-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bsic+cMpfXYhYHUbX92s0nKstTaohwQb+YB4t9uqUrro5kxB/YyT0No/znKiyAUn U3kNTXsMStpq9z+PSEpYnw== 0000950148-98-000926.txt : 19980416 0000950148-98-000926.hdr.sgml : 19980416 ACCESSION NUMBER: 0000950148-98-000926 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD VI CENTRAL INDEX KEY: 0000715578 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953778627 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13112 FILM NUMBER: 98594240 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD SUITE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 10-K405 1 FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended DECEMBER 31, 1997 Commission File Number 0-13112 REAL ESTATE ASSOCIATES LIMITED VI A CALIFORNIA LIMITED PARTNERSHIP I.R.S. Employer Identification No. 95-3778627 9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 2 PART I. ITEM 1. BUSINESS Real Estate Associates Limited VI ("REAL VI" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on October 12, 1982. On April 22, 1983, REAL VI offered 4,200 units consisting of 8,400 limited partnership interests and warrants to purchase a maximum of 8,400 additional limited partnership interests through a public offering managed by E.F. Hutton Inc. The general partners of REAL VI are National Partnership Investments Corp. ("NAPICO"), a California corporation, (the "Corporate General Partner"), and National Partnership Investment Associates ("NAPIA"). NAPIA is a limited partnership formed under the California Limited Partnership Act and consists of Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner, and Mr. Charles H. Boxenbaum as limited partner. The business of REAL VI is conducted primarily by NAPICO. NAPICO is a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden. REAL VI holds limited partnership interests in 26 local limited partnerships and a general partner interest in one general partnership. REAL VI also holds a general partner interest in Real Estate Associates III ("REA III") which, in turn, holds limited partner interests in seven local limited partnerships. The other general partner of REA III is NAPICO. Therefore, REAL VI currently holds interests either directly or indirectly in 33 local limited partnership and one local general partnership, which own a low income housing project which is subsidized and/or has a mortgage note payable to or insured by agencies of the federal or local government. In order to stimulate private investment in low income housing, the federal government and certain state and local agencies have provided significant ownership incentives, including among others, interest subsidies, rent supplements, and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. There remain, however, significant risks. The long-term nature of investments in government assisted housing limits the ability of REAL VI to vary its portfolio in response to changing economic, financial and investment conditions; such investments are also subject to changes in local economic circumstances and housing patterns, as well as rising operating costs, vacancies, rent collection difficulties, energy shortages and other factors which have an impact on real estate values. These projects also require greater management expertise and may have higher operating expenses than conventional housing projects. Under recent adopted law and policy, HUD has determined not to renew HAP Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. 3 The local partnerships in which REAL VI has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL VI became the principal limited or general partner in these local partnerships pursuant to arm's-length negotiations with these developers, or others, who normally act as general partners. As a limited partner, REAL VI's liability for obligations of the local limited partnership is limited to its investment. The local general partner of the local limited partnership retains responsibility for developing, constructing, maintaining, operating and managing the project. Under certain circumstances of default, REAL VI has the right to replace the general partner of the local limited partnerships but otherwise does not have control of sale or refinancing, etc. As discussed above, REAL VI is a general partner in certain of the local partnerships. Although each of the partnerships in which REAL VI has invested will generally own a project which must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area. 4 During 1997, projects in which REAL VI had invested were substantially rented. The following is a schedule of the status, as of December 31, 1997, of the projects owned by local partnerships in which REAL VI, either directly or indirectly through REA III, has invested. SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED AND GENERAL PARTNERSHIPS IN WHICH REAL VI HAS AN INVESTMENT DECEMBER 31, 1997
Units Authorized For Rental No. of Assistance Under Units Percentage of Name & Location Units Section 8 Occupied Total Units - --------------- ------- ----------------- ----------- ------------- Local Partnerships Boynton Terrace 89 89 89 100% Boynton Beach, FL Cady Brook Apts. 40 None 39 98% Charlton, MA Cassidy Village 98 50 92 94% Columbus, Ohio Century Plaza 120 120 120 100% Hampton, VA City Heights Senior Citizens 151 150 151 100% Wilkes-Bar, PA Crockett Manor 38 38 38 100% Trenton, TN Denny Place 17 4 16 94% Los Angeles, CA Eastridge Apts. 96 65 92 96% Briston, VA Echo Valley Apts. 100 100 90 90% Warwick, RI Filmore I 32 32 31 97% Phoenix, AZ Grant-Ko Enterprises 40 None 38 95% Platteville, WI Hudson Gardens 41 41 41 100% Pasadena, CA Hummelstown Manor 51 50 51 100% Hummelstown, PA Kentucky Manor 48 None 46 96% Oak Grove, KY Lonsdale Housing 131 131 131 100% Providence, RI Mariner's Cove 500 100 480 96% San Diego, CA Marshall Plaza I 40 40 40 100% Lorain, Ohio Marshall Plaza II 50 48 49 98% Lorain, Ohio Menlo Estates 80 80 78 98% Riverside County, CA Mulberry Towers 206 205 206 100% Scranton, PA New-Bel-Mo 34 None 28 82% New Glarus, Bellemont, Monticello, WI Oakridge Apts. II 48 None 48 100% Biloxi, MS Oakwood Manor 34 34 31 91% Milan, TN Park Place 126 125 125 99% Ewing, NJ
5 SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED AND GENERAL PARTNERSHIPS IN WHICH REAL VI HAS AN INVESTMENT DECEMBER 31, 1997 CONTINUED
Units Authorized For Rental No. of Assistance Under Units Percentage of Name & Location Units Section 8 Occupied Total Units - --------------- ------ ----------------- ----------- ------------- Park Place Apts. 60 60 58 97% Cleveland, TX Parkesedge Elderly Apts. 45 45 45 100% Parkesedge, PA Penneco II 76 76 65 86% Johnstown, PA Sauk-Ko Enterprises 30 None 26 87% Baraboo, WI Sol 413 12 12 12 100% Old San Juan, PR Valley Oaks Senior 50 None 50 100% Gault, CA Victory Square 81 81 81 100% Canton, Ohio Villas de Orocovix 41 41 41 100% Orocovix, PR Willow Wood 19 4 19 100% Los Angeles, CA Peppertree 136 None 132 97% Cypress, CA ----- ----- ----- -- TOTALS 2,760 1,829 2,679 95% ===== ===== =====
6 ITEM 2. PROPERTIES The local limited and general partnerships in which REAL VI holds interests own various multi family properties. See Item 1 for information pertaining to these properties. ITEM 3. LEGAL PROCEEDINGS As of December 31, 1997, the Partnership's General Partner was a plaintiff or defendant in several suits. None of these lawsuits were related to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS The Limited Partnership Interests are not traded on a public exchange but were sold through a public offering managed by E. F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any partnership interests. Limited Partnership Interests may be transferred only if certain requirements are satisfied. At December 31, 1997, there were 3,613 registered holders of units in REAL VI. Distributions have not been made from the inception of the Partnership to December 31, 1997. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investments in limited partnerships. 7 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, ------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Loss from Rental Operations $ (20,075) $ (175,242) $ (246,036) $ (238,520) $ (105,574) Loss from Partnership Operations (1,132,951) (1,129,499) (1,307,251) (1,110,060) (1,422,906) Gain on Foreclosure -- 1,902,022 -- -- 4,095,110 Equity in Income (Loss) of Limited Partnerships and Amortization of Acquisition Costs 625,029 603,934 415,526 433,356 (111,547) Distribution from Limited Partnerships Recognized as Income 499,540 597,425 347,163 500,498 247,782 ------------ ------------ ------------ ------------ ------------ Net Income (Loss) $ (28,457) $ 1,798,640 $ (790,598) $ (414,726) $ 2,702,865 ============ ============ ============ ============ ============ Net Income (Loss) per Limited Partnership Interest $ (1) $ 107 $ (47) $ (24) $ 159 ============ ============ ============ ============ ============ Total Assets $ 15,743,687 $ 15,286,368 $ 18,337,139 $ 18,725,681 $ 18,810,269 ============ ============ ============ ============ ============ Investments in Limited Partnerships $ 5,885,699 $ 6,051,522 $ 5,619,146 $ 5,213,864 $ 5,032,639 ============ ============ ============ ============ ============ Rental Property $ 3,016,049 $ 3,158,470 $ 7,285,002 $ 7,638,829 $ 7,937,314 ============ ============ ============ ============ ============ Mortgage Notes Payable $ 4,828,404 $ 4,886,300 $ 9,890,564 $ 9,993,001 $ 10,086,190 ============ ============ ============ ============ ============ Notes Payable and Amounts Due for Partnership Interests $ 5,795,000 $ 5,795,000 $ 5,795,000 $ 5,795,000 $ 5,795,000 ============ ============ ============ ============ ============
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY The Partnership's primary sources of funds include interest income on money market funds and certificates of deposit and distributions from local partnership in which the Partnership has invested. It is not expected that any of the local partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to the Partnership's limited partners in any material amount. The financial statements of the two general partnerships in which REAL VI is the majority general partner, have been consolidated in the accompanying financial statements. One of these partnerships is a local operating partnership which owns and operates an apartment building. The units are leased primarily on a month-to-month basis. These partnerships' primary source of funds are the rental payments from tenants. Expenditures primarily include normal operating expenses and debt service. CAPITAL RESOURCES REAL VI received $42,000,000 in subscriptions for units of limited partnership interests (at $5,000 per unit) during the period April 22, l983, to March 31, 1984, pursuant to a registration statement on Form S-11. The Partnership is committed to make additional capital contributions of $90,500 to its investee limited partnerships, if certain conditions are met. This amount has not been reflected as a liability in the accompany financial statements. The Partnership has no significant commitments for additional capital expenditures to the general partnership which has been consolidated. RESULTS OF OPERATIONS The Partnership was formed to provide various benefits to its partners as discussed in Item 1. It is anticipated that the local limited partnerships in which REAL VI has invested could produce tax losses for as long as 20 years. Tax benefits will decline over time as the advantages of accelerated depreciation are greatest in the earlier years, as deductions for interest expense will decrease as mortgage principal is amortized and as the Tax Reform Act of 1986 limits the deductions available. On February 2, 1996, one of the consolidated general partnerships (Drexel Park) sold its property for $6,300,000. After payment of closings costs, the Partnership realized a gain of approximately $1,902,000 and received cash of $830,000. The sale of this property reduced rental operations in 1997 and 1996 as compared to 1995. At December 31, 1997, the Partnership has investments in 33 limited partnerships, all of which own housing projects that were substantially all rented. The Partnership, as a limited partner, is entitled to 90% to 99% of the profits and losses of the local limited partnerships. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. Limited partners are not liable for losses beyond their contributed capital. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. 9 The total losses from the 33 local limited partnerships that were allocated to the Partnership were $1,.932,000, $1,869,000 and $2,214,000 for the years ended December 31, 1997, 1996 and 1995, respectively. However, because losses incurred after the investment account is reduced to a zero balance are not recognized, the Partnership recognized equity in income of limited partnerships of $642,529, $603,934 and $415,526 for the years ended December 31, 1997, 1996 and 1995, respectively. During the year ended December 31, 1995, the Partnership contributed $191,044 to local limited partnerships, thereby allowing the Partnership to recognize a loss from those partnerships in that amount, which reduced the income recognized from the partnerships with positive investment balances. The capital contributions for 1997 and 1996 were $15,412 and $5,294, respectively, for each year. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $29,631,000 and $27,372,000 as of December 31, 1997 and 1996, respectively. Distributions from the local limited partnerships in which the Partnership did not have a positive investment balance were $499,540, $597,425 and $347,163 for the years ended December 31, 1997, 1996 and 1995, respectively. These amounts were recognized as income on the accompanying statements of operations, in accordance with the equity method of accounting. As of December 31, 1997, 1996 and 1995, the Partnership has cash and cash equivalents of $6,611,690, $5,849,983 and $4,895,340, respectively. These amounts are on deposit primarily with two high credit quality financial institutions, earning interest. In addition to increasing deposits, as a result of changing financial institutions where the cash and cash equivalents are on deposit, the interest rate earned on such deposits in 1997 was significantly greater than in prior years. This resulted in the Partnership earning $299,009, $165,591 and $168,911 in interest income for the years ended December 31, 1997, 1996 and 1995, respectively. The amount of interest income varies with market rates available and with the amount of funds available for investment. Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise. The Partnership intends to continue investing available funds in this manner. Should the Partnership complete the sale of interests, its obligations may be reduced and a distribution of cash may be disbursed to the partners. A recurring partnership expense is the annual management fee. The fee is payable to the Corporate General Partner of the Partnership and is calculated at .4 percent of the Partnership's invested assets. The management fee is paid to the Corporate General Partner for its continuing management of partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a local limited partnership. Management fees were $501,660, $513,393 and $535,489 for the years ended December 31, 1997, 1996 and 1995, respectively. The fees have decreased due to the sales of properties owned by local partnerships, which reduced the invested assets. Under recent adopted law and policy, HUD has determined not to renew HAP Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $127,514 for the year ended December 31, 1997. 10 A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VI; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. General and administrative expenses were generally consistent for the three years presented. General and administrative expenses were $396,600, $262,047 and $289,923 for the years ended December 31, 1997, 1996 and 1995, respectively. Included in general and administrative expenses are reimbursements to NAPICO for certain expenses, which totalled $51,487, $47,231 and $43,729 for the years ended December 31, 1997, 1996 and 1995, respectively. Also included in partnership general and administrative expenses for 1997 is $127,514 in expenses, approximately $89,000 of which is included in accounts payable at December 31, 1997, related to the aforementioned third party review of the properties owned by the local partnership. In 1995, NAPICO received mortgage brokerage fees of $131,000 for its involvement with the refinancing of limited partnerships' mortgages. The Partnership is obligated on non-recourse notes payable of $5,470,000 which bear interest at 9.5 or 10.0 percent per annum and have principal maturities ranging from December 1999 to December 2012. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Since no payments have been made on these notes, interest expense has remained fairly constant and was $533,700, $519,650 and $519,650 for each of the three years in the period ended December 31, 1997. The results of operations of the local limited partnerships were fairly constant during the years ended December 31, 1997, 1996 and 1995. Contributing to the relative stability of operations at the local partnerships is the fact that substantially all of the local partnerships are operating apartment projects which are subsidized and have mortgage notes payable to or insured by agencies of the federal or local government. Total revenue for the 33 local partnerships has remained fairly constant, and was $20,921,000, $21,246,000 and $20,571,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Total expenses for the 33 local partnerships remained fairly consistent, and were $22,866,000, $23,123,000 and $23,034,000 for the years ended December 31, 1997, 1996 and 1995, respectively. 11 The total net loss for the 33 local partnerships for 1997, 1996 and 1995 aggregated $1,945,000, $1,877,000 and $2,463,000, respectively. The losses allocable to the Partnership were $1,933,000, $1,869,000 and $2,214,000 for 1997, 1996 and 1995, respectively. During the year ended December 31, 1997, the local limited partnership that owns Drexel III consummated the sale of the apartment complex. The Partnership received distributions of $670,245 of which $597,601 was recognized as a return of capital and $72,644 was recognized as distributions to income. The Partnership financial statements reflect no investment in the Drexel III local Partnership. The Partnership, as a limited or general partner in the local partnerships in which it has invested, is subject to the risks incident to the construction, management, and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions and accordingly, the status of the national economy, including substantial unemployment, concurrent inflation, and changing legislation could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are listed under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A California limited partnership) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT DECEMBER 31, 1997 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Real Estate Associates Limited VI (A California limited partnership) We have audited the accompanying balance sheets of Real Estate Associates Limited VI (a California limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' deficiency and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the index on item 14. These financial statements and financial statement schedules are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The investments in these limited partnerships represent 35 percent and 27 percent of total assets as of December 31, 1997 and 1996, respectively, and the equity in income of these limited partnerships represents 12 percent, 12 percent and 13 percent of the total net income of the Partnership for the years ended December 31, 1997, 1996 and 1995, respectively, and represent a substantial portion of the investee information in Note 2 and the financial statement schedules. The financial statements of these limited partnerships are audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Associates Limited VI as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California April 6, 1998 14 [SANSIVERI, KIMBALL & MCNAMEE, L.L.P. LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners of Charlton Housing Associates (A Limited Partnership): We have audited the accompanying balance sheet of Charlton Housing Associates (A Limited Partnership) (the Partnership) as of December 31, 1996, 1995 and 1994, and the related statements of revenue and expenses, cash flows, and changes in partners' capital (deficit) for each of the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Charlton Housing Associates as of December 31, 1996, 1995 and 1994, and the results of its operations, its cash flows, and its changes in partners' capital (deficit) for each of the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information is presented for the purpose of additional analysis, as required by USDA Rural Development, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits 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. /s/ SANSIVERI, KIMBALL & MCNAMEE, L.L.P. Providence, Rhode Island January 15, 1997 15 [REZNICK FEDDER & SILVERMAN LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Charlton Housing Associates Limited Partnership We have audited the accompanying balance sheets of Charlton Housing Associates Limited Partnership as of December 31, 1997, and the related statements of operations, partners' equity 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. The financial statements of Charlton Housing Associates Limited Partnership as of and for the year ended December 31, 1996, were audited by other auditors whose report, dated January 15, 1997, expressed an unqualified opinion on those statements. 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 1997 financial statements referred to above present fairly, in all material respects, the financial position of Charlton Housing Associates Limited Partnership as of December 31, 1997, and the results of its operations, the changes in partners' equity and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated January 31, 1998, on our consideration of Charlton Housing Associates Limited Partnership's internal control and on its compliance with laws and regulations applicable to the financial statements. /s/ REZNICK FEDDER & SILVERMAN Baltimore, Maryland January 31, 1998 - 3 - 16 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners of Cassady Village Apartments, Ltd. We have audited the accompanying balance sheets of CASSADY VILLAGE APARTMENTS, LTD., FHA Project No. 043-44028-LDP (Partnership), as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cassady Village Apartments, Ltd. as of December 31, 1997 and 1996, and its results of operations, changes in partners' equity and cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying 1997 additional financial data (shown on pages 14 through 19) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the 1997 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. 2 17 In accordance with Government Auditing Standards, we have also issued a report dated January 26, 1998 on our consideration of the Partnership's internal control and a report dated January 26, 1998, on its compliance with laws and regulations. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois January 26, 1998 18 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners of Cassady Village Apartments, Ltd. We have audited the accompanying balance sheet of CASSADY VILLAGE APARTMENTS, LTD. (an Ohio limited partnership), FHA Project Number 043-44028-LDP, (the "Partnership") as of December 31, 1995, and the related statements of operations, changes in partners' equity 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. The financial statements of the Partnership as of and for the year ended December 31, 1994 were audited by other auditors whose report dated January 19, 1995, expressed an unqualified opinion on those statements. 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 1995 financial statements referred to above present fairly, in all material respects, the financial position of Cassady Village Apartments, Ltd. as of December 31, 1995, and the results of its operations, changes in partners' equity and cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 2, 1996, on our consideration of the Partnership's internal control structure and a report dated February 2, 1996, on its compliance with laws and regulations. 19 Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The additional financial data required by the U.S. Department of Housing and Urban Development shown on pages 13 through 19 are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has been subjected to the procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois February 2, 1996 20 [REZNICK FEDDER & SILVERMAN LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Charlton Housing Associates Limited Partnership We have audited the accompanying balance sheet of Charlton Housing Associates Limited Partnership as of December 31, 1997, and the related statements of operations, partners' equity 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. The financial statements of Charlton Housing Associates Limited Partnership as of and for the year ended December 31, 1996, were audited by other auditors whose report, dated January 15, 1997, expressed an unqualified opinion on those statements. 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 1997 financial statements referred to above present fairly, in all material respects, the financial position of Charlton Housing Associates Limited Partnership as of December 31, 1997, and the results of its operations, the changes in partners' equity and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated January 31, 1998, on our consideration of Charlton Housing Associates Limited Partnership's internal control and on its compliance with laws and regulations applicable to the financial statements. /s/ REZNICK FEDDER & SILVERMAN Baltimore, Maryland January 31, 1998 21 [PAUL DAMIANO LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Partners Riverpoint Associates a/k/a Echo Valley Associates (A Limited Partnership) W. Warwick, RI We have audited the accompanying balance sheet of RIHMFC Project No. RI-43-HO23-021 of Riverpoint Associates, a/k/a Echo Valley Associates (a limited partnership) as of June 30, 1997, and the related statements of profit and loss and changes in partners' capital deficiency and cash flows for the year then ended. These financial statements are the responsibility of the project'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. As more fully described in Note 1 to the financial statements, the partnership has computed depreciation on several major assets in accordance with accelerated cost recovery system (ACRS) required for federal income tax purposes, which does not allocate depreciation to expense over the estimated useful lives to conform with generally accepted accounting principles. If the financial statements were corrected for that departure from generally accepted accounting principles, based on a straight-line depreciation method, accumulated depreciation would be decreased by $2,147,340 as of June 30, 1997 and net income would be increased by $68,965 for the year then ended. In our opinion, except for the effects of computing depreciation as discussed in the preceeding paragraph, the financial statements referred to above present fairly in all material respects, the financial position of RIHMFC Project No. RI-43-HO23-021 as of June 30, 1997 and the results of Its operations and the changes in partners' capital deficiency and cash flows for the year then ended in conformity with generally accepted accounting principles. 22 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supporting information included in the report shown on pages 11-16 are presented for the purposes of additional analysis and are not a required part of the basic financial statements of RIHMFC Project No. RI-43-HO23-021. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated September 23, 1997 on our consideration of Riverpoint Associates' internal control structure and a report dated September 23, 1997 on its compliance with specific requirements applicable to RIHMFC-programs. /s/ PAUL DAMIANO, CPA, PC Lincoln, RI 02865 September 23, 1997 23 [PAUL DAMIANO LETTERHEAD] INDEPENDENT AUDITORS' REPORT ---------------------------- The Partners Riverpoint Associates a/k/a Echo Valley Associates (A Limited Partnership) W. Warwick, RI We have audited the accompanying balance sheet of RIHMFC Project No. RI-43-H023-021 of Riverpoint Associates, a/k/a Echo Valley Associates (a limited partnership) as of June 30, 1996, and the related statements of profit and loss and changes in partners' capital deficiency and cash flows for the year then ended. These financial statements are the responsibility of the project'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. As more fully described in Note 1 to the financial statements, the partnership has computed depreciation on several major assets in accordance with accelerated cost recovery system (ACRS) required for federal income tax purposes, which does not allocate depreciation to expense over the estimated useful lives to conform with generally accepted accounting principles. If the financial statements were corrected for that departure from generally accepted accounting principles, based on a straight-line depreciation method, accumulated depreciation would be decreased by $2,078,375 as of June 30, 1996 and net income would be increased by $67,629 for the year then ended. In our opinion, except for the effects of computing depreciation as discussed in the preceding paragraph, the financial statements referred to above present fairly in all material respects, the financial position of RIHMFC Project No. RI-43-H023-021 as of June 30, 1996 and the results of its operations and the changes in partners' capital deficiency and cash flows for the year then ended in conformity with generally accepted accounting principles. 24 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supporting information included in the report shown on pages 11-16 are presented for the purposes of additional analysis and are not a required part of the basic financial statements of RIHMFC Project No. RI-43-H023-021. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated September 17, 1996 on our consideration of Riverpoint Associates' internal control structure and a report dated September 17, 1996 on its compliance with specific requirements applicable to RIHMFC-programs. /s/ PAUL DAMIANO CPA, PC ------------------------ Lincoln, Rhode Island September 17, 1996 25 [NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Partners Hudson Street Apartments Culver City, California We have audited the accompanying balance sheets of Hudson Street Apartments (a California partnership), CHFA Project No. 79-19-S, as of December 31, 1997 and 1996 and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hudson Street Apartments as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards we have also issued reports dated January 23, 1998 on our consideration of Hudson Street Apartments' internal controls and on its compliance with laws and regulations applicable to the California Housing Financing Agency's financial assistance programs. /s/ NANAS, STERN, BIERS, NEINSTEIN AND CO. ------------------------------------------ NANAS, STERN, BIERS, NEINSTEIN AND CO. January 23, 1998 Beverly Hills, California 26 [NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Partners Hudson Street Apartments Culver City, California We have audited the accompanying balance sheets of Hudson Street Apartments (a California partnership). CHFA Project No. 79-19-S, as of December 31, 1996 and 1995 and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hudson Street Apartments as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards we have also issued reports dated January 22, 1997 on our consideration of Hudson Street Apartments' Internal Control Structure and on its compliance with laws and regulations applicable to the California Housing Financing Agency's financial assistance programs. /s/ NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP -------------------------------------------------- NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP January 22, 1997 Beverly Hills, California 27 [KPMG PEAT MARWICK LLP LETTERHEAD] REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION INDEPENDENT AUDITORS' REPORT The Partners Lonsdale Housing Associates: We have audited the accompanying balance sheet of Lonsdale Housing Associates (the "Partnership"), HUD Project RI-43-HO23-087, as of May 31, 1997, and the related statements of profit and loss (on HUD Form 92410), changes in partners' equity 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 the Partnership as of May 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated June 19, 1997 on: our consideration of the Partnership's internal control structure, the Partnership's compliance with specific requirements applicable to major HUD programs, and the Partnership's compliance with specific requirements applicable to affirmative fair housing. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information included in Schedules I through 7 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. /s/ KPMG PEAT MARWICK LLP June 19, 1997 Providence, Rhode Island 28 [KPMG PEAT MARWICK LLP LETTERHEAD] REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION INDEPENDENT AUDITORS' REPORT The Partners Lonsdale Housing Associates (A Limited Partnership): We have audited the accompanying balance sheet of Lonsdale Housing Associates (A Limited Partnership) (the "Partnership"), HUD Project No. RI-43-HO23-087, as of May 31, 1996, and the related statements of profit and loss (on HUD Form 92410), changes in partners' equity 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 the Partnership as of May 31, 1996 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated June 21, 1996 on: our consideration of the Partnership's internal control structure, the Partnership's compliance with specific requirements applicable to major HUD programs, and the Partnership's compliance with specific requirements applicable to affirmative fair housing. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information included in Schedules 1 through 7 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 financial statements taken as a whole. /s/ KPMG PEAT MARWICK LLP Providence, Rhode Island June 21, 1996 29 [KPMG PEAT MARWICK LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT The Partners Lonsdale Housing Associates (A Limited Partnership): We have audited the accompanying balance sheet of Lonsdale Housing Associates (A Limited Partnership) Project No. RI-43-HO23-087 as of May 31, 1995, and the related statements of profit and loss (on HUD Form 92410), changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of 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 Lonsdale Housing Associates (A Limited Partnership) Project No. RI-43-HO23-087 at May 31, 1995 and the results of its operations and its 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 supplementary information included in Schedules 1 through 7 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 presented in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG PEAT MARWICK LLP Providence, Rhode Island June 29, 1995 30 [PARENTE o RANDOLPH o ORLANDO o CAREY & ASSOCIATES LETTERHEAD] INDEPENDENT AUDITOR'S REPORT To the Partners Mulberry Associates: We have audited the accompanying balance sheets of Mulberry Associates (a limited partnership), FHA Project No. 034-35146-LD, as of December 31, 1997 and 1996, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mulberry Associates (a limited partnership) as of December 31, 1997 and 1996, and the results of its operations, changes in partners' equity (deficit) 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 January 30, 1998, on our consideration of Mulberry Associates' (a limited partnership) internal control, and reports dated January 30, 1998, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination. 31 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on pages 15 to 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Mulberry Associates (a limited partnership). 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. /s/ PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES Wilkes-Barre, Pennsylvania January 30, 1998 32 [PARENTE o RANDOLPH o ORLANDO o CAREY & ASSOCIATES LETTERHEAD] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners Mulberry Associates: We have audited the accompanying balance sheets of Mulberry Associates (a limited partnership), FHA Project No. 034-35146-LD, as of December 31, 1996 and 1995, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mulberry Associates (a limited partnership) as of December 31, 1996 and 1995, and the results of its operations, changes in partners' equity (deficit) and its 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 January 29, 1997, on our consideration of Mulberry Associates' (a limited partnership) internal control structure, and reports dated January 29, 1997, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing. 33 Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on pages 14 to 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Mulberry Associates (a limited partnership). 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. /s/ PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES Wilkes-Barre, Pennsylvania January 29, 1997 34 [WEGNER LLP LETTERHEAD] ACCOUNTANT'S REVIEW REPORT To the Partners New-Bel-Mo Enterprises (A Limited Partnership) Fennimore, Wisconsin We have reviewed the accompanying balance sheets of New-Bel-Mo Enterprises (a limited partnership) RECDS Case No. 58-023-0391456911, as of December 31, 1997, 1996 and 1995 and the related statements of operations and partners deficit and cash flows for the years then ended in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the project's owners. A review consists principally of inquiries of Project personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. Our reviews were made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The supplementary information listed in the table of contents is presented only for supplementary analysis purposes. Such information has been subjected to the inquiry and analytical procedures applied in the reviews of the basic financial statements, and we are not aware of any material modifications that should be made thereto. /s/ WEGNER LLP Wegner LLP Madison, Wisconsin January 16, 1998 35 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE TENNESSEE HOUSING DEVELOPMENT AGENCY AND THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners Oakwood Manor Associates, Ltd. We have audited the accompanying balance sheets of OAKWOOD MANOR ASSOCIATES, LTD. (a Tennessee limited partnership), THDA Project No. 8.9.02 (the "Partnership"), as of December 31, 1997 and 1996 and the related statements of income, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oakwood Manor Associates, Ltd. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying 1997 additional financial data (shown on pages 13 through 20) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the 1997 basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. 36 In accordance with Government Auditing Standards, we have also issued a report dated March 2, 1998 on our consideration of the Partnership's internal control and a report dated March 2, 1998 on its compliance with laws and regulations. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Los Angeles, California March 2, 1998 37 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE TENNESSEE HOUSING DEVELOPMENT AGENCY AND THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners of Oakwood Manor Associates, Ltd. We have audited the accompanying balance sheet of OAKWOOD MANOR ASSOCIATES, LTD. (a Tennessee limited partnership), THDA Project Number 8.9.02 (the "Partnership") as of December 31, 1995, and the related statements of operations, changes in partners' equity 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. The financial statements of the Partnership as of and for the year ended December 31, 1994 were audited by other auditors whose report dated February 15, 1995, expressed an unqualified opinion on those statements. 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 1995 financial statements referred to above present fairly, in all material respects, the financial position of Oakwood Manor Associates, Ltd. as of December 31, 1995, and the results of its operations, changes in its partners' equity, and its cash flows for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 19, 1996 on our consideration of the Partnership's internal control structure and a report dated February 19, 1996 on its compliance with laws and regulations. 38 Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying additional financial data shown on pages 14 through 20 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Los Angeles, California February 19, 1996 39 [FISHBEIN & COMPANY, P.C. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT January 15, 1998 Partners Park Place Associates We have audited the accompanying balance sheets of PARK PLACE ASSOCIATES (A New Jersey Limited Partnership) as of December 31, 1997, 1996, and 1995, and the related statements of operations, equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards" issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Partnership's policy is to prepare its financial statements on the basis of accounting practices prescribed or permitted by the New Jersey Housing & Mortgage Finance Agency. These practices differ in some respects from generally accepted accounting principles as more fully described in Note 1-b to the financial statements. Accordingly, the accompanying statements of operations are not intended to present the results of operations in conformity with generally accepted accounting principles. In our opinion, except as noted in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Park Place Associates as of December 31, 1997, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. 40 [FISHBEIN & COMPANY, P.C. LETTERHEAD] Page 2 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information included in this report (shown on pages 12 through 19) is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. 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 January 15, 1998, on our consideration of Park Place Associates' internal control structure and reports dated January 15, 1998, on its compliance with specific requirements applicable to major HUD programs and fair housing and nondiscrimination. /s/ FISHBEIN & COMPANY, P.C. Elkins Park, Pennsylvania 41 [LEONIAK, BAIR & COMPANY LETTERHEAD] INDEPENDENT AUDITORS' REPORT Partners Parkesedge Associates State College, Pennsylvania We have audited the accompanying balance sheets of Parkesedge Associates as of December 31, 1997 and 1996, and the related statements of income and partnership equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parkesedge Associates as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated February 4, 1998 on our consideration of Parkesedge Associates' internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. /s/ LEONIAK, BAIR & COMPANY State College, Pennsylvania February 4, 1998 42 [LEONIAK, BAIR & COMPANY LETTERHEAD] INDEPENDENT AUDITORS' REPORT Partners Parkesedge Associates State College, Pennsylvania We have audited the accompanying balance sheets of Parkesedge Associates as of December 31, 1996 and 1995, and the related statements of income and partnership equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of Parkesedge Associates as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 1, 1997 on our consideration of Parkesedge Associates' internal control structure and a report dated February 1, 1997 on its compliance with laws and regulations. /s/ LEONIAK, BAIR & COMPANY State College, Pennsylvania February 1, 1997 43 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Owners of Penneco Associates of Johnstown II We have audited the accompanying balance sheets of PENNECO ASSOCIATES OF JOHNSTOWN II, (the "Project") FHA Project No. PA-28-0004-025, as of December 31, 1997 and 1996, and the related statements of operations, changes in project deficit and cash flows for the years then ended. These financial statements are the responsibility of the Project's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Penneco Associates of Johnstown II, as of December 31, 1997 and 1996, and its results of operations, changes in project deficit and cash flows for the years then ended in conformity with generally accepted accounting principles. The financial statements have been prepared assuming the Project will continue as a going concern. As discussed in Notes 3 and 6 to the financial statements, the Project's capital deficit, unpaid property taxes and legal judgment raise substantial doubt about the Project's ability to continue as a going concern. Management's plans regarding these matters are described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In accordance with Government Auditing Standards, we have also issued a report dated February 12, 1998 on our consideration of the Project's internal control and a report dated February 12, 1998, on its compliance with laws and regulations. 44 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying 1997 additional financial data (shown on pages 14 through 18) are presented for the purpose of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois February 12, 1998 45 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Owners of Penneco Associates of Johnstown II We have audited the balance sheet of PENNECO ASSOCIATES OF JOHNSTOWN II, FHA Project Number PA-28-0004-009, as of December 31, 1995, and the statements of operations, changes in project deficit and cash flows for the year then ended. These financial statements are the responsibility of the Project'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 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 Penneco Associates of Johnstown II as of December 31, 1995, and the results of its operations, changes in project deficit and cash flows for the year then ended in conformity with generally accepted accounting principles. The financial statements have been prepared assuming the Project will continue as a going concern. As discussed in Notes 3 and 4 to the financial statements, the Project's capital deficit, unpaid property taxes and legal judgment raise substantial doubt about the Project's ability to continue an a going concern. Management's plans regarding these matters are described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In accordance with Government Auditing Standards, we have also issued a report dated February 7, 1996, on our consideration of the Project's internal control structure and a report dated February 7, 1996, on its compliance with laws and regulations. 46 Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The additional financial data shown on pages 14 through 18 are presented for purposes of additional analysis and are not a required part of the financial statements. This information has been subjected to the procedures applied in the audit of the financial statements and, in our opinion, is stated fairly in all material respects in relation to the financial statements taken as a whole. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois February 7, 1996 47 INDEPENDENT AUDITORS' REPORT To the Partners Sol 413 Limited Dividend Partnership We have audited the accompanying balance sheet of Sol 413 Limited Dividend Partnership as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), 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 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 Sol 413 Limited Dividend Partnership, as of December 31, 1997, and the results of its operations, the changes in partners' deficit and its 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, such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 48 In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 12, 1998, on our consideration of Sol 413 Limited Dividend Partnership's internal control and on its compliance with specific requirements applicable to major and nonmajor HUD programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. San Juan, Puerto Rico Federal Employer Identification January 12, 1998, except Note F Number: 66-0432941 which is as of March 3, 1998 Audit Principal: William T. Riley, Jr. 49 [SANTIAGO, RILEY & REZNICK LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Sol 413 Limited Dividend Partnership We have audited the accompanying balance sheet of Sol 413 Limited Dividend Partnership as of December 31, 1996, and the related statements of profit and loss (on HUD Form No. 92410), 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 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 Sol 413 Limited Dividend Partnership, as of December 31, 1996, and the results of its operations, changes in partners' deficit and its 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 20 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, except for the effects, if any, of the items discussed in the third paragraph, such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 50 In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 13, 1997, on our consideration of Sol 413 Limited Dividend Partnership's internal control structure and on its compliance with specific requirements applicable to major and nonmajor HUD Programs, affirmative fair housing, and laws and regulations applicable to the financial statements. /s/ SANTIAGO, RILEY & REZNICK [SEAL] San Juan, Puerto Rico Federal Employer January 13, 1997 Identification Number: 66-0432841 Audit Principal: William T. Riley, Jr. 51 [SANTIAGO, RILEY & REZNICK LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Sol 413 Limited Dividend Partnership We have audited the accompanying balance sheet of Sol 413 Limited Dividend Partnership as of December 31, 1995, and the related statements of profit and loss (on HUD Form No. 92410), 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. Except as discussed in the following paragraph, 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. The Partnership has not maintained certain customary accounting records and supporting documents relating to transactions with a general partner as discussed in Note E. We were unable to satisfy ourselves by other auditing procedures as to the possible effects of transactions with the general partner. In our opinion, except for the effects, if any, of the items discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Sol 413 Limited Dividend Partnership, as of December 31, 1995, and the results of its operations, changes in partners' deficit, and its cash flows for the year then ended in conformity with generally accepted accounting principles. 52 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 19 through 24 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, except for the effects, if any, of the items discussed in the third paragraph, such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated January 25, 1996, on our consideration of Sol 413 Limited Dividend Partnership's internal control structure and on its compliance with specific requirements applicable to major and nonmajor HUD programs, affirmative fair housing, and laws and regulations applicable to the financial statements. /s/ SANTIAGO, RILEY & REZNICK [SEAL] San Juan, Puerto Rico Federal Employer January 25, 1996 Identification Number: 66-0432841 Audit Principal: William T. Riley, Jr. 53 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners of Victory Square Apartments, Limited Partnership We have audited the accompanying balance sheets of VICTORY SQUARE APARTMENTS, LIMITED PARTNERSHIP, FHA Project No. 042-35196-LDP, as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Victory Square Apartments, Limited Partnership as of December 31, 1997 and 1996, and its results of operations, changes in partners' equity and cash flows for the years then ended in conformity with generally accepted accounting principles. 54 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying 1997 additional financial data (shown on pages 13 through 19) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the 1997 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. In accordance with Government Auditing Standards, we have also issued a report dated February 9, 1998 on our consideration of the Partnership's internal control and a report dated February 9, 1998, on its compliance with laws and regulations. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois February 9, 1998 55 [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT To the Partners of Victory Square Apartments, Ltd. We have audited the accompanying balance sheet of VICTORY SQUARE APARTMENTS, LTD. (an Ohio limited partnership), FHA Project Number 042-35196-LDP, as of December 31, 1995, and the related statements of operations, changes in partners' equity 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. The financial statements of Victory Square Apartments, Ltd. as of and for the year ended December 31, 1994 were audited by other auditors whose report dated January 19, 1995, expressed an unqualified opinion on those statements. 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 1995 financial statements referred to above present fairly, in all material respects, the financial position of Victory Square Apartments, Ltd. at December 31, 1995, and the results of its operations, changes in partners' equity and cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated February 2, 1996, on our consideration of the Partnership's internal control structure and a report dated February 2, 1996, on its compliance with laws and regulations. 56 Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The additional financial data shown on pages 13 through 18 are presented for purposes of additional analysis and are not a required part of the financial statements. Such information has been subjected to the procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois February 2, 1996 57 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996
1997 1996 ------------- ------------ ASSETS INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 5,885,699 $ 6,051,522 RENTAL PROPERTY, net of accumulated depreciation (Note 1) 3,016,049 3,158,470 CASH AND CASH EQUIVALENTS (Note 1) 6,611,690 5,849,983 CASH, restricted (Note 3) 38,465 35,750 OTHER ASSETS 174,284 190,643 ------------- ------------ TOTAL ASSETS $ 15,726,187 $ 15,286,368 ============= ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Mortgage notes payable related to properties (Notes 4 and 9) $ 4,828,404 $ 4,886,300 Notes payable and amounts due for partnership interests (Notes 5 and 9) 5,795,000 5,795,000 Accrued interest payable (Notes 5 and 9) 6,103,244 5,650,383 Accounts payable 117,968 47,372 Other liabilities 38,465 35,750 ------------- ------------ 16,883,081 16,414,805 ------------- ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 6 and 7) PARTNERS' DEFICIENCY: General partners (362,758) (362,474) Limited partners (794,136) (765,963) ------------- ------------ (1,156,894) (1,128,437) ------------- ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,726,187 $ 15,286,368 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. 58 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ------------ ------------ RENTAL OPERATIONS: Revenues $ 1,070,895 $ 1,211,516 $ 2,715,123 ----------- ------------ ------------ Expenses: General and administrative 84,870 162,929 429,258 Operating 369,779 395,170 1,040,846 Management fees - affiliate (Note 6) 53,500 76,862 165,018 Depreciation and amortization (Note 1) 156,480 210,414 381,897 Interest 426,337 541,383 944,140 ----------- ------------ ------------ 1,090,970 1,386,758 2,961,159 ----------- ------------ ------------ LOSS FROM RENTAL OPERATIONS (20,075) (175,242) (246,036) ----------- ------------ ------------ PARTNERSHIP OPERATIONS: Interest income 299,009 165,591 168,911 ----------- ------------ ------------ Expenses: Management fees - general partner (Note 6) 501,660 513,393 535,489 Mortgage brokerage fees - general partner (Note 6) - - 131,100 General and administrative 396,600 262,047 289,923 Interest 533,700 519,650 519,650 ----------- ------------ ------------ 1,431,960 1,295,090 1,476,162 ----------- ------------ ------------ LOSS FROM PARTNERSHIP OPERATIONS (1,132,951) (1,129,499) (1,307,251) ----------- ------------ ------------ GAIN ON SALE OF RENTAL PROPERTY (Note 1) - 1,902,022 - EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS 625,029 603,934 415,526 DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 499,540 597,425 347,163 ----------- ------------ ------------ NET INCOME (LOSS) $ (28,457) $ 1,798,640 $ (790,598) =========== ============ ============ NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST (Note 1) $ (1) $ 107 $ (47) =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 2 59 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
General Limited Partners Partners Total ----------- ----------- ----------- DEFICIENCY, January 1, 1995 $ (372,554) $(1,763,925) $(2,136,479) Net loss, 1995 (7,906) (782,692) (790,598) ----------- ----------- ----------- DEFICIENCY, December 31, 1995 (380,460) (2,546,617) (2,927,077) Net income, 1996 17,986 1,780,654 1,798,640 ----------- ----------- ----------- DEFICIENCY, December 31, 1996 (362,474) (765,963) (1,128,437) Net income, 1997 (285) (28,172) (28,457) ----------- ----------- ----------- DEFICIENCY, December 31, 1997 $ (362,758) $ (794,136) $(1,156,894) =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 60 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (28,457) $ 1,798,640 $ (790,598) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on sale of rental property 0 (1,902,022) -- Equity in income of limited partnerships and amortization of acquisition costs (642,529) (603,934) (415,526) Depreciation and amortization 156,480 210,414 353,827 (Increase) decrease in receivables from limited partnerships -- 1,000 256,250 Decrease in other assets 2,300 136,670 5,581 Increase in accrued interest payable 452,861 396,403 419,435 (Decrease) increase in accounts payable 70,596 (146,129) 87,006 (Decrease) increase in other liabilities 2,715 (95,421) (1,948) ----------- ----------- ----------- Net cash provided by (used in) operating activities 31,466 (204,379) (85,973) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions to limited partnerships recognized as a return of capital 823,764 176,852 201,288 Decrease in restricted cash (2,715) 48,588 562 Decrease in short term investments -- 125,000 -- Capital contribution to investee limited partnership (32,912) (5,294) (191,044) Addition to rental property -- -- -- Proceeds from sale of rental property 5,818,140 -- ----------- ----------- ----------- Net cash provided by investing activities 788,137 6,163,286 10,806 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of mortgages (57,896) (5,004,264) (102,437) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 761,707 954,643 (177,604) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,849,983 4,895,340 5,072,944 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,611,690 $ 5,849,983 $ 4,895,340 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 507,176 $ 664,630 $ 1,044,356 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 61 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Real Estate Associates Limited VI (the "Partnership"), was formed under the California Limited Partnership Act on October 12, 1982. The Partnership was formed to invest primarily in other limited partnerships or joint ventures which own and operate primarily federal, state or local government-assisted housing projects and to acquire, lease, sell or mortgage real or personal property. The general partners are Coast Housing Investments Associates (CHIA), a limited partnership, and National Partnership Investments Corp. (NAPICO) a wholly owned subsidiary of Casden Investment Corporation, the corporate general partner. Casden Investment Corporation owns 100 percent of NAPICO's stock. The limited partner of CHIA is an officer of NAPICO. The business of Real VI is conducted primarily by NAPICO. The consolidated financial statements include the accounts of Real Estate Associates Limited VI and its majority-owned general partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation. Losses in excess of the minority interest in equity that would otherwise be attributed to the minority interest are being allocated to the Partnership. The Partnership offered and issued 4,200 units of limited partner interests through a public offering. Each unit was comprised of two limited partner interests and a warrant granting the investor the right to purchase two additional limited partner interests. An additional 8,410 interests were issued from the exercise of warrants and the sale of interests associated with warrants not exercised. The general partners have a 1 percent interest in operating profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments. The Partnership shall be dissolved only upon the expiration of 50 complete calendar years (December 31, 2032) from the date of the formation of the partnership or the occurrence of various other events as specified in the Partnership agreement. Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partner's liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions. 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 5. 62 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) METHOD OF ACCOUNTING FOR INVESTMENTS IN LIMITED PARTNERSHIPS The investments in limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects have been capitalized as part of the investment account and are being amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years. RENTAL PROPERTY AND DEPRECIATION Rental property is stated at cost. Depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the buildings and equipment. Pursuant to a purchase agreement in which the Partnership acquired its interest from independent withdrawing general partners, certain rental property was revalued to reflect the purchase price. Substantially all of the apartment units are leased on a month-to-month basis. The costs of rental property and estimated useful lives for depreciation are as follows:
Estimated Useful Lives 1997 1996 ------------- ----------- ----------- Land $ 1,557,180 $1,557,180 Buildings 25 years 3,283,659 3,283,659 Equipment 3 to 5 years 824,580 824,580 ----------- ----------- 5,665,419 5,665,419 Less-Accumulated Depreciation and Amortization 2,649,370 2,506,949 ----------- ----------- $ 3,016,049 $ 3,158,470 =========== ===========
On February 2, 1996, one of the consolidated general partnerships (Drexel Park) sold its property for $6,300,000. After payment of closings costs, the Partnership realized a gain of approximately $1,902,000 in 1996 NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST Net income (loss) per limited partnership interest was computed by dividing the limited partners' share of net income (loss) by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 16,810 for all years presented. 6 63 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of unrestricted cash and bank certificates of deposit with maturities of three months or less. The Partnership has its cash and cash equivalents on deposit primarily with two high credit quality financial institutions Such cash and cash equivalents are in excess of the FDIC insurance limit. IMPAIRMENT OF LONG-LIVED ASSETS The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. 2. INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 26 limited partnerships and a general partner interest in one general partnership. In addition, REAL VI holds a general partner interest in Real Estate Associates III ("REA III"), a California general partnership. NAPICO is also a general partner in REA III. REA III, in turn, holds limited partner interests in seven limited partnerships. In total, therefore, the Partnership holds interests, either directly or indirectly through REA III, in 33 limited partnerships and one general partnership, which own residential low income rental projects consisting of 2,624 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, is entitled to between 90 percent and 99 percent of the profits and losses of the limited partnerships it has invested in directly. The Partnership is also entitled to 99.9 percent of the profits and losses of REA III. REA III holds a 99 percent interest in each of the limited partnerships in which it has invested. As of December 31, 1997, the Partnership is obligated, if certain conditions are met, to invest an additional $90,500 in its investee partnerships at various times in the future. This amount has not been recorded as a liability in the accompanying financial statements. Equity in losses of unconsolidated limited partnerships are recognized in the financial statements until the limited partnership investment account is reduced to a zero balance or to a negative amount equal to further capital contributions required. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. The cumulative amount of the unrecognized equity in losses of unconsolidated limited partnerships was approximately $29,631,000 and $27,372,000 as of December 31, 1997 and 1996, respectively. 7 64 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Distributions from the unconsolidated limited partnerships are accounted for as a return of capital until the investment balance is reduced to zero. Subsequent distributions received are recognized as income. The following is a summary of the investments in unconsolidated limited partnerships and reconciliation to the limited partnership accounts:
1997 1996 ----------- ----------- Investment balance, beginning of year $ 6,051,522 $ 5,619,146 Capital contributions to limited partnerships 15,412 5,294 Cash distributions recognized as a return of capital (823,764) (176,852) Amortization of additional basis and capitalized acquisition costs and fees (117,951) (244,391) Equity in income of limited partnerships 760,480 848,325 ----------- ----------- Investment balance, end of year $ 5,885,699 $ 6,051,522 =========== ===========
The difference between the investment per the accompanying balance sheets at December 31, 1997 and 1996, and the deficiency per the limited partnerships' combined financial statements is due primarily to cumulative unrecognized equity in losses of limited partnerships, additional basis and costs capitalized to the investment account and cumulative distributions recognized as income. Selected financial information from the combined financial statements at December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, of the limited partnerships in which the Partnership has invested directly or indirectly, is as follows:
Balance Sheets -------------- 1997 1996 --------- --------- (in thousands) Land and buildings, net $ 49,936 $ 54,130 ========= ========= Total assets $ 67,970 $ 72,075 ========= ========= Mortgage loans payable $ 67,569 $ 71,021 ========= ========= Total liabilities $ 98,879 $ 100,740 ========= ========= Deficiency of the Real Estate Associates Limited VI $ (29,604) $ (26,876) ========= ========= Deficiency of other partners $ (1,306) $ (1,777) ========= =========
8 65 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Statements of Operations ------------------------ 1997 1996 1995 -------- -------- -------- (in thousands) Total revenue $ 20,921 $ 21,246 $ 20,571 ======== ======== ======== Interest expense $ 5,155 $ 5,561 $ 5,720 ======== ======== ======== Depreciation $ 3,592 $ 3,597 $ 3,529 ======== ======== ======== Total expenses $ 22,866 $ 23,123 $ 23,034 ======== ======== ======== Net loss $ (1,945) $ (1,877) $ (2,463) ======== ======== ======== Net loss allocable to the Partnership $ (1,933) $ (1,869) $ (2,214) ======== ======== ========
Land and buildings above have been adjusted for the amount by which the investments in the limited partnerships exceed the Partnership's share of the net book value of the underlying net assets of the investee which are recorded at historical costs. Depreciation on the adjustment is provided for over the estimated remaining useful lives of the properties. An affiliate of NAPICO is the general partner in 10 of the limited partnerships included above, and another affiliate receives property management fees ranging from 5 percent to 7 percent of the revenue from seven of these partnerships. The affiliate received property management fees of $164,908, $179,660 and $178,106 in 1997, 1996 and 1995 respectively. The following sets forth the significant data for the partnerships in which an affiliate of NAPICO was the general partner, reflected in the accompanying financial statements using the equity method of accounting:
1997 1996 1995 -------- -------- -------- (in thousands) Total assets $ 9,443 $ 12,049 ======== ======== Total liabilities $ 13,178 $ 14,813 ======== ======== Deficiency of Real Estate Associates Limited VI $ (3,633) $ (2,674) ======== ======== Deficiency of other partners $ (102) $ (89) ======== ======== Total revenue $ 2,629 $ 3,213 $ 3,136 ======== ======== ======== Net loss $ (383) $ (340) $ (502) ======== ======== ========
9 66 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) During the year ended December 31, 1997, the local limited partnership that owns Drexel III consumated the sale of the apartment complex. The Partnership received distributions of $670,245 of which $597,601 was recognized as a return of capital and $72,644 was recognized as distributions to income. The Partnership financial statements reflect no investment in the Drexel III local Partnership. 3. CASH, RESTRICTED Restricted cash at December 31, 1997 and 1996 consists of tenants' security deposits. 4. MORTGAGE NOTE PAYABLE RELATED TO PROPERTY Mortgage notes payable related to properties consist of the following at December 31, 1997 and 1996:
1997 1996 ------------ ----------- Mortgage note bears interest at 8.78 percent (9.5 percent in 1995) per annum, with monthly principal and interest payments of $40,385, due September 10, 2006. $ 4,886,300 $ 4,886,300 ============ ===========
The notes are collateralized by the rental properties. The mortgage note payable at December 31, 1997 requires principal payments as follows:
1998 63,189 1999 68,966 2000 75,270 2001 82,152 2002 89,662 Thereafter through 2006 4,449,165 ---------- $4,828,404 ==========
5. NOTES PAYABLE AND AMOUNTS DUE FOR PARTNERSHIP INTERESTS Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The purchase of these interests provides for additional cash payments of approximately $325,000, based upon specified events as outlined in the purchase agreements. Such amounts have been recorded as liabilities. In addition, the Partnership is obligated on non-recourse notes payable of $5,470,000 which bear interest at 9.5 or 10.0 percent per annum and have principal maturities ranging from December 1998 to December 2012. Effective January 1, 1997, the interest rates for two notes totalling $2,810,000 changed to 10 percent per terms of the note. 10 67 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 5. NOTES PAYABLE AND AMOUNTS DUE FOR PARTNERSHIP INTERESTS (CONTINUED) The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Maturity dates of the notes payable and related accrued interest are as follows:
Accrued Years Ending December 31, Notes Interest ------------------------- ---------- ---------- 1998 $ $ 1999 940,000 1,149,634 2000 2001 2,810,000 2,896,590 2002 920,000 989,792 Thereafter 800,000 1,100,077 ----------- ----------- $5,470,000 $6,103,244 ========== ==========
Under recent adopted law and policy, HUD has determined not to renew HAP Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the FHA will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (the "MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $127,514 for the year ended December 31, 1997. A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. 11 68 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 5. NOTES PAYABLE AND AMOUNTS DUE FOR PARTNERSHIP INTERESTS (CONTINUED) The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VI; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. 6. FEES AND EXPENSES DUE TO GENERAL PARTNER AND AFFILIATE Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective partnerships. For one of the properties owned by the Partnership, an affiliate of NAPICO receives a management fee of 5 percent of its gross revenues plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $12,000 and $107,000 in 1996 and 1995, respectively. An affiliate of the minority general partner of a general partnership that is consolidated, manages the property owned by that partnership. The fee is calculated based on five percent of gross collections plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $60,000, $65,000 and $58,000 in 1997, 1996 and 1995, respectively. In 1995, NAPICO received mortgage brokerage fees of $131,000 for its involvement with the refinancing of limited partnerships' mortgages (Note 2). The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $51,487, $47,231 and $43,729 in 1997, 1996 and 1995, respectively, and is included in operating expenses. 12 69 7. CONTINGENCIES The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named a defendant in other lawsuits arising from transactions in the ordinary course of business. In addition, the Partnership is involved in several lawsuits. In the opinion of management and the corporate general partner, the claims will not result in any material liability to the Partnership. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. 8. INCOME TAXES No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for the properties held by the limited partnerships. Differences in tax and financial reporting also arise as losses are not recognized for financial reporting purposes when the investment balance has been reduced to zero or to a negative amount equal to further capital contributions required. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. The mortgage notes payable are insured by HUD and are collateralized by the rental properties. The operations generated by the properties and investee limited partnerships are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of the mortgage notes payable and related accrued interest. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 10. FOURTH-QUARTER ADJUSTMENT The Partnership's policy is to record its equity in the loss of limited partnerships on a quarterly basis using estimated financial information furnished by the various local operating general partners. The equity in income (loss) of limited partnerships reflected in the accompanying annual consolidated financial statements is based primarily upon audited financial statements of the investee limited partnerships. The increase of approximately $196,000, between the estimated nine-month equity in income and the actual 1997 year end equity in income, has been recorded in the fourth quarter. 70 SCHEDULE REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1997 ----------------------------------------------------------------------------------------------- Cash Balance Distri- Balance Future January Capital butions Equity in December Capital Limited Partnerships 1, 1997 Contributions Received Income/(Loss) 31, 1997 Contributions - ---------------------------- ------------- --------------- ------------ -------------- ------------- -------------- Boynton Terrace $ $ $ $ $ Cady Brook Apts. 335,451 (4,777) 58,590 389,264 Cassidy Village 264,704 (957) (13,128) 250,619 City Heights Crockett Manor 7,000 (7,000) Denny Place 15,000 Drexel Park III 597,601 3,118 (600,719) Eastridge Apts. EchoValley Apts. 22,392 (9,490) 53,085 65,987 Filmore I Grant-Ko Enterprises Hudson Gardens 350,946 (19,855) 71,636 402,727 Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 883,427 (70,635) 199,309 1,012,101 Mariner's Cove Marshall Plaza I Marshall Plaza II Menlo Estates Mulberry Towers 2,800,336 (55,252) 160,271 2,905,355 New-Bel-Mo Enterprises (25,500) (25,500) 25,500 Oakridge Apts. Oakwood Manor 173,689 (15,697) 15,713 173,705 Park Place Apts., TX Park Place Apts., NJ 305,027 (40,825) 111,000 375,202 Parkesedge Elderly Apts. 214,016 20,369 234,385 18,000 Paula Maria Apts. (Century Plaza) 5,294 (5,294) Penneco II (25,000) (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) 2,500 (22,000) 22,000 Valley Oak Apts. Victory Square 176,433 (263) (27,316) 148,854 Villas de Orocovix Willow Wood ------------- --------------- ------------ -------------- ------------- -------------- $ 6,051,522 $ 32,912 $ (823,764) $ 625,029 $ 5,885,699 $ 90,500 ============= =============== ============ ============== ============= ==============
71 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1996 ------------------------------------------------------------------------------------------------ Cash Balance Distri- Balance Future January Capital butions Equity in December Capital Limited Partnerships 1, 1996 Contributions Received Income/(Loss) 31, 1996 Contributions - --------------------------- ------------- --------------- ------------ -------------- ------------- -------------- Boynton Terrace $ $ $ $ $ Cady Brook Apts. 298,129 (4,778) 42,100 335,451 Cassidy Village 308,841 (2,397) (41,740) 264,704 City Heights Crockett Manor Denny Place Drexel Park III 572,502 (16,035) 41,134 597,601 Eastridge Apts. EchoValley Apts. 22,392 22,392 Filmore I Grant-Ko Enterprises Hudson Gardens 293,015 (19,747) 77,678 350,946 Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 769,348 (34,597) 148,676 883,427 Mariner's Cove Marshall Plaza I Marshall Plaza II Menlo Estates Mulberry Towers 2,662,471 (55,252) 193,117 2,800,336 New-Bel-Mo Enterprises (25,500) (25,500) 25,500 Oakridge Apts. Oakwood Manor 166,065 (5,390) 13,014 173,689 Park Place Apts., TX Park Place Apts., NJ 230,507 (33,362) 107,882 305,027 Parkesedge Elderly Apts. 196,044 17,972 214,016 18,000 Paula Maria Apts. 5,294 (5,294) Penneco II (25,000) (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) (22,000) 22,000 Valley Oak Apts. Victory Square 194,724 (18,291) 176,433 Villas de Orocovix Willow Wood ------------- --------------- ------------ -------------- ------------- -------------- $ 5,619,146 $ 5,294 $ (176,852) $ 603,934 $ 6,051,522 $ 90,500 ============= =============== ============ ============== ============= ==============
72 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Year Ended December 31, 1995 ---------------------------------------------------------------------------- Cash Balance Distri- Balance Future January Capital butions Equity in December Capital Limited Partnerships 1, 1995 Contributions Received Income (Loss) 31, 1995 Contributions - -------------------- ------- ------------- -------- ------------- -------- ------------- Boynton Terrace $ $ $ $ $ $ Cady Brook Apts. 259,446 38,683 298,129 Cassidy Village 336,069 (27,228) 308,841 City Heights Crockett Manor 20,000 (20,000) Denny Place 95,000 (95,000) Drexel Park III 563,333 (16,035) 25,204 572,502 Eastridge Apts. Echo Valley Apts. Filmore I Grant-Ko Enterprises Hudson Gardens 296,493 (76,161) 72,683 293,015 Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 669,175 (34,888) 135,061 769,348 Mariner's Cove Marshall Plaza I Marshall Plaza II Menlo Estates Mulberry Towers 2,522,709 (55,252) 195,014 2,662,471 New-Bel-Mo Enterprises (25,500) (25,500) 25,500 Oakridge Apts. II Oakwood Manor 160,734 250 (5,444) 10,525 166,065 Park Place Apts., TX Park Place Apts., NJ 104,301 (3,196) 129,402 230,507 Parkesedge Elderly Apts. 139,401 56,643 196,044 18,000 Paula Maria Apts. 5,294 (5,294) Penneco II (25,000) (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) (22,000) 22,000 Valley Oak Apts. Victory Square 234,703 (5,018) (34,961) 194,724 Villas de Orocovix Willow Wood 70,500 (70,500) ---------- -------- ---------- --------- ---------- --------- $5,213,864 $191,044 $ (201,288) $ 415,526 $5,619,146 $ 90,500 ========== ======== ========== ========= ========== =========
73 SCHEDULE (Continued) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 NOTES: 1. Equity in losses represents the Partnership's allocable share of the net loss from the limited partnerships for the year. Equity in losses of the limited partnerships will be recognized until the investment balance is reduced to zero or below zero to an amount equal to future capital contributions to be made by the Partnership. 2. Cash distributions from the limited partnerships will be treated as a return of the investment and will reduce the investment balance until such time as the investment is reduced to an amount equal to additional contributions. Distributions subsequently received will be recognized as income. 74 REAL ESTATE ASSOCIATES LIMITED VI SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1997
Buildings, Furnishings Total & Equipment Land Number Outstanding Amount Carried Buildings, of Mortgage at Close of Furnishings Accumulated Construction Partnership/Location Units Loan Land Year & Equipment Depreciation Period - -------------------- ----- ----------- ---------- --------------------- ------------ ------------ ------------ Boynton Terrace 89 $ 5,040,000 $ 208,001 $ 4,124,446 $ 4,332,447 $ 1,983,264 1983-1984 Boyton Beach, FL Cadybrook 40 1,044,337 89,225 1,812,932 1,902,157 584,134 (A) Charlton, MA City Heights 151 3,821,287 0 5,219,777 5,219,777 3,615,716 (A) Wilkes-Barre, PA Crockett Manor 38 1,036,649 10,000 1,259,214 1,269,214 639,424 (A) Trenton, TN Eastridge Apts. 96 609,960 101,500 1,561,103 1,662,603 1,357,935 (A) Bristol, VA Echo Valley 100 1,191,666 103,011 3,924,545 4,027,556 3,551,211 (A) Warwick, RI Filmore I 32 1,195,181 115,000 1,312,495 1,427,495 673,170 (A) Phoenix, AZ Grant-Ko Enterprises 40 1,233,460 100,000 1,408,873 1,508,873 678,907 (A) Platteville, WS Hudson Gardens 41 1,479,363 252,855 2,011,719 2,264,574 1,039,449 (A) Pasadena, CA Hummelstown Manor 51 1,743,485 98,839 1,745,476 1,842,315 1,622,098 1983 Hummelstown, PA Kentucky Manor 48 1,399,089 100,696 1,428,380 1,529,076 880,955 (A) Oak Grove, KY Lonsdale Housing 131 3,046,650 214,833 6,362,322 6,577,155 3,804,286 (A) Providence, RI Mariner's Cove 500 13,452,668 0 16,131,324 16,131,324 8,248,949 1983-1984 San Diego, CA Menlo Estates 80 2,754,581 492,061 3,679,693 4,171,754 2,018,152 (A) Riverside, CA Mullberry Towers 206 5,553,525 199,754 7,668,230 7,867,984 3,123,460 (A) Scranton, PA New-Bel-Mo Enterprises 34 997,500 78,078 1,147,760 1,225,838 537,438 (A) New Glarus, Bellevile, Monticello, WS Oakridge Apts. 48 1,200,901 55,000 1,500,221 1,555,221 1,318,591 (A) Biloxi, MS Oakwood 34 652,873 61,538 777,542 839,080 297,395 (A) Milan, TN Park Place 128 5,812,027 304,166 7,347,967 7,652,133 2,696,031 1983-1984 Ewing, NJ Park Place Apts. 60 1,897,974 146,305 2,267,692 2,413,997 1,335,771 (A) Cleveland, TX Parkesedge Elderly Apts. 45 1,482,445 160,000 1,091,891 1,251,891 0 (A) Parkesedge, PA Penneco II 76 1,931,934 79,627 2,792,000 2,871,627 1,474,150 (A) Johnstown, PA Sauk-Ko Enterprises 30 813,276 60,000 1,166,773 1,226,773 547,096 (A) Baraboo, WS SOL-413 12 365,928 50,000 389,858 419,858 197,426 (A) Old San Juan, PR Valley Oaks Senior 50 1,771,000 121,464 1,906,110 2,027,574 1,019,676 (A) Galt, CA Villas de Orocovix 41 1,425,043 59,550 1,717,435 1,776,985 911,674 (A) Orocovix, PR Cassidy Village 98 1,099,059 156,850 2,021,621 2,178,471 904,109 (A) Columbus, OH Denny Place 17 415,608 290,000 1,070,594 1,360,594 497,167 (A) Los Angeles, CA Marshall Plaza I 40 220,469 68,414 709,014 777,428 317,089 (A) Loraine, OH Marshall Plaza II 50 310,499 78,901 919,854 998,755 411,382 (A) Loraine, OH Paula Maria I 120 1,085,850 215,730 2,852,574 3,068,304 1,509,024 (A) Hampton, VA Victory Square 81 1,006,226 36,630 1,794,845 1,831,475 802,693 (A) Canton, OH Willow Wood 19 479,066 290,000 1,097,181 1,387,181 513,147 (A) Los Angeles, CA Additional basis of real estate due to REAL VI's capital contribution to limited partnership not recorded by Investee limited partnership 107,796 6,537,625 6,645,421 4,115,124 ----- ----------- ---------- ----------- ------------ ----------- TOTAL 2,624 67,569,379 4,503,824 98,739,086 103,242,910 53,307,093 ===== =========== ========== =========== ============ ===========
(A) This project was complete when REAL VI entered the Partnership. 75 SCHEDULE III REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1997 NOTES: 1. Each local partnership has developed, owns and operates the housing project. Substantially all project costs, including construction period interest expense, were capitalized by the local partnerships. 2. Depreciation is provided for by various methods over the estimated useful lives of the projects. The estimated composite useful lives of the buildings are generally from 25 to 40 years. 3. Investments in property and equipment-limited partnerships:
Buildings, Furnishings, And Land Equipment Total ------------- ------------- ------------- Balance, January 1, 1995 $ 4,551,180 $ 99,542,079 $ 104,093,259 Net additions, 1995 10,365 748,766 759,131 ------------- ------------- ------------- Balance, December 31, 1995 4,561,545 100,290,845 104,852,390 Net additions, 1996 19,721 846,147 865,868 ------------- ------------- ------------- Balance, December 31, 1996 4,581,266 101,136,992 105,718,258 Net additions, 1997 (77,442) (2,397,906) (2,475,348) ------------- ------------- ------------- Balance, December 31, 1997 $ 4,503,824 $ 98,739,086 $ 103,242,910 ============= ============= =============
76 SCHEDULE III (Continued) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1997
Buildings, Furnishings And Equipment ----------- Accumulated Depreciation: Balance at January 1, 1995 $44,768,883 Net additions for 1995 3,359,377 ----------- Balance at December 31, 1995 48,128,260 Net additions for 1996 3,459,872 ----------- Balance at December 31, 1996 51,588,132 Net deletions for 1997 1,718,961 ----------- Balance at December 31, 1997 $53,307,093 ===========
77 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY CONSOLIDATED LOCAL PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1997 Investments in property and equipment-general partnerships (continued): The total cost of land, buildings, and equipment for federal income tax purposes at December 31, 1997 is approximately $5,665,419.
Buildings Furnishings, And Land Equipment Total ------------ ------------ ------------ Balance, January 1, 1995 $ 1,935,839 $ 10,141,782 $ 12,077,621 Additions during 1995 -- -- -- ------------ ------------ ------------ Balance, December 31, 1995 1,935,839 10,141,782 12,077,621 Deletions during 1996 (378,659) (6,033,543) (6,412,202) ------------ ------------ ------------ Balance, December 31, 1996 1,557,180 4,108,239 5,665,419 Activity during 1997 -- -- -- ------------ ------------ ------------ Balance, December 31, 1997 $ 1,557,180 $ 4,108,239 $ 5,665,419 ============ ============ ============
78 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY CONSOLIDATED LOCAL PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1997
Buildings, Furnishings, And Equipment ----------- ACCUMULATED DEPRECIATION: ------------------------- Balance at January 1, 1995 $ 4,438,792 Net additions for 1995 353,827 ----------- Balance at December 31, 1995 4,792,619 Net additions for 1996 198,237 Net deletions for 1996 (2,483,907) ----------- Balance at December 31, 1996 2,506,949 Net additions for 1997 142,421 ----------- Balance at December 31, 1997 $ 2,649,370 ===========
79 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: REAL ESTATE ASSOCIATES LIMITED VI (the "Partnership") has no directors or executive officers of its own. National Partnership Investment Corp. ("NAPICO" or "the Managing General Partner") is a wholly-owned subsidiary of Casden Investment Corporation, an affiliate of The Casden Company. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs. CHARLES H. BOXENBAUM, 68, Chairman of the Board of Directors and Chief Executive Officer of NAPICO. Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. In 1963, he was the winner of the Snyder Award, the highest annual award offered by the National Association of Real Estate Boards for Best Exchange. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Mr. Boxenbaum was a member of the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago. BRUCE E. NELSON, 46, President and a director of NAPICO. Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas. ALAN I. CASDEN, 52, Chairman of The Casden Company, an affiliate of Casden Properties (formerly CoastFed Properties), a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO. Mr. Casden is Chairman of the Board, Chief Executive Officer and sole shareholder of The Casden Company and Casden Investment Company. Prior to that, he was the president and chairman of Mayer Group, Inc., which he joined in 1975. He is also chairman of Mayer Management, Inc., a real estate management firm. Mr. Casden has been involved in approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums. 80 Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, and the President's Council of the California Building Industry Association. He also serves on the advisory board to the School of Accounting of the University of Southern California. He holds a Bachelor of Science degree and a Masters in Business Administration degree from the University of Southern California. HENRY C. CASDEN, 54, President, Chief Operating Officer and Secretary of The Casden Company and a director and secretary of NAPICO. Mr. Casden has been President and Chief Operating Officer of The Casden Company, as well as a director of NAPICO since February 1988. He became secretary of both companies in late 1994. From 1982 to 1988, Mr. Casden was of counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From 1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink & Casden, Professional Corporation. Mr. Casden received his Bachelor of Arts degree from the University of California at Los Angeles, and is a graduate of the University of San Diego Law School. Mr. Casden is a member of the State Bar of California and has numerous professional affiliations. BOB SCHAFER, 56, Senior Vice President of Finance. Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible for the financial reporting function of the Company. Prior to this, he was a Group and Division Controller at Bergen Brunswig for over eight years, Controller at a Flintkote subsidiary for over four years, and Assistant Controller at an electronics subsidiary of General Electric for two years. Mr. Schafer is a member of the California Society of Certified Public Accountants. He holds a Bachelor of Science degree in accounting from Woodbury University, Los Angeles. PATRICIA W. TOY, 68, Senior Vice President - Communications and Assistant Secretary. Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska. MARK L. WALTHER, 37, Executive Vice President, General Counsel and Assistant Secretary. Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther worked in the San Francisco law firm of Browne and Kahn which specialized in construction litigation. Mr. Walther received his Bachelor of Arts Degree in Political Science from the University of California, Santa Barbara and is a graduate of the University of California, Davis, School of Law. He is a member of the State Bar of Hawaii. NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. 81 ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS Real Estate Associates Limited VI has no officers, employees, or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to pay the Corporate General Partner an annual management fee. The annual management fee is approximately equal to .5 percent of the invested assets, including the Partnership's allocable share of the mortgages related to real estate properties held by local limited partnerships. The fee is earned beginning in the month the Partnership makes its initial contribution to the local partnership. In addition, the Partnership reimburses the Corporate General Partner for certain expenses. The Corporate General Partner received mortgage brokerage fees in connection with the refinancing of certain limited partnerships' mortgages. In addition, an affiliate of the Corporate General Partner is responsible for the on-site property management for a property owned by the Partnership and for certain properties owned by the limited partnerships in which the Partnership has invested. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The general partners own all of the outstanding general partnership interests of REAL VI; no person is known to own beneficially in excess of 5% of the outstanding limited partnership interests. (b) With the exception of the initial limited partner, Bruce Nelson, who is an officer of the corporate general partner, none of the officers or directors of the corporate general partner own directly or beneficially any limited partnership interests in REAL VI. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership has no officers, directors or employees of its own. All of its affairs are managed by the Corporate General Partner, National Partnership Investments Corp. ("NAPICO"). The Partnership is obligated to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the limited partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interest in the capital accounts of the respective partnerships. Management fees were $501,660, $513,393 and $535,489 for the years ended December 31, 1997, 1996 and 1995, respectively. In 1995, NAPICO received mortgage brokerage fees of $131,000 for its involvement with the refinancing of limited partnerships' mortgages. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $51,487, $47,231 and $43,729 in 1997, 1996 and 1995, respectively, and is included in operating expenses. For one of the properties owned by the Partnership, an affiliate of NAPICO receives a management fee of 5 percent of its gross revenues plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $12,000 and $107,000 in 1996 and 1995, respectively. An affiliate of the minority general partner of a general partnership that is consolidated, manages the property owned by that partnership. The fee is calculated based on five percent of gross collections plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $60,000, $65,000 and $58,000 in 1997, 1996 and 1995, respectively. 82 A real estate investment trust ("REIT") organized by an affiliate of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partner interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partner interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VI; and (v) the consummation of a minimum number of purchase transactions with other Casden affiliated partnerships. As of March 31, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A proxy is contemplated to be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the transaction. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: FINANCIAL STATEMENTS Report of Independent Public Accountants. Consolidated Balance Sheets as of December 31, 1997 and 1996. Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Partners' Equity (Deficiency) for the years ended December 31, 1997, 1996 and 1995. Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULES APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE III AND THE LIMITED PARTNERSHIPS: Schedule - Investments in Limited Partnerships, December 31, 1997, 1996 and 1995. Schedule III - Real Estate and Accumulated Depreciation, December 31, 1997. The remaining schedules are omitted because any required information is included in the financial statements and notes thereto. EXHIBITS (3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #2-82090 incorporated herein by reference. (10) Material contracts: The registrant is not party to any material contracts, other than the Restated Certificate and Agreement of Limited Partnership dated October 12, l982, and the forty contracts representing the partnership investment in local limited and general partnerships as previously filed at the Securities Exchange Commission, File #2-282090 which is hereby incorporated by reference. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the year ended December 31, 1997. 83 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 in the City of Los Angeles, State of California. REAL ESTATE ASSOCIATES LIMITED VI By: NATIONAL PARTNERSHIP INVESTMENTS CORP. General Partner /s/ CHARLES H. BOXENBAUM - -------------------------------------- Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer /s/ BRUCE E. NELSON - -------------------------------------- Bruce E. Nelson Director and President /s/ ALAN I. CASDEN - -------------------------------------- Alan I. Casden Director /s/ HENRY C. CASDEN - -------------------------------------- Henry C. Casden Director /s/ BOB E. SCHAFER - -------------------------------------- Bob E. Schafer Senior Vice President of Finance EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 6,611,690 0 0 0 0 6,611,690 5,665,419 2,649,370 15,743,687 117,968 0 0 0 0 1,139,394 15,743,687 0 2,511,973 0 0 1,562,893 0 960,037 10,957 0 10,957 0 0 0 10,957 0 0
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