,200
--------------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 884
--------------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,250
--------------------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $ 7,725
--------------------------------------------------------------------------------------------
Telephone and Answering Service 6360 $ 10,917
--------------------------------------------------------------------------------------------
Bad Debts 6370 $
--------------------------------------------------------------------------------------------
Miscellaneous Administrative Expenses (Specify) 6390 $ 17,722
--------------------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 247,588
- ------------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $ 3,735
--------------------------------------------------------------------------------------------
UTILITIES Electricity (Light and Misc. Power) 6450 $ 15,319
--------------------------------------------------------------------------------------------
EXPENSES Water 6451 $ 22,755
--------------------------------------------------------------------------------------------
6400 Gas 6452 $ --
--------------------------------------------------------------------------------------------
Sewer 6453 $
--------------------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 41,809
- ------------------------------------------------------------------------------------------------------------------------------------
* All amounts must be rounded to the nearest dollar; $.50 and over. Page 1 of 2 form HUD-92410
(9/91) ref Handbook 4370.2
APPENDIX A-1
(CONTINUED)
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $
-----------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 27,700
-----------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 2,859
-----------------------------------------------------------------------------------------
Exterminating Payroll Contract 6519 $
-----------------------------------------------------------------------------------------
Exterminating Supplies 6520 $ 131
-----------------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 10,225
-----------------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 3,447
-----------------------------------------------------------------------------------------
Grounds Payroll 6535 $ 32,203
-----------------------------------------------------------------------------------------
Grounds Supplies 6536 $ 7,224
-----------------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 19,050
-----------------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $
-----------------------------------------------------------------------------------------
EXPENSES Repairs Materials 6541 $ 22,364
-----------------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 47,679
-----------------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $
-----------------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
-----------------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 3,433
-----------------------------------------------------------------------------------------
Snow Removal 6548 $ 656
-----------------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
-----------------------------------------------------------------------------------------
Decorating Supplies 6561 $ --
-----------------------------------------------------------------------------------------
Other 6570 $ --
-----------------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 1,523
-------------------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 178,494
- -----------------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 94,410
-----------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 9,513
-----------------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 3,158
-----------------------------------------------------------------------------------------
TAXES Property and Liability Insurance (Hazard) 6720 $ 24,187
-----------------------------------------------------------------------------------------
AND Fidelity Bond Insurance 6721 $
-----------------------------------------------------------------------------------------
INSURANCE Workmen's Compensation 6722 $ 5,002
-----------------------------------------------------------------------------------------
6700 Health Insurance and Other Employee Benefits 6723 $ 8,095
-----------------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
-------------------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 144,365
- ------------------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
-----------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 760,952
-----------------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
-----------------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
-----------------------------------------------------------------------------------------
6800 Mortgage Insurance Premium/Service Charge 6850 $ 58,878
-----------------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890 $ 132
--------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 819,962
- ------------------------------------------------------------------------------------------------------------------------------------
ELDERLY & TOTAL SERVICE EXPENSES - Schedule Attached 6900 $ $
--------------------------------------------------------------------------------------------------------------
CONGREGATE TOTAL COST OF OPERATIONS BEFORE DEPRECIATION $ $ (1,432,218)
--------------------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ $ (7,919)
--------------------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)--6600 (specify) 6600 $ $ 222,417
--------------------------------------------------------------------------------------------------------------
6900 Operating Profit or (Loss) $ (230,336)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OR Officer Salaries 7110 $
-----------------------------------------------------------------------------------------
MORTGAGOR Legal Expenses (Entity) 7120 $
-----------------------------------------------------------------------------------------
ENTITY Taxes (Federal-State-Entity) 7130-32 $
-----------------------------------------------------------------------------------------
EXPENSES Other Expenses (Entity) 7190 $
--------------------------------------------------------------------------------------------------------------
7100 TOTAL CORPORATE EXPENSES $
--------------------------------------------------------------------------------------------------------------
NET PROFIT OR (LOSS) $ (230,336)
- ------------------------------------------------------------------------------------------------------------------------------------
WARNING: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001,
1010, 1012, 31 U.S.C. 3729, 3802) MISCELLANEOUS OR OTHER INCOME AND EXPENSE SUB-ACCOUNT GROUPS. If miscellaneous or other income
and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more,
attach a separate schedule describing or explaining the miscellaneous income or expense.
- -----------------------------------------------------------------------------------------------------------------------------------
PART II
-----------------------------------------------------------------------------------------------------------------------------
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. $ 48,676
-----------------------------------------------------------------------------------------------------------------------------
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 $
- -----------------------------------------------------------------------------------------------------------------------------------
* All amounts must be rounded to the nearest dollar; $.50 and over. Page 2 of 2 form HUD-92410
(9/91) ref Handbook 4370.2
APPENDIX A-1
CONTINUED
</TABLE>
-19-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Statement of Profit and Loss
Form HUD-92410
December 31, 1998
Miscellaneous Account Detail
Income from investments - 5490:
Related Mortgage Corp. - Yield Maintenance Escrow $ 556
Southwest Securities, Inc. - Tenant Security Deposits (1,382)
Intrust Bank - Business Maximizer Account 27
---------
$ (799)
=========
Miscellaneous Administrative Expense - 6390:
Leasing - furniture $ 10,503
Cable TV 4,409
Meals & entertainment 1,502
Donation 600
Dues & Subscriptions 439
Miscellaneous 269
---------
$ 17,722
=========
Depreciation - 6600:
Depreciation - buildings and improvements $ 196,913
Depreciation - furniture and equipment 8,985
Amortization of loan costs 16,519
---------
$ 222,417
=========
See notes to financial statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
Computation of Surplus Cash, Distributions U.S. DEPARTMENT OF HOUSING AND URBAN
and Residual Receipts DEVELOPMENT
Office of Housing
Federal Housing Commissioner
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Project Name Fiscal Period Ended: Project Number
Windemere Development, Inc. 12/31/98 102-36628
- ------------------------------------------------------------------------------------------------------------------------------------
PART A - COMPUTE SURPLUS CASH
- ------------------------------------------------------------------------------------------------------------------------------------
CASH
- ------------------------------------------------------------------------------------------------------------------------------------
1. Cash (Accounts 1110, 1120, 1191, 1992) $ 71,224
- ---------------------------------------------------------------------------------------------------------------
2. Tenant Subsidy vouchers due for period covered by financial statement $
- ---------------------------------------------------------------------------------------------------------------
3. other (describe) $
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total Cash (Add Lines 1, 2, and 3) $ $ 71,224
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT OBLIGATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
4. Accrued mortgage interest payable $ 51,884
- ---------------------------------------------------------------------------------------------------------------
5. Delinquent mortgage principal payments $
- ---------------------------------------------------------------------------------------------------------------
6. Delinquent deposits to reserve for replacements $
- ---------------------------------------------------------------------------------------------------------------
7. Accounts payable (due within 30 days) $ 8,856
- ---------------------------------------------------------------------------------------------------------------
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) $ 37,358
- ---------------------------------------------------------------------------------------------------------------
13. Other (Describe) $
- ------------------------------------------------------------------------------------------------------------------------------------
(b) Less Total Current Obligations (add lines 4 through 13) $ 98,098
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ (26,874)
- ------------------------------------------------------------------------------------------------------------------------------------
PART B - COMPLETE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS
- ------------------------------------------------------------------------------------------------------------------------------------
1. Surplus Cash $
- ------------------------------------------------------------------------------------------------------------------------------------
LIMITED DIVIDEND PROJECTS
- ------------------------------------------------------------------------------------------------------------------------------------
2a. Annual Distribution Earned During Fiscal Period covered by Statement $
- ---------------------------------------------------------------------------------------------------------------
2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $
- ---------------------------------------------------------------------------------------------------------------
2c. Distributions Paid During Fiscal Period Covered by Statement $
- ---------------------------------------------------------------------------------------------------------------
3. Amount to be carried on Balance Sheet as Distribution Earned but $
Unpaid (Line 2A plus 2b minus 2c)
- ------------------------------------------------------------------------------------------------------------------------------------
4. Amount available for Distribution During Next Fiscal Period $
- ------------------------------------------------------------------------------------------------------------------------------------
5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period $
ends)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepared by Reviewed By
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Technician Date Loan Servicer Date
- ------------------------------------------------------------------------------------------------------------------------------------
Page 2 of 2 form HUD-93486 (12-80)
-21-
- ----------
AUTHOR'S NOTE: This form has been superseded by another form dated 8/95. See Appendix 2B-7 for a copy of the revised form.
APPENDIX A-1
CONTINUED
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WINDEMERE DEVELOPMENT, INC.
Statement of Changes in Fixed Assets
Year Ended December 31, 1998
Assets Accumulated Depreciation
--------------------------------------------- ----------------------------------------------------------
Net Book
Balance Balance Balance Balance Value
January 1, Deduct- December 31, January 1, Current Deduct- December 31, December 31,
1998 Additions ions 1998 1998 Provisions ions 1998 1998
---------- --------- ------- ------------ ---------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land $ 684,376 $ $ - $ 684,376 $ $ $ - $ $ 684,376
Special assessments 43,173 9,172 52,345 52,345
Buildings and
improvements 7,780,984 7,038 7,788,022 1,111,400 196,913 1,308,313 6,479,709
Furniture and equipment 62,127 10,697 72,824 32,127 8,985 41,112 31,712
----------- --------- ------- ---------- ----------- --------- -------- ----------- -----------
$ 8,570,660 $ 26,907 $ - $8,597,567 $ 1,143,527 $ 205,898 $ - $ 1,349,425 $ 7,248,142
=========== ========= ======= ========== =========== ========= ======== =========== ===========
</TABLE>
See notes to financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
WINDEMERE DEVELOPMENT, INC.
Statement of Receipts and Disbursements
HUD Project No. 102-36628
Windemere Apartments
Year Ended December 31, 1998
<S> <C> <C>
Source of funds:
Operations:
Revenues:
Rental income $ 1,420,705
Interest income 4,383
Capital gains 2,770 1,427,858
----------- ------------
Expenses:
Administrative expenses 51,395
Management fees 78,550
Operating expenses 67,746
Payrolls 116,166
Maintenance expenses 140,629
Taxes, real estate 92,636
Taxes, other 9,801
Insurance 33,469
Mortgage insurance premium 59,046
Interest on mortgage loan 761,610 1,411,048
----------- ------------
Cash provided by operations before amortization 16,810
Amortization of mortgage 44,937
------------
Cash provided by (used in) operations after debt service (28,127)
Other:
Loss on sale of assets (1,288)
Distribution to shareholder (18,400) (19,688)
----------- ------------
(47,815)
Application of funds:
Reserve for replacements - expended 1,707
Tenant security deposits - refunded 3,168
Increase in taxes and insurance escrow 2,366
Purchase of furnishings and equipment 26,907
Decrease in tenant security deposits 6,919 (41,067)
----------- ------------
Decrease in cash (88,882)
Unrestricted cash at beginning, of year 112,243
------------
Unrestricted cash at end of year $ 23,361
============
</TABLE>
See notes to financial statements.
-23-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Schedule of Findings and Questioned Costs
December 31, 1998
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 $17,871 recorded as contract labor
(repairs and maintenance) 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.
-24-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1998
Schedule of Identity of Interest Firms and Activities:
<TABLE>
<CAPTION>
Company or Person Service Amount
----------------- ------- ------
<S> <C> <C>
Gaddis Properties, Inc. Management $ 84,767
C.G. Interiors, Inc. Equipment lease 10,503
Carolyn Gaddis Salary 21,500
Brian Gaddis Salary 32,500
Brian Gaddis Contract labor 1,500
Craig Gaddis Contract labor 5,000
Doug Gaddis Contract labor 1,000
Schedule of Accrued Taxes:
See Note 6 to Financial Statements.
Schedule of Unauthorized Distributions of Project Income:
Jerry Gaddis 18,400
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 2-24-99 821
Intrust Bank, N.A., money maximizer - confirmed 2-24-99 1,283
----------
2,104
Funds held by Mortgagor in Trust, Tenant Security Deposit:
Southwest Securities, Inc., Mutual funds confirmed 3-03-99 43,313
----------
Funds held by mortgagor $ 45,417
==========
</TABLE>
-25-
<PAGE>
WINDEMERE DEVELOPMENT, INC.
Other HUD Schedules
December 31, 1998
Funds held by Mortgagee, in trust:
Tax, insurance and MIP Escrow $ 68,388
Replacement reserve 49,191
Cash escrow 21,156
---------
Funds held by mortgagee confirmed by
Related Mortgage Corporation 2-28-99 $ 138,735
=========
Corrective Action Plan:
The Company did not change any internal control
policies in conjunction with
the material weakness.
See notes to financial statements.
-26-
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
MORTENSON II
HUD PROJECT NO.: 074-36605
December 31, 1998
<PAGE>
Mortenson 11
HUD Project No.: 074-36605
TABLE OF CONTENTS
PAGE
MORTGAGOR'S CERTIFICATION 4
MANAGING AGENT'S CERTIFICATION 5
INDEPENDENT AUDITORS' REPORT 6
FINANCIAL STATEMENTS
BALANCE SHEET 8
STATEMENT OF OPERATIONS 10
STATEMENT OF PARTNERS' EQUITY (DEFICIT) 13
STATEMENT OF CASH FLOWS 14
NOTES TO FINANCIAL STATEMENTS 16
SUPPLEMENTAL INFORMATION
RESERVE FOR REPLACEMENTS 21
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND
RESIDUAL RECEIPTS 22
CHANGES IN FIXED ASSET ACCOUNTS 23
DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS 24
OTHER INFORMATION 25
<PAGE>
Mortenson II
HUD Project No.: 074-36605
TABLE OF CONTENTS - CONTINUED
PAGE
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL 26
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
MAJOR HUD PROGRAMS 28
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING
AND NON-DISCRIMINATION 30
<PAGE>
Mortenson II
HUD Project No.: 074-36605
December 31, 1998
MORTGAGOR'S CERTIFICATION
I hereby certify that I have examined the accompanying financial
statements and supplemental data of Mortenson II and, to the best of my
knowledge and belief, the same is complete and accurate.
GENERAL PARTNER
----------------------------------------
Signature Date
Partnership Employer
Identification Number:
42-1361607
-4-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
December 31, 1998
MANAGING AGENT'S CERTIFICATION
We hereby certify that we have examined the accompanying financial
statements and supplemental data of Mortenson II and, to the best of our
knowledge and belief, the same is complete and accurate.
MANAGING AGENT
Ev Cochrane and Associates
----------------------------------------
Signature Date
Ev Cochrane Managing Agent Employer
Property Manager Identification Number:
42-1050493
-5-
<PAGE>
[GRAPHIC LOGO OMITTED]
REZNICK FEDDER & SILVERMAN
Certified Public Accounts o A Professional Corporation
Two Premier Plaza, 5th Floor o 5605 Glenridge Drive
o Atlanta, Georgia 30342-1376
o Fax (404) 847-9495
INDEPENDENT AUDITOR'S REPORT
To the Partners
Mortenson II
We have audited the accompanying balance sheet of Mortenson II, as of
December 3 1, 1998, and the related statements of operations, partners' equity
(deficit) and cash flows for the year then ended. These financial statements are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards 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 Mortenson II as of
December 31, 1998, and the results of its operations, changes in partners'
equity (deficit) and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 21
through 25 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
<TABLE>
<CAPTION>
-6-
<S> <C> <C> <C>
Two Hopkins Plaza 4520 East West Highway 212 S. Tryon Street 745 Atlantic Avenue
Suite 2100 Suite 300 Suite 1180 Suite 800
Baltimore, MD 21201-2911 Bethesda, Maryland Charlotte, NC 28281-8100 Boston, MA 02111-2735
Phone (410) 783-4900 20814-3319 Phone (704) 332-9100 Phone (617) 423-5855
Fax (410) 727-0460 Phone (301) 652-9100 Fax (704) 332-6444 Fax (617) 423-6651
Fax (301) 652-1848
</TABLE>
<PAGE>
In accordance with GOVERNMENT AUDITING STANDARDS and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
February 17, 1999 on our consideration of Mortenson II's internal control and on
its compliance with specific requirements applicable to major HUD programs and
fair housing and non-discrimination.
/s/ REZNICK FEDDER & SILVERMAN
Atlanta, Georgia Federal Employer
February 17, 1999 Identification Number:
52-1088612
Audit Principal: Gail White
-7-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
1120 Cash - operations $ 17,424
1130 Tenant accounts receivable 6,158
1200 Miscellaneous prepaid expenses 34,816
-----------
Total current assets 58,398
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits 76,902
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits $ 62,862
1320 Reserve for replacements 100,295
1330 Other reserves 1,814 164,971
-------------
RENTAL PROPERTY
1410 Land 42,101
1420 Buildings 5,007,451
1430 Building equipment-fixed 159,623
-------------
Total rental property 5,209,175
1495 Less accumulated depreciation $ (1,477,100) 3,732,075
-------------
OTHER ASSETS
1520 Intangible assets, net of accumulated
amortization of $112,830 488,915
-----------
$ 4,521,261
===========
</TABLE>
See notes to financial statements
-8-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
BALANCE SHEET - CONTINUED
December 31, 1998
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C> <C>
2110 Accounts payable - operations $ 11,486
2123 Accrued management fee payable 80,558
2131 Accrued interest payable - first mortgage 25,408
2150 Accrued property taxes payable 154,063
2170 Mortgage payable - first mortgage, current
maturities 43,761
2210 Prepaid revenue 1,600
-------------
Total current liabilities 316,876
DEPOSITS LIABILITIES
2191 Tenant security deposits held in trust (contra) 60,561
LONG-TERM LIABILITIES
2320 Mortgage payable, first mortgage $ 4,683,439
2323 Other loans and notes payable-surplus cash 577,885
2133 Accrued interest payable-other loans and notes 595,292
-------------
Total long term liabilities 5,856,616
3130 PARTNERS' EQUITY (DEFICIT) (1,712,792)
-------------
$ 4,521,261
=============
</TABLE>
See notes to financial statements
-9-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<S> <C> <C> <C>
RENTAL REVENUE
5120 Rent revenue - gross potential $ 833,852
5170 Garage and parking spaces 6,711
-------------
Total rental revenue $ 840,563
VACANCIES
5220 Apartments (25,504)
-------------
Total vacancies $ (25,504)
-----------
Net rental revenue 815,059
FINANCIAL REVENUE
5410 Financial revenue - project operations 93
5440 Revenue from investments - replacement reserve 4,344
-------------
Total financial revenue 4,437
OTHER REVENUE
5910 Laundry and vending 7,657
5920 Tenant charges 100
-------------
Total other revenue $ 7,757
-----------
Total revenue $ 827,253
===========
</TABLE>
See notes to financial statements
-10-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF OPERATIONS
Year ended December 31, 1998
ADMINISTRATIVE EXPENSES
<S> <C> <C> <C>
6210 Advertising and marketing $ 5,188
6311 Office expenses 12,089
6320 Management fee 40,428
6330 Manager or superintendent salaries 29,097
6331 Administrative rent free unit 17,400
6340 Legal expense - project 2,982
6350 Auditing expense 7,550
6360 Telephone and answering services 6,936
6351 Bookkeeping fees/accounting services 6,000
6390 Miscellaneous administrative expenses 24,000
-------------
Total administrative expenses $ 151,670
UTILITIES EXPENSE
6450 Electricity 10,656
6451 Water 2,391
6452 Gas 5,579
6453 Sewer 1,992
-------------
Total utilities expense 20,618
OPERATING AND MAINTENANCE EXPENSES
6510 Payroll 9,235
6515 Supplies 59,856
6520 Contracts 7,916
6525 Garbage and trash removal 5,908
6570 Vehicle and maintenance equipment operation
and repairs 7,407
-------------
Total operating and maintenance expenses $ 90,322
</TABLE>
See notes to financial statements
-11-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-3)6605
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 1998
<S> <C> <C> <C>
TAXES AND INSURANCE
6710 Real estate taxes 149,630
6711 Payroll taxes 6,345
6720 Property and liability insurance 9,152
6721 Fidelity bond insurance 243
6722 Workmen's compensation 3,040
6723 Health insurance and other employee benefits 5,349
6790 Miscellaneous taxes, licenses, permits and
insurance 1,122
-------------
Total taxes and insurance 174,881
FINANCIAL EXPENSES
6820 Interest on mortgage payable 306,131
6850 Mortgage insurance premium/service charge 35,595
-------------
Total financial expenses 341,726
DEPRECIATION AND AMORTIZATION
6600 Depreciation expense 191,944
6610 Amortization expense 15,044
-------------
Total depreciation and amortization 206,988
CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES
7190 Other expenses 96,930
-------------
Total corporate or mortgagor entity revenue and
expenses 96,930
-------------
Total expenses 1,083,135
-------------
Net income (loss) $ (255,882)
=============
</TABLE>
See notes to financial statements
-12-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 1998
Partners' equity (deficit)
December 31, 1997 $(1,456,910)
Net income (loss) (255,882)
-----------
Partners' equity (deficit)
December 31, 1998 $(1,712,792)
===========
See notes to financial statements
-13-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS
Year ended December 31, 1998
Cash flows from operating activities
Rental receipts $ 798,423
Interest receipts 4,437
Other operating receipts 7,757
Administrative expenses paid (70,137)
Utilities paid (19,924)
Salaries and wages paid (38,332)
Operating and maintenance paid (72,655)
Real estate taxes paid (149,630)
Property insurance paid (9,152)
Miscellaneous taxes and insurance paid (16,099)
Interest paid on mortgage (306,352)
Mortgage insurance premium paid (35,387)
Mortgagor entity expenses paid (39,835)
Net tenant security deposits received (paid) (6,980)
---------
Net cash provided by (used in) operating activities 46,134
---------
Cash flows from investing activities
Net deposits to mortgage escrows 3,582
Net deposit to reserve for replacement (12,600)
Net deposit to other reserves 8,612
---------
Net cash provided by (used in) investing activities (406)
---------
Cash flows from financing activities
Mortgage principal payments (41,034)
---------
Net cash provided by (used in) investing activities (41,034)
---------
NET INCREASE (DECREASE) IN CASH 4,694
Cash, beginning 12,730
---------
Cash, ending $ 17,424
=========
See notes to financial statements
-14-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
STATEMENT OF CASH FLOWS - CONTINUED
December 31, 1998
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities
Net income (loss) $(255,882)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 191,944
Amortization 15,044
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant accounts receivable 2,574
Accounts receivable - other 370
Miscellaneous prepaid expenses (6,292)
Tenant security deposits - net (12,247)
Increase (decrease) in liabilities
Accounts payable 10,254
Tenant security deposits held in trust 5,267
Accrued interest payable 56,854
Management fees payable 40,428
Prepaid revenue (2,180)
---------
Net cash provided by (used in) operating activities $ 46,134
=========
See notes to financial statements
-15-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Iowa on August 23, 1990, for the purpose of constructing and
operating a rental housing project under Section 221(d)4 of the National
Housing Act. The project consists of 104 units located in Ames, Iowa, and
is currently operating under the name of Celtic Manor.
Cash distributions are limited by agreements between the partnership and
HUD to the extent of surplus cash as defined by HUD.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
RENTAL PROPERTY
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line method for
buildings and accelerated methods for equipment. Improvements are
capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Upon disposal of depreciable property, the appropriate
property accounts are reduced by the related costs and accumulated
depreciation. The resulting gains and losses are reflected in the statement
of operations. Estimated service lives are as follows:
Buildings 27.5 years
Building equipment - fixed 7 years
AMORTIZATION
Loan costs are amortized over the term of the loan period using the
straight-line method.
-16-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
RENTAL INCOME
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the partnership
and tenants of the property are operating leases.
NOTE C - MORTGAGE PAYABLE
The mortgage note is co-insured by the Federal Housing Administration (FHA)
and is collateralized by a deed of trust on the rental property. The note
bears interest at the rate of 6.45%. Principal and interest are payable by
the partnership in monthly installments of $28,949 through maturity in
August 203 1. As of December 31, 1998 the outstanding balance on this loan
is $4,727,200.
Under agreements with the lender and FHA, the partnership is required to
make monthly escrow deposits for taxes, insurance and replacement of
project assets, and is subject to restrictions as to operating policies,
rental charges, operating expenditures and distributions to partners.
Aggregate maturities of mortgage payable are as follows:
December 31, 1999 $ 43,761
2000 46,668
2001 49,769
2002 53,076
2003 56,602
Thereafter 4,477,324
----------------
$4,727,200
================
-17-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
NOTE D - NOTES PAYABLE
EQUITY LOAN
An equity loan of $577,885 has been provided by Capital Mortgage Plus L.P.
to fund construction costs of the project and the mortgage buydown escrow.
The loan is noninterest bearing and matures in August 2031. The loan is
secured by a conditional third mortgage, a security agreement and the
mortgage buydown escrow.
SUBORDINATED PROMISSORY NOTE
The partnership has executed a subordinated promissory note which requires
additional interest payments on the mortgage loan from Capital Mortgage
Plus L.P. The note is secured by a second mortgage on the property, a
security agreement and the mortgage buydown escrow. Effective January 1,
1995, the note provides for a cumulative annual yield of 9.4% on the
outstanding principal of the mortgage loan and requires payment of interest
equal to the prior year's annual yield shortfall (as defined in the note)
plus 30% of all remaining excess cash. The interest payment is also limited
to 50% of excess cash for the prior year. Prior to January 1, 1995, the
cumulative annual yield rate was 10.95%. The obligation to make payments
under this note commenced on final endorsement of the mortgage (February 4,
1992) and ends in August 2031.
As additional security for this note, the partners have executed an
additional interest guaranty whereby the general partner has guaranteed to
fund the interest due under this note calculated at an alternative interest
rate referred to as the "default rate" of 8.43%. Interest of $96,930 was
accrued during 1998 at this default rate and $310,583 of interest remains
payable at December 31, 1998. Prior to January 1, 1995, the default rate
was 9.84%. As of December 31, 1998, unpaid interest of $284,709 at this
rate is payable from capital proceeds. The general partner has also
guaranteed payment of interest up to the lesser of the management fee or
interest calculated at the default rate. The general partner has also
agreed to utilize funds to pay the interest which would otherwise be used
to pay the management fee. During 1998, interest of $39,835 was paid.
The loans are secured by deeds of trust on the property. The liability of
the partnership is limited to the underlying value of the real estate
collateral plus other amounts deposited with the lender.
-18-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
NOTE E - MANAGEMENT FEE
The property is managed by Ev Cochrane and Associates, an affiliate of the
general partner. The current management agreement provides for a management
fee of 5% of monthly rental collections. The fee charged to operations in
1998 was $40,428. Operating funds which would have been used to pay the
management fee were instead utilized to pay interest on the subordinated
promissory note. During 1998, payment of $40,428 of management fees was
deferred.
An affiliate of the general partner also charged a bookkeeping fee of
$6,000 for the year.
-19-
<PAGE>
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
<PAGE>
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
December 31, 1997
RESERVE FOR REPLACEMENTS
In accordance with the provisions of the regulatory agreement, restricted
cash is held by Related Mortgage Corporation to be used for replacement of
property with the approval of HUD as follows:
Balance at December 31, 1997 $ 87,695
Total monthly deposits 20,439
Other deposits - interest income 4,344
Approved withdrawals (12,183)
---------
Balance at December 31, 1998 $ 100,295
=========
See accompanying independent auditors' report
-21-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
December 31, 1998
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS
<TABLE>
<CAPTION>
Part A - Compute Surplus Cash
<S> <C>
Cash (Accounts 1110, 1120,1191,.1192) $ 94,326
Tenant subsidy vouchers due for period covered by financial statements --
Other (describe in detail) --
--------
Total Cash 94,326
--------
Accrued mortgage interest payable $ 25,408
Delinquent mortgage principal payments --
Delinquent deposits to reserve for replacements --
Accounts payable (due within 30 days) (Account 2110, 2116) 11,486
Loans and notes payable (due within 30 days) --
Deficient Tax Insurance of MIP escrow deposits 5,389
Accrued Expenses (not escrowed) --
Prepaid Rents (Account 2210) 1,600
Tenant security deposits liability (Account 2191) 60,561
Other current obligations (describe in detail) --
--------
Less Total Current Obligations 104,444
--------
Surplus cash (deficiency) $ 10,118
========
Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts
Surplus Cash $ --
--------
Limited Dividend Projects
Annual Distribution Earned During Fiscal Period Covered by the Statement --
Distribution Accrued and Unpaid as of the Prior Fiscal Period --
Distributions Paid During - Fiscal Period Covered by Statement --
Amount remaining as distribution earned but unpaid --
Amount Available for Distribution During Next Fiscal Period $ --
========
Deposits due to residual receipts reserve $ --
========
</TABLE>
See accompanying independent auditors' report
-22-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
December 31. 1998
Assets
---------------------------------------------------------------------
Balance 12/31/97 Additions Deductions Balance 12/31/98
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Land $ 42,101 $ 0 $ 0 $ 42,101
Buildings 5,007,451 0 0 5,007,451
Building equipment - fixed 159,623 0 0 159,623
Building equipment - portable 0 0 0 0
Furniture for project/tenant use 0 0 0 0
Furnishings 0 0 0 0
Office furniture and equipment 0 0 0 0
Motor vehicles 0 0 0 0
Miscellaneous fixed assets 0 0 0 0
---------------- ---------------- --------------- ---------------
$ 5,209,175 $ 0 $ 0 $ 5,209,175
================ ================ =============== ===============
Accumulated depreciation (1,285,156) (191,944) 0 (1,477,100)
================ ================ =============== ===============
Total net book value $ 3,732,075
===============
</TABLE>
See accompanying independent auditor's report
-23-
<PAGE>
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
December 31, 1997
DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS
ADMINISTRATIVE EXPENSES (ACCOUNT NO. 6390)
Misc. admin exp. - Cable Television $ 24,000
============
$ 24,000
============
See accompanying independent auditors' report
-24-
<PAGE>
<TABLE>
<CAPTION>
Mortenson II
HUD Project No.: 074-36605
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
December 31, 1997
OTHER INFORMATION
<S> <C>
Total mortgage principal payments required during the audit year (12 monthly payments).
Applies to all direct loans and HUD-held and fully-insured mortgages. Any HUD-approved
second mortgages are included. $ 41,034
==========
Total of 12 monthly deposits in the audit year made to the replacement reserve account,
as required by the regulatory agreement, even if payments are temporarily suspended or
reduced. $ 20,439
==========
Replacement reserve and residual receipts reserve releases which are included as
expense items on the statement of operations. $ 12,183
==========
Project improvement reserve releases under the flexible subsidy program which are
included as expense items on the statement of operations. $ N/A
==========
Mortgage payable note detail (Section 236 only)
Interest reduction payments from subsidy $ N/A
==========
Related party transaction detail:
None
</TABLE>
See accompanying independent auditors' report
-25-
<PAGE>
[GRAPHIC LOGO OMITTED]
REZNICK FEDDER & SILVERMAN
Certified Public Accounts o A Professional Corporation
Two Premier Plaza, 5th Floor o 5605 Glenridge Drive
o Atlanta, Georgia 30342-1376 o Fax (404) 847-9495
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II, as of and for
the year ended December 31, 1998, and have issued our report thereon dated
February 17, 1999. We have also audited Mortenson II's compliance with
requirements applicable to major HUD-assisted programs and have issued our
report thereon dated February 17, 1999.
We conducted our audits 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 the Inspector General. Those standards and the Guide 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
Mortenson II complied with laws and regulations, noncompliance with which would
be material to a major HUD-assisted program.
The management of the partnership is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of controls. The objectives of internal control are to provide management
with reasonable, but not absolute, assurance that assets are safeguarded against
loss from unauthorized use or disposition, that transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of financial statements in accordance with generally accepted
accounting principles, and that HUD-assisted programs are managed in compliance
with applicable laws and regulations. Because of inherent limitations in any
internal control, errors, fraud or instances of noncompliance may nevertheless
occur and not be detected. Also, projection of any evaluation of internal
control 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 of controls may deteriorate.
-26-
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Two Hopkins Plaza 4520 East West Highway 212 S. Tryon Street 745 Atlantic Avenue
Suite 2100 Suite 300 Suite 1180 Suite 800
Baltimore, MD 21201-2911 Bethesda, Maryland Charlotte, NC 28281-8100 Boston, MA 02111-2735
Phone (410) 783-4900 20814-3319 Phone (704) 332-9100 Phone (617) 423-5855
Fax (410) 727-0460 Phone (301) 652-9100 Fax (704) 332-6444 Fax (617) 423-6651
Fax (301) 652-1848
</TABLE>
<PAGE>
In planning and performing our audits of the partnership for the year
ended December 31, 1998, we obtained an understanding of the design of relevant
controls and determined whether they have been placed in operation, and we
assessed control risk in order to determine our auditing procedures for the
purpose of expressing our opinions on the partnership's financial statements and
on its compliance with specific requirements applicable to its major
HUD-assisted programs and to report on internal control in accordance with the
provisions of the Guide and not to provide any assurance on internal control.
We performed tests of controls, as required by the Guide, to evaluate
the effectiveness of the design and operation of internal controls that we
considered relevant to preventing or detecting material noncompliance with
specific requirements that are applicable to the partnership's HUD-assisted
programs. Our procedures were less in scope than would be necessary to render an
opinion on internal control. Accordingly, we do not express such an opinion.
Our consideration of internal control would not necessarily disclose
all matters in internal control that might be material weaknesses under
standards established by the American Institute of Certified Public Accountants.
A material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that errors or fraud in amounts that would be material in
relation to the financial statements 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. We noted no matters involving internal
control and its operation that we consider to be material weaknesses as defined
above.
This report is intended for the information and use of the audit
committee, management, others within the organization and the Department of
Housing and Urban Development, and is not intended to be and should not be used
by anyone other than these specified parties.
/s/ REZNICK FEDDER & SILVERMAN
Atlanta, Georgia
February 17, 1999
-27-
<PAGE>
[GRAPHIC LOGO OMITTED]
REZNICK FEDDER & SILVERMAN
Certified Public Accounts o A Professional Corporation
Two Premier Plaza, 5th Floor o 5605 Glenridge Drive
o Atlanta, Georgia 30342-1376 o Fax (404) 847-9495
INDEPENDENT AUDITORS' REPORT ON
COMPLIANCE WITH SPECIFIC REQUIREMENTS
APPLICABLE TO MAJOR HUD PROGRAMS
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II, as of and for
the year ended December 31, 1998, and have issued our report thereon dated
February 17, 1999.
We have also audited Mortenson II's compliance with the specific
program requirements governing federal financial reports; mortgage status;
replacement reserve; security deposits; cash receipts and disbursements;
distributions to owners; and management functions that are applicable to its
major HUD-assisted programs for the year ended December 31, 1998. The management
of Mortenson II 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 specific program requirements
in accordance with generally accepted auditing standards, GOVERNMENT AUDITING
STANDARDS, issued by the Comptroller General of the United States, and the
"Consolidated Audit Guide for Audits of HUD Programs" (the Guide), issued by the
U.S. Department of Housing and Urban Development, Office of the Inspector
General. 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 Mortenson II's compliance with those requirements. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, Mortenson II complied, in all material respects, with
the specific program requirements that are applicable to its major HUD-assisted
programs for the year ended December 31, 1998.
-28-
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Two Hopkins Plaza 4520 East West Highway 212 S. Tryon Street 745 Atlantic Avenue
Suite 2100 Suite 300 Suite 1180 Suite 800
Baltimore, MD 21201-2911 Bethesda, Maryland Charlotte, NC 28281-8100 Boston, MA 02111-2735
Phone (410) 783-4900 20814-3319 Phone (704) 332-9100 Phone (617) 423-5855
Fax (410) 727-0460 Phone (301) 652-9100 Fax (704) 332-6444 Fax (617) 423-6651
Fax (301) 652-1848
</TABLE>
<PAGE>
This report is intended for the information and use of the audit
committee, management, others within the organization and the Department of
Housing and Urban Development and is not intended to be and should not be used
by anyone other than these specified parties.
/s/ REZNICK FEDDER & SILVERMAN
Atlanta, Georgia
February 17, 1999
<PAGE>
[GRAPHIC LOGO OMITTED]
REZNICK FEDDER & SILVERMAN
Certified Public Accounts o A Professional Corporation
Two Premier Plaza, 5th Floor o 5605 Glenridge Drive
o Atlanta, Georgia 30342-1376 o Fax (404) 847-9495
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
FAIR HOUSING AND NON-DISCRIMINATION
To the Partners
Mortenson II
We have audited the financial statements of Mortenson II as of and for
the year ended December 31, 1998, and have issued our report thereon dated
February 17, 1999.
We have applied procedures to test Mortenson II's compliance with the
Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted
programs for the year ended December 31, 1998.
Our procedures were limited to the applicable procedures described in
the "Consolidated Audit Guide for Audits of HUD Programs" (the Guide), issued by
the U.S. Department of Housing and Urban Development, Office of the Inspector
General. Our procedures were substantially less in scope than an audit, the
objective of which is the expression of an opinion on Mortenson II's compliance
with the Fair Housing and Non-Discrimination requirements. Accordingly, we do
not express such an opinion.
The results of our test disclosed no instances of noncompliance that
are required to be reported herein under GOVERNMENT AUDITING STANDARDS.
This report is intended for the information and use of the audit
committee, management, others within the organization, and the Department of
Housing and Urban Development and is not intended to be and should not be used
by anyone other than these specified parties.
/s/ REZNICK FEDDER & SILVERMAN
Atlanta, Georgia
February 27, 1999
-30-
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Two Hopkins Plaza 4520 East West Highway 212 S. Tryon Street 745 Atlantic Avenue
Suite 2100 Suite 300 Suite 1180 Suite 800
Baltimore, MD 21201-2911 Bethesda, Maryland Charlotte, NC 28281-8100 Boston, MA 02111-2735
Phone (410) 783-4900 20814-3319 Phone (704) 332-9100 Phone (617) 423-5855
Fax (410) 727-0460 Phone (301) 652-9100 Fax (704) 332-6444 Fax (617) 423-6651
Fax (301) 652-1848
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Financial Statements
December 31, 1998
[LOGO]
- --------------------------------------------------------------------------------
TANNER + Co.
<PAGE>
[Letterhead of Tanner + Co.]
INDEPENDENT AUDITORS' REPORT
To the Partners of
HR II Associates
Salt Lake City, Utah
We have audited the accompanying balance sheet of HR II Associates as of
December 31, 1998 and the related statements of operations and changes in
partners' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HR II Associates as of December
31, 1998 and the results of its operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Tanner + Co.
Salt Lake City, Utah
February 12, 1999
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Balance Sheet
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 234,622
Tenant receivables, net of allowance for doubtful accounts of $11,300 17,956
Due from affiliates 272,081
Other current assets 109,803
----------
Total current assets 634,462
Rental property, net 4,204,968
Intangible assets, net 248,754
Other assets 179,417
----------
Total assets 5,267,601
==========
- --------------------------------------------------------------------------------
Liabilities and Partners' Deficit
Current liabilities:
Current portion of long-term debt 25,178
Accounts payable 149,761
Accrued liabilities 78,006
----------
Total current liabilities 252,945
Long-term debt 5,881,260
----------
Total liabilities 6,134,205
----------
Partners' Deficit (866,604)
----------
Total liabilities and partners' deficit $5,267,601
==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. 1
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Statement of Operations and Changes in Partners' Deficit
Year Ended December 31,1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Revenue from rental operations:
Rental $1,034,073
Other 19,561
----------
Total revenues 1,053,634
----------
Expenses from rental operations 523,899
----------
Income from rental operations 529,735
----------
Other income (expense):
Interest income 7,952
Depreciation and amortization (192,922)
Interest expense (570,668)
----------
Net other income (expense) (755,638)
----------
Net loss (225,903)
Partners' deficit, beginning of year (640,701)
----------
Partners' deficit, end of year $ (866,604)
==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. 2
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Statement of Cash Flows
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flow from operating activities:
Net loss $ (225,903)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 192,922
(Increase) decrease in:
Tenant receivables (4,382)
Due from affiliates (239,913)
Other current assets 2,920
Other assets (24,670)
(Decrease) increase in:
Accounts payable 61,134
Accrued liabilities (3,277)
----------
Net cash used in
operating activities (241,169)
----------
Cash flow from investing activities-
purchase of property and equipment (7,269)
----------
Cash flow from financing activities-
payments on long-term debt (23,190)
----------
Decrease in cash (271,628)
Cash, beginning of year 506,250
----------
Cash, end of year $ 234,622
==========
Cash paid during the years for:
Interest $ 570,827
==========
Income taxes $ --
==========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements. 3
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------
1. Description HR II Associates, a Utah limited Partnership, (the
of the Partnership) was organized in 1989 for the purpose of
Partnership owning, maintaining, and operating the apartment complex
known as Holly Ridge Phase II, which consists of 144
rental units located in Gresham, Oregon. The property is
managed by Overland Management and Realty Corporation
under a management agreement. The apartment complex is
financed with a loan which is insured by the U.S. Depart
of Housing and Urban development (HUD), under section
221(d)(4) of the National Housing Act. The operating
methods are regulated by HUD under the terms of a
regulatory agreement.
2. Summary of Concentration of Credit Risk
Significant
Accounting Financial instruments which potentially subject the
Policies Partnership to concentration of credit risk consist
primarily of tenant rents receivable. The Partnership
maintains allowances for possible losses which, when
realized, have been within the range of management's
expectations.
The Partnership maintains its cash in bank deposit
accounts which, at times, may exceed federally insured
limits. The Partnership has not experienced any losses in
such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the
Partnership considers all highly liquid debt instruments
with a maturity of three months or less to be cash
equivalents.
Rental Property
Land, building, and equipment are recorded at cost and
are depreciated using the straight-line method over
estimated useful lives ranging from 5 - 40 years. Major
additions and improvements are capitalized while minor
replacements, maintenance, and repairs, which do not
include the useful lives of the property are expensed as
incurred.
Intangible Assets
Intangible assets consists of costs incurred in obtaining
the financing of the building and are amortized over the
term of the loan. Accumulated amortization was $33,187 at
December 31, 1998.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
2. Summary of Rental Revenue
Significant
Accounting The rental property is generally leased to tenants under
Policies 6-month noncancelable operating leases. Rental revenue is
Continued recognized on a straight line basis over the terms of the
leases net of provisions for uncollectible amounts. Tenant
security deposits are recognized as income when forfeited.
Cost Allocation
On March 1, 1993, the Partnership entered into a cross
easement agreement with Holly Ridge Associates, an
entity which owns Phase I of Holly Ridge. Holly Ridge
Phase I is located on property adjacent to the Phase II
property. The two phases share common amenities such as
the exercise facilities, sauna, tanning beds, swimming
pools, tennis courts, maintenance building, etc. In
addition, the same management company (Overland
Management Corporation) manages both projects. Under the
terms of the agreement, joint costs of the two phases
are allocated based on the number of units in each phase.
Management Fee
The Partnership pays a management fee to Overland
Management Corporation equal to 4% of defined gross
revenues.
Management's Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make certain estimates and assumptions.
These affect the reported amounts of assets, liabilities,
and the amount of any contingent assets or liabilities
disclosed in the financial statements. Actual results
could differ from the estimates made.
Income Taxes
Under the provision of the Internal Revenue Code and
applicable state laws, the Partnership is not directly
subject to income taxes; the results of its operations
are includable in the tax returns of its partners.
Therefore, no provision for income tax expense has been
included in the accompanying financial statements.
3. Related The Partnership has accounts receivable from individuals
Party and entities related to the general partner in the amount
Transactions of $272,081 at December 31, 1998, respectively. These
amounts are related to funds advanced to the related
entities.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Related A general partner of HR II Associates is also
Party vice-president of Overland Management Corporation.
Transactions Overland Management Corporation provides services for the
Continued Partnership, which include accounting services and
management functions. The management fee paid to
Overland Management Corporation for the year ended
December 31, 1998 was $41,763. In addition approximately
$408,000, was paid to Overland Management Corporation to
reimburse costs of payroll, payroll taxes and workman's
compensation insurance expenses for their employees who
provide on-site labor and management services to the
Partnership. At December 31, 1998, the Partnership's
accounts payable and accrued liabilities include
$10,845, respectively, payable to Overland Management
Corporation for these expenses.
4. Rental Rental property, is comprised of the following:
Property
<TABLE>
<S> <C>
Land and improvements $ 242,044
Buildings 4,475,452
Furniture, fixtures, and equipment 352,681
----------
5,070,177
Less accumulated depreciation (865,209)
----------
$4,204,968
==========
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
5. Other Other assets consist of escrows and reserves held by
Assets others in connection with the HUD Regulatory agreement or
long-term debt financing in the current of $179,417.
6. Long-Term Long-term debt consists of the following:
Debt
<TABLE>
<S> <C>
HUD-insured mortgage payable to a financial institution
due in monthly payments of $37,921 including interest at
8.25%. The mortgage is secured by real property and is
due in 2034 $ 5,222,038
Non-interest equity loan payable to a financial
institution payable upon the maturity of the HUD-insured
mortgage 684,400
-----------
Total long-term debt 5,906,438
Less current portion 25,178
-----------
$ 5,881,260
===========
Future maturities of long-term debt are as follows:
Year Ended December 31:
1999 $ 25,178
2000 27,335
2001 29,677
2002 32,221
2003 34,982
Thereafter 5,757,045
-----------
$ 5,906,438
===========
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
HR II ASSOCIATES
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
7. Commitment The Partnership entered into an agreement in March 1993
and with an entity which provided funds for certain costs in
Contingency connection with the construction of the Project. Under the
terms of the agreement, the Partnership is obligated to
pay additional interest amounts to this entity from the
proceeds of events such as sale or refinancing of the
Project.
8. Fair Value of None of the Partnership's financial instruments are held
Financial for trading purposes. The Partnership estimates that the
Instruments fair value of all financial instruments at December 31,
1998, does not differ materially from the aggregate
carrying values of its financial instruments recorded in
the accompanying balance sheet. The estimated fair value
amounts have been determined by the Partnership using
available market information and appropriate valuating
methodologies. Considerable judgement is necessarily
required in interpreting market data to develop the
estimates of fair value, and, accordingly, the estimates
are not necessarily indicative of the amounts that the
Partnership could realized in a current market exchange.
- --------------------------------------------------------------------------------
<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: April 5, 1999
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
President
(principal executive officer)
/s/ J. Michael Fried and Director of CIP Associates, Inc.
J. Michael Fried (the General Partner of the Registrant)
April 5, 1999
Senior Vice President (principal
/s/ Alan P. Hirmes financial officer) of CIP Associates, Inc.
Alan P. Hirmes (the General Partner of the Regis-
trant) April 5, 1999
Treasurer (principal accounting
/s/ Glenn F. Hopps officer) of CIP Associates, Inc.
Glenn F. Hopps (the General Partner of the Regis-
trant) April 5, 1999
/s/ Stephen M. Ross Director of CIP Associates, Inc.
Stephen M. Ross (the General Partner of the Regis-
trant) April 5, 1999
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,491,915
<SECURITIES> 0
<RECEIVABLES> 22,431,054
<ALLOWANCES> 694,061
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,561,927
<CURRENT-LIABILITIES> 82,266
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 28,479,661
<TOTAL-LIABILITY-AND-EQUITY> 28,561,927
<SALES> 0
<TOTAL-REVENUES> 3,104,678
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 637,423
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,392,152
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,392,152
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
