-----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, P2Zm8NGTnrRKqDEVelJlGqvcP3iHP2NICkz3WW6XfBfZ7e+B0yJR5JuoxWdpp1DR SJIT0YdYjiez40rks/yH6Q== 0000908737-98-000345.txt : 19980401 0000908737-98-000345.hdr.sgml : 19980401 ACCESSION NUMBER: 0000908737-98-000345 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY HOUSING PARTNERS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000744766 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042828131 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13520 FILM NUMBER: 98580062 BUSINESS ADDRESS: STREET 1: 27 CHRISTINA STREET STREET 2: SUITE 203 CITY: NEWTON STATE: MA ZIP: 02161 BUSINESS PHONE: 617-244-22 MAIL ADDRESS: STREET 1: 27 CHRISTINA STREET STREET 2: SUITE 203 CITY: NEWTON STATE: MA ZIP: 02161 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-13520 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2828131 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 Christina Street, Suite 203, Newton, Massachusetts 02161 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 244-2242 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] 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 ] Aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable Documents incorporated by reference: None Exhibits Index on Pages: 103 -116 Page 1 of 118 PART I Item 1. Business The Registrant, Liberty Housing Partners Limited Partnership (the "Partnership"), is a limited partnership organized under the provisions of the Massachusetts Uniform Limited Partnership Act on March 20, 1984. Until December 27, 1995, the partners in the Partnership consisted of Liberty Real Estate Corporation, the managing general partner (the "Former Managing General Partner"), LHP Associates Limited Partnership, the associate general partner (the "Former Associate General Partner") and, together with the Former Managing General Partner, (the "Former General Partners"), and Limited Partners owning 21,576 units of Limited Partnership Interest ("Units"). The Units were offered and sold commencing July 13, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The offering was completed on July 12, 1985. On December 27, 1995, the Former General Partners withdrew from the Partnership and TNG Properties, Inc., a Massachusetts corporation (the "Managing General Partner"), was admitted to the Partnership as a substitute general partner with an interest equivalent to the aggregate interests of the Former General Partners. The Partnership will terminate on December 31, 2020, unless sooner dissolved or terminated as provided in Section 11 of the Amended Agreement of Limited Partnership dated as of July 13, 1984, as amended to date (the "Partnership Agreement"). The Partnership has no employees. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership and its properties. The Partnership is engaged in only one industry segment, the business of investing in, operating, owning, leasing and improving interests in real estate through ownership of interests in other limited partnerships (the "Local Limited Partnerships") which own and operate government-assisted, multi-family rental housing complexes. As described in Item 2, the Partnership owns interests in 13 Local Limited Partnerships, each of which owns and operates a government-assisted, garden-style, residential multi-family housing complex. Each complex consists of one-to-three-story buildings of wood frame and brick construction located on landscaped lots. The apartments within each of the complexes contain fully equipped kitchens and some of the complexes include swimming pools. The Partnership paid for two of the 13 limited partnership interests in cash upon acquisition. The Partnership paid for 11 of such limited partnership interests by delivery of cash, short-term promissory notes (which have all been paid in full) and non-recourse promissory notes which bear interest at the rate of 9% per annum ("Purchase Money Notes"). Each Purchase Money Note permits interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. The Purchase Money Notes do not require payment of any portion of the principal amount of the notes prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). 2 Item 1. Business, continued As a result of these interest accrual and payment provisions, each Purchase Money Note will require a substantial balloon payment at maturity. The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. The Purchase Money Notes had an original term of from 15 to 17 years and mature at varying dates during 1999, 2000 and 2001. Additional information concerning the Purchase Money Notes is set forth below under "Management's Discussion and Analysis of Financial Condition and Results of Operations." One of the two Local Limited Partnerships in which the Partnership acquired its interest for cash issued purchase money notes in connection with the purchase of its housing complex. Such notes have terms which are substantially identical to those of the Purchase Money Notes, and are secured by a pledge by all of the partners in such Local Limited Partnership (including the Partnership) of their respective partnership interests therein. See the table under Item 2 (Properties) below. The Partnership does not intend to make any additional investments. The Partnership's business is not seasonal. In connection with the Partnership's investment in the Local Limited Partnerships, Liberty LGP Limited Partnership, an affiliate of the Former General Partners ("Liberty LGP") acquired co-general partnership interests or special limited partnership interests in each of the Local Limited Partnerships. In some cases, such interests entitle Liberty LGP to approve or disapprove certain actions proposed to be taken by the unaffiliated general partners of the Local Limited Partnership (the "Local General Partners"). In all cases, Liberty LGP, acting alone, is authorized to cause each Local Limited Partnership to sell and/or refinance the project owned by such Local Limited Partnership. On December 27, 1995, TNG Properties, Inc. acquired a 19.8% limited partnership interest in Liberty LGP. Liberty Housing Corporation held an 80.2% interest as a general partner in Liberty LGP. Michael A. Stoller, President and CEO of the Managing General Partner acquired all of the outstanding stock of Liberty Housing Corporation from the Former Managing General Partner. The Partnership's investments are and will continue to be subject to various risks, including the following: (1) The risk that Partnership funds will not be sufficient to enable the Partnership to pay its debts and obligations. Among the Partnership's liabilities are the Purchase Money Notes. Such notes do not require payments during their term, except to the extent of cash distributions from the Local Limited Partnerships, but will require substantial balloon payments at maturity. The Partnership may not have funds sufficient to repay such notes at maturity. See Item 7. (2) Risk of recapture of previously claimed tax losses as a result of the Partnership's inability to pay at maturity the Purchase Money Notes. As a result of such recapture, the investors in the Partnership would have taxable income from the Partnership, and the associated income tax liability, without cash distributions from the Partnership with which to satisfy such income tax liability. (3) The risks associated with an investment in a partnership, including tax risks as a result of possible adjustments by the IRS to federal income tax returns filed by the Partnership and its Partners, and other tax risks. 3 Item 1. Business, continued (4) Risks that the federal government will cease or reduce funding of housing subsidies, including subsidies under the Section 8 and Section 236 programs, both of which provide substantial operating revenues to many of the Local Limited Partnerships. (5) Possible restrictions imposed by Federal, state or local agencies that provide government assistance to the projects, which may limit the amount of costs which may be passed on to tenants in the form of rent increases, limit future direct government assistance to Local Limited Partnerships, or restrict the Partnership's ability to sell or refinance its Local Limited Partnership interests. (6) The risk that properties owned by Local Limited Partnerships will not generate income sufficient to meet their operating expenses and debt service or to fund adequate reserves for capital expenditures. (7) Continuing quality of on-site management of the local properties. Such on-site management is subject to direct control by the Local General Partners of the Local Limited Partnerships and not by the Partnership. (8) Possible adverse changes in general economic conditions and adverse local conditions, such as competitive over-building, a decrease in employment, or adverse changes in real estate selling laws, which may reduce the desirability of real estate in a particular area. (9) Circumstances over which the Local Limited Partnerships may have little or no control, such as fires, earthquakes, and floods. (10) The risk that properties owned by Local Limited Partnerships will be unable to replace the revenue received under federal housing assistance contracts or extend the current contract at the same terms upon their termination. Item 2. Properties The Partnership owns limited partnership interests in 13 Local Limited Partnerships, each of which owns the fee interest in a government-assisted residential multi-family rental housing complex. The following table reflects: (1) the name of each of the Local Limited Partnerships and the percentage of the total interests in the Local Limited Partnership represented by the Partnership's interest; (2) the date on which the Partnership acquired each of such interests; (3) the consideration paid for each interest, (including purchase money notes); (4) the original principal amount, the aggregate amount of the principal and accrued and unpaid interest outstanding as of December 31, 1997, and the maturity date of the Purchase Money Notes relating to each interest; (5) the Partnership's share of the mortgage indebtedness of each Local Limited Partnership; (6) the size and the location of the housing project owned by each Local Limited Partnership; and (7) the government program pursuant to which the complex receives assistance and the number of housing units in the project receiving such assistance. More detailed information related to the properties owned by the Local Limited Partnerships, including their respective amounts of mortgage indebtedness is included in Schedule III, Real Estate and Accumulated Depreciation, included in Item 8, and is contained in the separate financial statements of the Local Limited Partnerships. It is unlikely that operating cash flows from the Local Limited Partnerships will generate any distributions to investors in the Partnership, because in nearly all cases, the Partnership's share of operating cash flows from the properties owned by the Local Limited Partnerships must be applied to repayment of accrued interest and principal on the related Purchase Money Notes. 4
Item 2. Properties Purchase Money Notes ---------------------------------- Unpaid Principal At Acquisition Total and ----------------------- Name/Percentage Interest Acquisi- Original Interest LHPLP Total Ownership of Local Acquisiton tion Principal as of Maturity Share of Invested Limited Partnership Date Cost Amount(A) 12/31/96 Date Local Debt Assets (C) - ----------------------- ---------- -------- --------- --------- -------- ---------- ---------- 98% interests are owned in the following Local Limited Partnerships(B): 1 Glendale Manor 8/31/84 $810,000 $450,000 $587,984 8/29/2000 $929,000 $1,739,000 Apartments 2 Surry Manor, Ltd. 8/31/84 740,000 360,000 666,106 7/9/2001 1,006,000 1,746,000 3 Oxford Homes 9/28/84 1,004,000 644,000 859,085 9/28/1999 653,000 1,657,000 for the Elderly, Ltd. 4 Williamston 9/28/84 1,064,000 664,000 745,586 9/28/1999 649,000 1,713,000 Homes for the Elderly, Ltd. 5 Fuquay-Varina 9/28/84 1,118,000 707,000 757,380 9/28/1999 822,000 1,940,000 Homes for the Elderly, Ltd. 6 Fiddlers Creek 9/28/84 2,876,000 1,750,000 2,816,909 9/28/1999 2,396,000 5,272,000 Apartments 7 Austintown 10/30/84 3,081,000 1,600,000 3,346,140 10/30/1999 3,635,000 6,716,000 Associates 8 Osuna Apartments 11/30/84 2,042,000 1,300,000 2,711,536 11/27/1999 1,527,000 3,569,000 Company 9 Linden Park 12/06/84 2,997,000 1,800,000 2,446,032 12/11/1999 3,359,000 6,356,000 Associates Limited Partnership Description of Apartment Complex Name/Percentage ----------------------------------------------- Ownership of Local Geographic Government Limited Partnership Size Location Assistance (D) - ----------------------- ----- ---------- -------------- 98% interests are owned in the following Local Limited Partnerships(B): 1 Glendale Manor 50 Units Clinton, SC 221(d)(4) Apartments 30,310 SF 100% Section 8 (E) 5.5 Acres 2 Surry Manor, Ltd. 44 Units Dobson, NC 221(d)(4) 27,253 SF 100% Section 8 (E) 5.0 Acres 3 Oxford Homes 50 Units Oxford, NC 221(d)(4) for the Elderly, Ltd. 26,672 SF 100% Section 8 (E) 4.5 Acres 4 Williamston 50 Units Williamstown, 221(d)(4) Homes for the 26,496 SF NC 100% Section 8 (E) Elderly, Ltd. 7 Acres 5 Fuquay-Varina 60 Units Fuqyay-Varina, 221(d)(4) Homes for the 35,056 SF NC 100% Section 8 (E) Elderly, Ltd. 6 Acres 6 Fiddlers Creek 160 Units Winston-Salem, 221(d)(4) Apartments 126,900 SF NC 15 Acres 7 Austintown 200 Units Austintown, 236 HUD Associates 189,200 SF OH 100% Section 8 (E) 20 Acres 8 Osuna Apartments 110 Units Albuquerque, 236 HUD Company 97,400 SF NM Section 8, (E) 7.3 Acres 22 Units 9 Linden Park 198 Units Triangle, 221(d)(4) Associates 164,327 SF VA VA Housing Limited Partnership 10 Acres Development Authority Interest Subsidy (Continued) 5 Item 2. Properties, continued Purchase Money Notes ---------------------------------- Unpaid Principal At Acquisition Total and ----------------------- Name/Percentage Interest Acquisi- Original Interest LHPLP Total Ownership of Local Acquisiton tion Principal as of Maturity Share of Invested Limited Partnership Date Cost Amount(A) 12/31/96 Date Local Debt Assets (C) - ----------------------- ---------- -------- --------- --------- -------- ---------- ---------- 94% interests are owned in the following Local Limited Partnerships(B): 10 Pine Forest 10/29/84 736,000 350,000 733,840 10/30/1999 1,190,000 1,926,000 Apartments, Ltd. 11 Brierwood, Ltd. 10/29/84 563,000 270,000 574,662 10/30/1999 838,000 1,401,000 12 Meadowwood, Ltd. 10/29/84 1,001,000 610,000 1,316,085 10/30/1999 1,004,000 2,005,000 13 Brierwood II, Ltd. 01/25/85 101,000 351,000 452,000 ----------- ----------- ----------- ----------- ----------- Total Acquisitions $18,133,000 $10,505,000 $17,561,345 $18,359,000 $36,492,000 =========== =========== =========== =========== =========== Description of Apartment Complex Name/Percentage ----------------------------------------------- Ownership of Local Geographic Government Limited Partnership Size Location Assistance (D) - ----------------------- ----- ---------- -------------- 94% interests are owned in the following Local Limited Partnerships(B): 10 Pine Forest 64 Units Cairo, GA 515 RHS Apartments, Ltd. 53,344 SF 521 RHS 6 Acres 29 Units 11 Brierwood, Ltd. 56 Units Bainbridge, 515 RHS 42,840 SF GA 521 RHS 6 Acres 33 Units 12 Meadowwood, Ltd. 80 Units Tifton,GA 515 RHS 67,416 SF 6.8 Acres 13 Brierwood II, Ltd. 18 Units Bainbridge, 515 RHS 12,402 SF GA 1.4 Acres Total Acquisitions 1,140 units (Continued) 6 Item 2. Properties, continued (A) Purchase Money Notes bear interest at 9% per annum (See Note 6 to Financial Statements). Notes issued in conjuction with the acquisition of Linden Park were issued by the Local Limited Partnership; all other notes were issued by the Partnership. Each note requires no principal payments prior to maturity. Each note requires payment of interest prior to maturity solely to the extent of cash distributions from the Local Limited Partnership to which the note relates. To the extent interest is not paid currently, it accrues and is payable at maturity. Accordingly, each note will require a substantial balloon payment at maturity. The total of principal and accrued and unpaid interest outstanding at December 31, 1997 on the Purchase Money Notes is as follows: Principal Interest Total ----------- ------------ ----------- Obligation of: The Partnership $ 8,705,000 $ 6,410,313 $15,115,313 Linden Park 1,800,000 646,032 2,446,032 ----------- ----------- ----------- $10,505,000 $ 7,056,345 $17,561,345 =========== =========== =========== (B) Where the Partnership has acquired a 98% interest as investor partner, the Local General Partner has retained a 1% general partner interest and Liberty LGP has acquired a 1% general partner interest. Where the Partnership has acquired a 94% interest as investor partner, the Local General Partner has retained a 5% general partner interest and Liberty LGP has acquired a 1% Special Limited Partner interest. (C) The amount of any partnership management fee, as defined in the Partnership Agreement, which may be accrued and unpaid for any year is limited to a specified percentage of Invested Assets, as defined in the Partnership Agreement. (D) Government Assistance: 221 (d) (4): Mortgage is insured by HUD Section 8: Rental Assistance from HUD for low income or elderly housing 515 RHS: Mortgage financing and interest subsidies from RHS pursuant to Section 515 of the Housing Act of 1949 521 RHS: Rental assistance from RHS pursuant to Section 521 of the Housing Act of 1949 236 HUD: Mortgage insurance and interest subsidies from HUD (E) Section 8 rental assistance contracts expire as follows: Glendale Manor Apartments 05/2000 Surry Manor, Ltd. 07/2000 Oxford Homes for the Elderly, Ltd. 07/1998 Williamston Homes for the Elderly, Ltd. 09/1998 Fuquay-Varina Homes for the Elderly, Ltd. 05/1998 Austintown Associates 11/1998 Osuna Apartments Company 08/1999
7 Item 3. Legal Proceedings There are no material pending legal proceedings to which the Partnership is a party or, to the knowledge of the Managing General Partner, of which any of the properties owned by the Local Limited Partnerships is the subject. Osuna Apartment Company ("Osuna"), one of the Local Limited Partnerships, is party to a wrongful death action brought by the estate of a former tenant in the Second Judicial District of the State of New Mexico. The suit arises out of the murder of the tenant by the son of a maintenance contractor periodically engaged by Osuna. No specific amount has been claimed. Osuna is vigorously contesting the allegations of its liability. The Partnership presently expects that if Osuna were found to have some liability in this action, substantially all of the amount would be covered by Osuna's liability insurance. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for the Partnership's Securities and Related Security Holder Matters (a) Market Information The Partnership's outstanding securities consist of units of limited partnership interest ("Units"). There is no public market for the Units, and it is not anticipated that such a public market will develop. Transfer of the Units is subject to compliance with state and federal securities laws, and in various states is subject to compliance with the minimum investment and suitability standards imposed by the Partnership and applicable "blue sky" laws. (b) Holders. As of March 18, 1998, there were 1000 holders of record of the 21,576 Units outstanding. (c) Dividends. The Partnership Agreement requires that Distributable Cash from Operations (as defined in the Partnership Agreement) be distributed 99% to the Limited Partners and 1% to the General Partners, to the extent then available, within 120 days after completion of the Partnership's fiscal year. The Partnership Agreement provides that Cash from Sales or Refinancings (as defined in the Partnership Agreement), if any, received by the Partnership, will be distributed (i) first, until the Limited Partners have received an amount equal to their total invested capital, 100% to the Limited Partners, and (ii) the balance, 85% to the Limited Partners and 15% to the General Partners; provided however that if the amount of Cash from Sales or Refinancings exceeds the amount of profits for tax purposes arising from such sale or refinancing, the amount of such excess is distributed to those Partners, if any, who have positive balances in their capital accounts following any distributions made pursuant to clause (i) in connection with such sale or refinancing, in proportion to and to the extent of such positive balances, and prior to any distributions pursuant to clause (ii). 8 Item 6. Selected Financial Data The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Notes thereto, which are included in Items 7 and 8 of this Report. Amounts are expressed in thousands with the exception of per Unit calculations. For the Years Ended December 31, -------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Interest income $ 46 $ 61 $ 32 $ 36 $ 34 Net loss (2,218) (1,962) (1,564) (1,527) (1,364) Net loss per Unit(a) (101.75) (90.02) (71.77) (69.92) (62.47) Total assets at December 31 2,229 2,587 2,964 3,174 3,833 Long-term debt (including current portion, net of discount) at December 31 11,544 9,684 8,152 6,864 5,869 Distributable Cash From Operations per Unit(a) (b) -- -- -- -- -- (a) Per Unit calculations as presented above are based on 21,576 Units outstanding for the years ended December 31, 1995 through 1997 and 21,616 units outstanding for the years ended December 31, 1993 and 1994. (b) Distributable cash is calculated pursuant to the terms of the Partnership Agreement. See Note 11 to the Financial Statements. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Partnership. The Partnership is liable for the amount of the purchase money notes delivered to purchase its interests in the Local Limited Partnerships (as hereinafter described), and for the Partnership's day-to-day administrative and operating expenses. The Partnership acquired its interests in two Local Limited Partnerships for cash. The Partnership acquired its interests in the other eleven Local Limited Partnerships by delivery of cash, short-term promissory notes (all of which have been paid in full) and purchase money promissory notes which bear interest at the rate of 9% per annum (the "Purchase Money Notes"). The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. Each note had an initial term of 15 to 17 years, and the Purchase Money Notes mature at varying dates between September 1999 and July 2001. None of the Purchase Money Notes is cross-defaulted to the others, nor are the Purchase Money Notes cross-collateralized in any manner. The terms of each Purchase Money Note permit interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. Generally, the amount of such cash distributions have not been sufficient in any year to pay the full amount of interest accrued for that year on the Purchase Money Notes. The Purchase Money Notes do not require payment of any portion of the principal amount of the note prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). Accordingly, each Purchase Money Note will require a substantial balloon payment at maturity. The aggregate outstanding principal amount of and accrued and unpaid interest on the Purchase Money Note obligations of the Partnership, as of December 31, 1997, as set forth in the table included in Item 2 above, was $15,115,313. The outstanding obligations are expected to increase annually until maturity as interest continues to accrue under the Purchase Money Notes. The aggregate outstanding principal amount of the Purchase Money Notes reported on the Partnership's Balance Sheet ($11,544,195 at December 31, 1997), reflects a discount using an imputed interest rate of approximately 21%, which was applied to the face amount of the notes on the respective investment purchase dates and which is used to calculate an annual interest accrued in accordance with generally accepted accounting principles that will equate to the legal obligation (as presented in Item 2 and discussed above) expected at maturity of the notes. Linden Park Limited Partnership, one of the two Local Limited Partnerships in which the Partnership acquired its interest for cash ("LPLP"), issued purchase money notes in connection with the purchase of its housing complex. The terms of such notes are substantially identical to those of the Partnership's Purchase Money Notes, requiring no payment of principal prior to maturity and permitting interest to accrue prior to maturity to the extent LPLP's cash flow is insufficient to pay such interest. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, continued The Partnership acquired its interest in LPLP for cash, and accordingly, no Purchase Money Notes were delivered in connection therewith. However, LPLP delivered purchase money notes in the original principal amount of $1,800,000 in connection with LPLP's acquisition of the housing project which it owns (the "LPLP Notes"). The LPLP Notes are secured by a pledge of LPLP's cash flow, and by a pledge by each of the partners in LPLP (including the Partnership) of its respective interest in LPLP. The LPLP Notes were issued on December 6, 1984, bear interest at the rate of 9% per annum and mature on December 11, 1999. The LPLP Notes permit interest to accrue to the extent that cash flow of LPLP is not sufficient to enable LPLP to pay interest on a current basis. The LPLP Notes do not require payment of any portion of the principal amount thereof prior to maturity (except that such notes require immediate payment following a default (as defined therein) by LPLP thereunder). As a result of such interest accrual and payment provisions, the LPLP Notes will require substantial balloon payments at maturity. As of December 31, 1997 the unpaid principal amount of and accrued and unpaid interest on the LPLP Notes equaled $2,446,032. In order for LPLP to pay at maturity the LPLP Notes, LPLP would most likely be required to sell or refinance its housing project in a transaction generating proceeds sufficient to repay the notes. There can be no assurance that LPLP will be able to successfully consummate any of such types of transactions. Accordingly, the LPLP Notes, while not technically Purchase Money Notes issued by the Partnership, will present the same issues to the Partnership as will the maturity of the Purchase Money Notes. In order to pay at maturity the Purchase Money Notes with respect to any particular Local Limited Partnership, the Partnership will most likely be required to (a) sell its interest in the Local Limited Partnership for a price equal to or greater than the amounts due under the associated notes (b) obtain financing in an amount sufficient to repay the notes or (c) cause the Local Limited Partnership to sell or refinance its housing project in a transaction sufficient to repay indebtedness encumbering the project and generate net proceeds to the Partnership sufficient to enable the Partnership to repay the notes. Alternatively, the Partnership could seek extension or modification of the payment terms of the Purchase Money Notes. The process of exploring and negotiating any of the foregoing alternatives will require substantial time, effort and resources. Management is in the process of negotiating the potential sale of the Partnership's Limited Partnership interest in six of the Local Limited Partnerships that share common ownership and management. There can be no assurance that the Partnership will be able to successfully consummate any of such types of transactions. If Partnership funds are insufficient to pay when due the Purchase Money Notes, the holders of the Purchase Money Notes will have the right to foreclose on the Partnership's respective interests in the Local Limited Partnerships. The sale or other disposition by the Partnership of its interests in the Local Limited Partnerships, including in connection with such a foreclosure, is likely to result in recapture of previously claimed tax losses to the Partnership and may have other adverse tax consequences to the Partnership and to the Limited Partners. Such recapture may cause some or all of the Limited Partners to have taxable income from the Partnership without cash distributions from the Partnership with which to satisfy the tax liability resulting therefrom. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, continued The only sources of Partnership funds are (i) distributions from the Local Limited Partnerships (substantially all of which are presently required to be applied to payment of interest accruing on the Purchase Money Notes), (ii) payments to the Partnership of amounts due under certain promissory notes acquired by the Partnership from one of the Local Limited Partnerships (as hereinafter described) and (iii) Partnership reserves. At December 31, 1997, the Partnership's had reserves of $65,685 (in cash and cash equivalents), compared with $163,915 at December 31, 1996. Such reserves have partially funded the Partnership administrative expenses, including expense reimbursement to the Former Managing General Partner. Due to the assignment of the Former Managing General Partner's interest to the current Managing General Partner, the Partnership incurs certain administrative costs, including the partnership Management Fee, which are earned by or reimbursed to the current Managing General Partner. As discussed more fully in Note 6 to the financial statements, such administrative costs were $107,007 and $98,240 in 1997 and 1996, respectively. In connection with the assignment of the Former General Partners' interests to the current Managing General Partner, the Former Managing General Partner refunded to the Partnership certain amounts previously received from the Partnership as expense reimbursements. The amount refunded in respect of expenses accrued prior to January 1, 1995 has been recorded as a $3,202 contribution to the Partnership's capital by the Former Managing General Partner. During 1997, 1996 and 1995, distributable cash flow from the Local Limited Partnerships (LLP's) to which the Partnership delivered purchase money notes was distributed to the partnership, as follows: 1997: Seven LLP's - $369,947; 1996: Seven LLP's - $288,577; and 1995: Eight LLP's - $316,819. By April 30, 1997, 1996, and 1995, the Partnership used such cash distributions to pay a portion of the accrued and unpaid interest on the related Purchase Money Notes. In 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership, one of the Local Limited Partnerships ("Linden Park"). Such notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership (in connection with the Partnership's acquisition of an interest in Linden Park). The Partnership purchased such notes, which had an outstanding principal amount of $173,803 plus accrued and unpaid interest of $49,692, as of the date of acquisition, for $58,000. The notes mature on December 11, 1999, and bear interest at 9% per annum, payable only to the extent of available cash from Linden Park's operations. During 1997, the Partnership received $23,803 of interest payments on such notes and accrued unpaid interest of $73,290. As of December 31, 1997, the outstanding balance of principal and accrued and unpaid interest receivable on these notes amounted to $247,092, prior to the unamortized discount of $103,607. 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Local Limited Partnerships. The liquidity of the Local Limited Partnerships in which the Partnership has invested is dependent on the ability of the respective Local Limited Partnerships, which own and operate government assisted multi-family rental housing complexes, to generate cash flow sufficient to fund operations and debt service and to maintain working capital reserves. Each of the Local Limited Partnerships is regulated by government agencies which require monthly funding of certain operating and capital improvements reserves and which regulate the amount of cash to be distributed to owners. Each Local Limited Partnership's source of funds is rental income received from tenants and government subsidies. Certain of the Local Limited Partnership's receive rental income pursuant to Section 8 rental assistance contracts which expire beginning in 1998 and continuing through 2000. With Congressional passage in October 1997 of the Multifamily Assisted Housing and Reform and Affordability Act, HUD has been given budgetary authority to approve requests for one year renewals on all Section 8 contracts through September 30, 1998. Three of the four expiring Section 8 contracts expire before September 30, 1998, and thus will be eligible for one year renewals. Each of the Local Limited Partnerships has incurred mortgage indebtedness as reflected in Item 8 in Schedule III - Real Estate and Accumulated Depreciation. The mortgage loans provide for equal monthly payments of principal and interest in amounts which will reduce the principal amount of the loans to zero at maturity. Each of the maturity dates of the respective mortgages is substantially beyond the due date of the Purchase Money Note obligations. Upon a sale of a property by a Local Limited Partnership the mortgage indebtedness of such property must be satisfied prior to distribution of any funds to the partners in the Local Limited Partnership. Partnership Operations The Partnership is engaged solely in the business of owning interests in the Local Limited Partnerships rather than the direct ownership of real estate. The Partnership's interest income reflects interest earned on reserves and interest net of discount amortization on the long term notes receivable. Total interest income decreased to $45,607 in 1997 from $61,407 in 1996. This decrease was attributable to a decrease in interest payments received on the long-term note receivable ($23,803 in 1997 versus $35,410 in 1996) and the lower reserve balance maintained during the year. Interest income was $32,035 in 1995. In 1995, interest payments received on the long-term note receivable were $2,919. The Partnership's interest expense increased to $2,214,122 in 1997 from $1,904,536 in 1996 and $1,569,007 in 1995. Such increases are attributable to the accrual of interest under the Purchase Money Notes. Refer to Note 7 to the Financial Statements. General and administrative expenses of the Partnership were $145,864 in 1997, $143,556 in 1996 and $121,353 in 1995. In 1995, the Partnership was charged for less expense reimbursements by the Former Managing General Partner due to the assignment of its interest in the Partnership. Average occupancy levels at the projects owned by the Local Limited Partnerships ranged from 88% to 100% in 1997, and 94% to 100% in 1996, and 89% to 100% in 1995. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Partnership Operations, continued The Partnership's equity in income from the Local Limited Partnerships was $96,766 in 1997, $24,678 in 1996 and $94,133 in 1995. The recognition of income in 1997 is primarily attributable to the fact that the partnership did not record losses totaling approximately $172,000 for five Local Limited Partnerships because its related investment accounts had already been reduced to zero and recognized investment income of $23,065 of cash distributions received from Glendale Manor as it would have reduced its investment balance below zero. In 1996, the Partnership did not record approximately $125,000 of net losses for four Local Limited Partnerships but was able to apply $55,714 of loss carry-forward against the current year net income of one Local Limited Partnership. In 1995, approximately $256,000 of net losses were not recorded. The Partnership is not obligated to make additional capital contributions to fund the deficit in its capital accounts in any of the Local Limited Partnerships. Because of the above discussed factors, net loss increased to $2,217,613 in 1997 from $1,962,007 and $1,564,192 in 1996 and 1995, respectively. The operations of the Partnership and of each of the Local Limited Partnerships are subject to numerous risks, including material tax risks. The rents of the Properties, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreements expire at various times from May 1998 through July 2000. The United States Department of Housing and Urban Development ("HUD") has issued notices which implement provisions to renew certain project based Section 8 contracts expiring during HUD's fiscal year 1998 where requested by an owner, for an additional one year term generally at or below current rent levels, subject to certain guidelines. HUD has an additional program which, in general, provides for restructuring rents and/or mortgages where rents may be adjusted to market levels and mortgage terms may be adjusted based on the reduction in rents, although there may be instances in which only rents, but not mortgages, are restructured. The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of certain Local Partnerships currently receiving such subsidy or similar subsidies. See Item 1 above. Recent Accounting Pronouncements The Partnership has adopted SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 128 provides accounting and reporting standards for the amount of earnings per share. SFAS No. 129 requires the disclosure, in summary form within the financial statements, of the pertinent rights and privileges of the various securities outstanding. The implementation of these standards has not materially affected the Registrant's financial statements. 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Recent Accounting Pronouncements, continued In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Registrant does not have any items of other comprehensive income, does not have other segments of its business on which to report, and does not have any pensions or other postretirement benefits. Consequently, these pronouncements are expected to have no effect on the financial statements. Impact of the Year 2000 Issue Based on correspondence with our software provider, The Partnership's software is year 2000 compliant. Management anticipates no further issues or incurring any future costs relating to this issue. 15 Item 8. Financial Statements and Supplementary Data LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) INDEX Page Financial Statements: Balance Sheets, December 31, 1997 and 1996 17-18 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 19 Statements of Changes in Partners' Deficit for the Years Ended December 31, 1997, 1996 and 1995 20 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 21 Notes to Financial Statements 22-33 Independent Auditors' Report 34 Separate Financial Statements, including Reports of Independent Accountants, for Significant Subsidiaries: Austintown Associates 35-66 Osuna Apartments Company 67-95 Financial Statement Schedules: Independent Auditors' Report 96 Schedule III - Real Estate and Accumulated Depreciation 97 All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 16
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS December 31, --------------------------- 1997 1996 ---- ---- Assets Current assets: Cash and cash equivalents $ 65,685 $ 163,915 Other current assets 0 31 ---------- ---------- Total current assets 65,685 163,946 Long-term notes and accrued interest receivable 143,485 127,668 Investments in local limited partnerships 2,019,775 2,295,189 ---------- ---------- Total Assets $2,228,945 $2,586,803 ========== ========== (continued) 17 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS (continued) December 31, ----------------------------- 1997 1996 ---- ---- Liabilities and Partners' Deficit Current liabilities: Accounts payable to affiliates $ 75,271 $ 58,271 Accounts payable 1,410 1,000 Accrued expense 16,000 15,600 Accrued interest payable 370,165 385,901 ------------ ------------ Total current liabilities 462,846 460,772 Purchase money notes 11,544,195 9,684,281 ------------ ------------ Total liabilities 12,007,041 10,145,053 ------------ ------------ Partners' deficit: General partners: Capital contributions 4,202 4,202 Capital distributions (22) 0 Accumulated losses (198,550) (176,373) ------------ ------------ (194,370) (172,171) ------------ ------------ Limited partners (21,576 Units in 1997 and in 1996): Capital contributions (net of offering costs of $1,134,440) 9,649,520 9,649,520 Capital distributions (2,211) 0 Accumulated losses (19,231,035) (17,035,599) ------------ ------------ (9,583,726) (7,386,079) ------------ ------------ Total partners' deficit (9,778,096) (7,558,250) ------------ ------------ Total liabilities and partners' deficit $ 2,228,945 $ 2,586,803 ============ ============
The accompanying notes are an integral part of these financial statements. 18 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF OPERATIONS For the Years Ended December 31, ------------------------------------------ 1997 1996 1995 ---- ---- ---- Interest income $ 45,607 $ 61,407 $ 32,035 Expenses: Interest expense 2,214,122 1,904,536 1,569,007 General and administrative expense 145,864 143,556 121,353 ----------- ----------- ----------- Total expenses 2,359,986 2,048,092 1,690,360 ----------- ----------- ----------- Loss before equity in income of local limited partnership investments (2,314,379) (1,986,685) (1,658,325) Equity in income of local limited partnership investments 96,766 24,678 94,133 ----------- ----------- ----------- Net loss $(2,217,613) $(1,962,007) $(1,564,192) =========== =========== =========== Net loss per Limited Partnership Unit, based on 21,576 Units outstanding in 1995 through 1997 $ (101.75) $ (90.02) $ (71.77) =========== =========== =========== The accompanying notes are an integral part of these financial statements. 19 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the years ended December 31, 1997, 1996 and 1995 General Limited Partners Partners Total ----------- ----------- ----------- Partners' deficit at December 31, 1994 $ (140,111) $(3,895,142) $(4,035,253) Net loss (15,642) (1,548,550) (1,564,192) Capital Contributed 3,202 -- 3,202 ----------- ----------- ----------- Partners' deficit at December 31, 1995 $ (152,551) $(5,443,692) $(5,596,243) Net loss (19,620) (1,942,387) (1,962,007) ----------- ----------- ----------- Partners' deficit at December 31, 1996 $ (172,171) $(7,386,079) $(7,558,250) Net loss (22,177) (2,195,436) (2,217,613) Capital Distributions (22) (2,211) (2,233) ----------- ----------- ----------- Partners' deficit at December 31, 1997 $ (194,370) $(9,583,726) $(9,778,096) =========== =========== =========== The accompanying notes are an integral part of these financial statements. 20
LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS For the Years Ended December 31 ----------------------------------------- 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Cash distributions from local limited partnerships $ 372,180 $ 288,577 $ 316,819 Interest payments on purchase money notes (369,947) (290,554) (316,109) Cash paid for Partnership administration expenses (128,051) (173,106) (23,136) Interest received 29,821 45,667 19,300 ----------- ----------- ----------- Net cash used in operating activities (95,997) (129,416) (3,126) ----------- ----------- ----------- Cash flows from financing activity: Contributions from former general partners -- -- 3,202 Capital distributions (2,233) -- -- ----------- ----------- ----------- Net cash provided by financing activity (2,233) -- 3,202 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (98,230) (129,416) 76 Cash and cash equivalents at: Beginning of period 163,915 293,331 293,255 ----------- ----------- ----------- End of period 65,685 $ 163,915 $ 293,331 =========== =========== =========== Reconciliation of net loss to net cash used in operating activities: Net loss $(2,217,613) $(1,962,007) $(1,564,192) Adjustments to reconcile net loss to net cash used in operating activities: Share of income of local limited partnership investments (96,766) (24,678) (94,133) Cash distributions from local limited partnerships 372,180 288,577 316,819 Interest expense added to purchase money notes, net of discount amortization 1,859,914 1,532,710 1,287,533 Interest income added to long-term notes receivable, net of discount amortization, and interest received (15,817) (15,818) (14,607) Decrease in other current assets 31 77 1,870 (Decrease) increase in: Accrued interest payable (15,736) 81,273 (34,635) Accounts payable to affiliates 17,000 (30,500 82,569 Accounts payable 410 1,000 -- Accrued expenses 400 (50) 15,650 ----------- ----------- ----------- Net cash used in operating activities (95,997) $ (129,416) $ (3,126) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 21 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. Organization of Partnership Liberty Housing Partners Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on March 20, 1984 for the primary purpose of investing in other limited partnerships which own and operate government assisted multi-family rental housing complexes (the "Local Limited Partnerships"). The General Partners of the Partnership through December 27, 1995 were Liberty Real Estate Corporation, which served as the Managing General Partner, and LHP Associates Limited Partnership, which served as the Associate General Partner. On December 27, 1995, Liberty Real Estate Corporation and LHP Associates Limited Partnership withdrew from the Partnership and assigned and transferred all of their interests in the Partnership to the Successor General Partner, TNG Properties Inc., which was admitted to the Partnership as Successor General Partner. TNG Properties Inc. serves as the Managing General Partner. The Partnership Agreement authorized the sale of up to 30,010 units of Limited Partnership Interest ("Units") of which 21,616 were subscribed for and sold as of the completion of the offering on July 12, 1985. During fiscal 1995, the Partnership recorded as cancelled and no longer outstanding 40 units which were formally abandoned by the holders of such units. Pursuant to terms of the Partnership Agreement, Profits or Losses for Tax Purposes (other than from sales or refinancings) and Distributable Cash From Operations, both as defined in the Partnership Agreement, are allocated 99% to the Limited Partners and 1% to the General Partners. Different allocations of profits or losses and cash distributions resulting from other events are specified in the Partnership Agreement. 2. Significant Accounting Policies The Partnership records are maintained on the accrual basis of accounting. Investments in Local Limited Partnerships are accounted for by the equity method whereby costs to acquire the investments, including cash paid, notes issued and other costs of acquisition, are capitalized as part of the investment account. The Partnership's equity in the earnings or losses of each of the Local Limited Partnerships is reflected as an addition to or reduction of the respective investment account. The Partnership does not recognize losses which reduce its investment account below zero. Cash equivalents at December 31, 1997, consist of money market fund investments with no stated maturity, valued at cost, which approximates market value. At December 31, 1996, cash equivalents also included a 14 day certificate of deposit with interest accruing at a rate of 4.5 percent. Discounts on long-term purchase money notes are amortized over the terms of the related notes using the effective interest method. Discounts on long-term notes receivable are amortized over the term of the notes using the effective interest method. No provision or benefit for income taxes has been included in these financial statements since taxable income or loss through to, and is reportable bypass the partners individually. 22 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 2. Significant Accounting Policies, continued The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Net loss per Limited Partnership Unit is based on the weighted average number of Units outstanding in the applicable year. Refer to Note 1 for information regarding profit and loss sharing ratios. No provision for income taxes has been made since the liability for such taxes is the obligation of the Partners rather than the Partnership. The Partnership has adopted SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 128 provides accounting and reporting standards for the amount of earnings per share. SFAS No. 129 requires the disclosure, in summary form within the financial statements, of the pertinent rights and privileges of the various securities outstanding. The implementation of these standards has not materially affected the Registrant's financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Registrant does not have any items of other comprehensive income, does not have other segments of its business on which to report, and does not have any pensions or other postretirement benefits. Consequently, these pronouncements are expected to have no effect on the financial statements. 3. Contingencies The Partnership's cash balances have decreased each year from December 31, 1995 through December 31, 1997. If the trend continues, the Partnership may not have sufficient cash available for operating expenses during 1998. In addition, the Purchase Money Notes (PMN) have maturity dates ranging from September 1999 through July 2001. Sources of funds to satisfy the maturing PMN will have to come from either the sale of the Partnership's interest in the Local Limited Partnership or from refinancing or sale proceeds of the property of the Local Limited Partnership for a price equal to or greater than the amounts due under the associated PMN. The rents of the Properties, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreements expire at various times from May 1998 through July 2000. The United States Department of Housing and Urban Development ("HUD") has issued notices which implement provisions to renew certain project based Section 8 contracts expiring during HUD's fiscal year 1998 where requested by an owner, for an additional one year term generally at or below current rent levels, subject to certain guidelines. HUD has an additional program which, in general, provides for restructuring rents and/or mortgages where rents may be adjusted to market levels and mortgage terms may be adjusted based on the reduction in rents, although there may be instances in which only rents, but not mortgages, are restructured. 23 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 3. Contingencies, continued The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of certain Local Limited Partnerships currently receiving such subsidy or similar subsidies. Management of the Partnership is presently implementing plans to address these matters. Management has decided that the Partnership may defer payment of the management fee, and defer payment of the reimbursements for general and administrative costs. In addition, management expects an increase in distributions from one of the lower tiers due to the local state housing authority removing the limited dividend restriction on distributions. Management is in the process of negotiating the potential sale of the Partnership's Limited Partnership interest in six of the Local Limited Partnerships that share common ownership and management. Management is recommending that the Local Limited Partnership exercise their options to renew the Section 8 contracts pursuant to the HUD guidelines described in the preceding paragraph. 4. Investments in Local Limited Partnerships The Partnership acquired Local Limited Partnership interests in thirteen Local Limited Partnerships which own and operate government assisted multi-family housing complexes. The Partnership, as Investor Limited Partner pursuant to Local Limited Partnership Agreements, acquired interests ranging from 94% to 98% in the profit or losses from operations and cash from operations of each of the Local Limited Partnerships. Twelve Local Limited Partnership interests were acquired from withdrawing partners of existing Local Limited Partnerships and one Local Limited Partnership interest was acquired from a newly formed Local Limited Partnership. In conjunction with the acquisition of eleven of the Local Limited Partnership interests from withdrawing partners, the Partnership issued long-term purchase money notes in the aggregate principal amount of $8,705,000, before discount, to such withdrawing partners. In conjunction with the acquisition of one of the Local Limited Partnership interests, the Local Limited Partnership issued purchase money notes to withdrawing partners amounting to $1,800,000 with the same terms as the purchase money notes issued by the Partnership in connection with its acquisition of interests in other Local Limited Partnerships. All of the Purchase Money Notes carry simple interest at 9% per annum. Interest is payable annually but only to the extent of cash distributed from the respective Local Limited Partnerships. Both principal and unpaid interest are due at maturity. Recourse on such purchase money notes is limited to the Partnership's respective Local Limited Partnership interests which are pledged as security on the notes. See Note 7 for further information on Purchase Money Notes. The following is a summary of cumulative activity for investments in Local Limited Partnerships since their dates of acquisition: 24 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued Years Ended December 31, ------------------------ 1997 1996 ---- ---- Total acquisition cost to the Partnership $ 9,356,379 $ 9,356,379 Additional capital contributed by the Partnership 11,425 11,425 Partnership's share of losses of Local Limited Partnerships (3,744,473) (3,818,174) Cash distributions received from Local Limited Partnerships (3,603,556) (3,254,441) ----------- ----------- Investments in Local Limited Partnerships $ 2,019,775 $ 2,295,189 =========== =========== Summarized financial information from the combined financial statements of all Local Limited Partnerships is as follows: Summarized Balance Sheets December 31, ------------ 1997 1996 ---- ---- Assets: Investment property, net of accumulated depreciation $ 16,526,177 $ 17,379,631 Current assets 2,376,801 2,637,472 Other assets 294,284 307,297 ------------ ------------ Total assets $ 19,197,262 $ 20,324,400 ============ ============ Liabilities and Partners' Equity (Deficit): Current liabilities $ 1,671,568 $ 1,945,146 Long-term debt, net of discounts 16,839,912 17,217,990 ------------ ------------ Total liabilities 18,511,480 19,163,136 Partnership's equity(deficit) 878,863 1,344,630 Other partners' equity(deficit) (193,081) (183,366) ------------ ------------ Total liabilities and partners' equity(deficit) $ 19,197,262 $ 20,324,400 ============ ============ 25 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued
Summarized Statements of Operations ----------------------------------- For the Years Ended December 31, -------------------------------- 1997 1996 1995 ---- ---- ---- Rental and other income $ 5,358,709 $ 5,199,572 $ 5,191,089 Expenses: Operating expenses 3,424,047 3,298,651 3,185,215 Interest expense 1,041,432 954,170 1,242,398 Depreciation and amortization 993,415 991,323 922,690 ----------- ----------- ----------- Total expenses 5,458,894 5,244,144 5,350,303 ----------- ----------- ----------- Net loss $ (100,185) $ (44,572) $ (159,214) =========== =========== =========== Partnership's share of net loss $ (97,997) $ (45,752) $ (161,616) =========== =========== =========== Other partners' share of net income (loss) $ (2,188) $ 1,180 $ 2,402 =========== =========== ===========
The difference between the Partnership's share of income (loss) in Local Limited Partnership investments in the Partnership's Statement of Operations for the years ended December 31, 1997 through 1995 and the share of loss in the above Summarized Statements of Operations consists of the Partnership's unrecorded share of losses as follows:
1997 1996 1995 ---- ---- ---- Share of income in Local Limited Partnership Investments in the Partnership's Statement of Operations $ 96,766 $ 24,678 $ 94,133 Partnership's share of income in the above summarized Statements of Operations (97,997) (44,572) (161,616) ----------- ----------- ----------- Difference $ 194,763 $ 69,250 $ 255,749 =========== =========== =========== Unrecorded Losses: Linden Park (Prior year loss carry forward applied against 1996 net income) $ 46,355 $ (55,714) $ 192,452 Brierwood, Ltd. 35,037 36,982 16,115 Brierwood II, Ltd. 11,530 20,189 4,458 Pine Forest Apartments, Ltd. 66,954 39,870 42,724 Surry Manor 11,822 28,145 -- Other -- (222) -- ----------- ----------- ----------- Subtotal Unrecorded Losses 171,698 69,250 255,749 Cash distributions from Glendale Manor recorded as investment income 23,065 -- -- ----------- ----------- ----------- Total $ 194,763 $ 69,250 $ 255,749 =========== =========== ===========
26 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued The Partnership's investment in Local Limited Partnerships reported in its Balance Sheets at December 31, 1997 and 1996 are $1,140,912 and $950,559, respectively, greater than the Partnership's equity reported in the Summarized Balance Sheets above. This is related to the share of unrecorded losses of the five Local Limited Partnerships and in 1997 from cash distributions received from Glendale Manor which were recorded as investment income. The investment of these six Local Limited Partnerships has been reduced to zero. The Partnership recorded its share of losses in Linden Park, Brierwood Ltd., Brierwood II, Ltd. Pine Forest Apartments, Ltd., Surry Manor and Glendale Manor until its related investment was reduced to zero. Subsequent to that point, any cash distributions received from these six partnerships will be recognized as investment income rather than as a reduction in Investment in Local Limited Partnerships on the Partnership's Balance Sheet. In 1997, $23,065 of cash distributions from Glendale Manor was recognized as investment income as it would have reduced its investment balance below zero. The Partnership is not obligated to make additional capital contributions to fund the deficit in its capital accounts in these Local Limited Partnerships. Certain Local Limited Partnerships have made payments on behalf of the Partnership for non-resident state withholding taxes in accordance with state income tax regulations. These amounts totaling $2,233 in 1997 have been treated as distributions from the Local Limited Partnerships and a distribution to the partners of Liberty Housing Partners Limited Partnership. 5. Long-term Notes and Interest Receivable During 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership ("Linden Park"), a Local Limited Partnership. The notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership in connection with the Partnership's acquisition of an interest in Linden Park. The Partnership purchased such notes, which carried a face value of $173,803 plus accrued and unpaid interest of $49,692, for $58,000. The notes mature on December 11, 1999 and bear interest at 9% per annum payable only from available cash from operations of Linden Park. During the year ended December 31, 1997 the Partnership received $23,803 of interest on such notes. Any interest that is unpaid prior to maturity is due at maturity. As of December 31, 1997 and 1996, the outstanding balance of principal and accrued interest net of unamortized discount is $143,485 and $127,668, respectively. 27 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 6. Transactions with Affiliates During the years ended December 31, 1997, 1996 and 1995 the Partnership recognized general and administrative expenses owed to the current or predecessor Managing General Partner, as follows: 1997 1996 1995 ---- ---- ---- Reimbursement of Partnership administration expenses 57,007 $48,240 $38,771 Partnership management fees 50,000 50,000 50,000 As of December 31, 1997 and 1996, accounts payable to affiliates totaling $75,271 and $58,271 respectively, represent amounts owed for reimbursements of Partnership administration expenses of $20,000 and $7,771, respectively, and partnership management fees of $55,271 and $50,500, respectively. 28 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purchase Money Notes Long-term purchase money notes consist of the following at December 31: 1997 1996 ---- ---- Purchase Money Notes, due July 9, 2001, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Surry Manor, Ltd.: Original principal balance $ 360,000 $ 360,000 Accrued and unpaid interest 306,106 287,304 Purchase Money Notes, due August 29, 2000, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Glendale Manor Apartments: Original principal balance 450,000 450,000 Accrued and unpaid interest 137,984 134,981 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Oxford Homes for the Elderly, Ltd.: Original principal balance 643,600 643,600 Accrued and unpaid interest 215,485 182,165 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Williamston Homes for the Elderly, Ltd.: Original principal balance 664,100 664,100 Accrued and unpaid interest 81,486 44,295 29 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purchase Money Notes (Continued) 1997 1996 ---- ---- Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fuquay-Varina Homes for the Elderly, Ltd.: Original principal balance $707,300 $707,300 Accrued and unpaid interest 50,080 45,907 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fiddlers Creek Apartments: Original principal balance 1,750,000 1,750,000 Accrued and unpaid interest 1,066,909 1,076,436 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Meadowwood, Ltd.: Original principal balance 610,000 610,000 Accrued and unpaid interest 706,085 651,185 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Brierwood, Ltd.: Original principal balance 270,000 270,000 Accrued and unpaid interest 304,662 280,362 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Pine Forest Apartments, Ltd.: Original principal balance 350,000 350,000 Accrued and unpaid interest 383,840 352,340 30 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purchase Money Notes (Continued) 1997 1996 ---- ---- Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Austintown Associates: Original principal balance $1,600,000 $1,600,000 Accrued and unpaid interest 1,746,140 1,622,822 Purchase Money Notes, due November 27, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Osuna Apartments Company: Original principal balance 1,300,000 1,300,000 Accrued and unpaid interest 1,411,536 1,303,637 ------------ ----------- Total principal and accrued and unpaid interest at 9% at December 31 15,115,313 14,686,434 Aggregate discount on the above purchase money notes plus accrued interest (based upon average imputed interest rates of 21%) (3,571,118) (5,002,153) ------------ ----------- Long-term purchase money note liability $ 11,544,195 $ 9,684,281 ============ =========== The purchase money notes were originally discounted using an imputed interest rate of approximately 19% and assuming a certain level of cash flow from distributions from the underlying Local Limited Partnerships ("distributions"). Since 1990, on an annual basis, the Partnership has reviewed the estimated annual level of distributions expected to be received based on historical and re-forecasted future distributions and adjusted accordingly the future effective annual interest expense. The effective annual interest rate as of December 31, 1997 is approximately 21%. All of the purchase money notes and accrued interest thereon may be repaid without penalty prior to maturity. However, it is not anticipated that any principal payments will be made prior to maturity and therefore the principal balances are classified as long-term. The portion of interest which is expected to be paid currently is classified as a current liability and the portion of interest which is not expected to be paid until maturity has been reflected as interest added to purchase money note debt. 31 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 8. Reconciliation of Loss in Financial Statements to Loss for Federal Income Tax Purposes A reconciliation of the loss reported in the Statements of Operations for the years ended December 31, 1997, 1996 and 1995, to the loss reported for Federal income tax purposes is as follows: 1997 1996 1995 ---- ---- ---- Net loss per Statements of Operations $(2,217,613) $(1,962,007) $(1,564,192) Less: Excess of tax equity over book equity in loss of Local Limited Partnership (669,980) (746,209) (835,209) Add: Additional book basis interest 1,292,826 1,033,449 728,881 Expenses not deducted pursuant to I.R.C Section 267 17,000 (30,500) 88,771 ----------- ----------- ----------- Net loss for Federal income tax purposes $(1,577,767) $(1,705,267) $(1,581,749) =========== =========== =========== 9. Disclosure About Fair Value of Financial Instruments Long Term Notes Receivable Management does not believe it is practical to estimate the fair value of the notes receivable because notes with similar terms and provisions are not available to the partnership. Purchase Money Mortgages Payable Management does not believe it is practical to determine the fair value of the Purchase Money Notes payable because notes with similar terms and provisions are not currently available to the partnership. 10. Concentration of Credit Risk The Partnership maintains its cash and cash equivalents in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by this bank. 32 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 11. Statement of Distributable Cash from Operations (Unaudited) Distributable Cash From Operations for the year ended December 31, 1997, as defined in Section 17 of the Partnership Agreement, is as follows: Interest income per Statement of Operations $45,607 Less: Interest income added to long-term notes receivable, net of discount amortization (15,817) Plus: 1997 cash distributions to be received from Local Limited Partnerships, net of non-resident state withholding taxes 353,038 Less: 1997 interest payments on purchase money notes to be paid out of 1997 cash distributions from Local Limited Partnerships (353,038) General and administrative expenses per Statement of Operations (145,864) -------- Cash from Operations, as defined (116,074) -------- Distributable Cash from Operations, as defined $ 0 ======== 33 Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Liberty Housing Partners Limited Partnership We have audited the accompanying balance sheets of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' deficit, and cash flows for each of the three years in the period ended December 31, 1997. 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 did not audit the financial statements of certain operating partnerships in which Liberty Housing Partners Limited Partnership owns a limited partnership interest. Investments in such partnerships comprise 45.3% and 41.7% of the assets as of December 31, 1997 and 1996, and losses from such partnerships comprise 1.5%, 6.6%, and 1.6% of the partnership loss for each of the three years in the period ended December 31, 1997, of Liberty Housing Partners Limited Partnership. The financial statements of these partnerships were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to information relating to these 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 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, based on our audits and the reports of the other auditors referred to above, the financial statements referred to above present fairly, in all material respects, the financial position of Liberty Housing Partners Limited Partnership 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. /s/ Reznick Fedder & Silverman Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 12, 1998 34 AUSTINTOWN ASSOCIATES FHA PROJECT NO. 042-44213 -------------------- FINANCIAL STATEMENTS and SUPPLEMENTARY INFORMATION with INDEPENDENT AUDITOR'S REPORT FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 35 1. LEAD AUDITOR ON ENGAGEMENT: Mary Ann Gehringer Audit Partner Bicko Fredman & Co. 3912 Prospect Avenue Cleveland, Ohio 44115 (216) 426-2100 2. INFORMATION ON LICENSING FOR AN OUT-OF-STATE CPA: n/a 3. CPA'S FEDERAL EMPLOYER ID NUMBER: 34-1285712 36 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS: Balance sheets 2 Statement of operations 3 Statement of partners' equity 4 Statement of cash flows 5-6 Notes to financial statements 7-10 SUPPLEMENTARY INFORMATION: INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION 11 Statement of profit and loss (HUD Form 92410) 12-13 Computation of surplus cash, distributions and residual receipts (HUD Form 93486) 14 Changes in fixed asset accounts 15 Other supporting data required by HUD 16-18 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS 19 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR HUD PROGRAM TRANSACTIONS 20 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION 21 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROLS 22-23 Schedule of findings and questioned costs 24 Auditor's comments on audit resolution matters 25 MORTGAGOR'S CERTIFICATION 26 MANAGING AGENT'S CERTIFICATION 27 37 Independent Auditor's Report Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the accompanying balance sheets of Austintown Associates, HUD Project No. 042-44213 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 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 Austintown Associates as of December 31, 1997 and 1996 and the results of its operations 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 9, 1998 on our consideration of Austintown Associates' internal control and reports dated January 9, 1998 on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination, and specific requirements applicable to nonmajor HUD program transactions. /s/ Bich Fredman & Co. Cleveland, Ohio January 9, 1998 1 38
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS 1997 1996 ---------- ---------- CURRENT ASSETS: 1120 Cash and cash equivalents $ 38,985 $ 87,531 1130 Accounts receivable - tenants 1,553 2,158 1144 - HUD 1,855 155 1145 - other 2,500 - 1210 Inventory supplies 5,436 5,381 1280 Prepaid expense 5,100 - ---------- ---------- 55,429 95,225 ---------- ---------- DEPOSITS HELD IN TRUST - FUNDED: 1191 Tenant security deposits 37,882 35,573 ---------- ---------- RESTRICTED DEPOSITS AND FUNDED RESERVES: 1320 Reserve for Replacements 196,232 181,814 1310 Mortgage escrow deposits 43,238 49,116 ---------- ---------- 239,470 230,930 ---------- ---------- FIXED ASSETS, AT COST: 1410 Land 397,105 397,105 1420 Buildings 5,004,422 4,999,696 1440 Equipment 152,209 150,485 ---------- ---------- 5,553,736 5,547,286 4120 Less: accumulated depreciation 2,312,953 2,145,754 ---------- ---------- 3,240,783 3,401,532 ---------- ---------- OTHER ASSETS: 1810 Unamortized loan costs - net 14,036 14,693 1900 Deposit 433 433 ---------- ---------- 14,469 15,126 ---------- ---------- TOTAL ASSETS $3,588,033 $3,778,386 ========== ========== 39 LIABILITIES AND PARTNERS' EQUITY 1997 1996 ---------- ---------- CURRENT LIABILITIES: 2110 Accounts payable - trade $ 20,154 $ 51,646 - insurance 14,546 14,957 2210 Deferred rent - 117 2140 Distribution payable - management fee 7,500 7,500 2141 Distribution payable 21,104 33,308 2150 Accrued real estate taxes 87,300 87,213 2130 Accrued interest payable 1,915 2,367 2320 Current portion of long-term debt 88,740 82,690 ---------- ---------- 241,259 279,798 ---------- ---------- DEPOSIT LIABILITIES: 2191 Tenant security deposits 26,939 26,491 ---------- ---------- LONG-TERM LIABILITIES: 2320 Mortgage payable 2,869,654 2,954,665 2390 Operating loss loan 15,779 19,507 ---------- ---------- 2,885,433 2,974,172 ---------- ---------- TOTAL LIABILITIES 3,153,631 3,280,461 ---------- ---------- PARTNERS' EQUITY 3130 Partners' equity 434,402 497,925 ---------- ---------- TOTAL LIABILITIES AND PARTNERS' EQUITY $3,588,033 $3,778,386 ========== ==========
The accompanying notes are an integral part of these financial statements. 2 40 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 1997 1996 --------- --------- REVENUE: Rental $ 862,532 $ 806,224 Interest 14,821 13,390 Other 15,089 16,499 --------- --------- 892,442 836,113 --------- --------- EXPENSES: Administrative 172,010 163,887 Utilities 127,753 120,618 Operating and maintenance 260,298 243,485 Taxes and insurance 136,776 134,064 Interest and mortgage insurance 40,079 45,752 Depreciation and amortization 190,445 192,884 Entity expense 7,500 7,500 --------- --------- 934,861 908,190 --------- --------- NET (LOSS) $ (42,419) $ (72,077) ========= ========= The accompanying notes are an integral part of these financial statements. 3 41 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 General Limited Partners Partner Total ---------- ---------- --------- Balance, December 31, 1995 $ (2,469) $ 598,079 $ 595,610 Net loss -- (72,077) (72,077) Return of prior year distribution 7,700 -- 7,700 Earned distribution currently payable (8,212) (25,096) (33,308) --------- --------- --------- Balance, December 31, 1996 (2,981) 500,906 497,925 Net loss -- (42,419) (42,419) Earned distribution currently payable (422) (20,682) (21,104) --------- --------- --------- Balance, December 31, 1997 $ (3,403) $ 437,805 $ 434,402 ========= ========= ========= The accompanying notes are an integral part of these financial statements. 4 42
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 1997 1996 ----------- ------------ CASH FLOWS FROM: OPERATING ACTIVITIES: Rental receipts $ 860,786 $ 811,929 Interest receipts 14,821 13,390 Other receipts 13,616 19,639 Insurance proceeds 398,887 -- ----------- ----------- 1,288,110 844,958 ----------- ----------- Administrative 48,784 35,047 Management fees 83,200 76,800 Utilities 139,312 120,356 Payroll and related expenses 191,889 173,415 Operating and maintenance 175,903 189,156 Fire repairs 393,113 -- Taxes - real estate 87,216 77,544 Property insurance 13,377 12,369 Miscellaneous taxes and insurance 394 456 Interest on mortgage 40,531 30,975 Mortgage insurance -- 240 Entity expense 7,500 7,500 ----------- ----------- 1,181,219 723,858 ----------- ----------- Net cash provided by operating activities 106,891 121,100 ----------- ----------- INVESTING ACTIVITIES: (Increase) decrease in Reserve for Replacements (14,418) 60,479 Decrease (increase) in mortgage escrow deposits 5,878 (14,398) Fixed asset purchases (29,038) (27,247) Security deposits funded (2,309) (2,221) ----------- ----------- Net cash (used) provided by investing activities (39,887) 16,613 ----------- ----------- FINANCING ACTIVITIES: Mortgage principal payments (82,690) (77,052) Net security deposits collected 448 471 Partnership distributions (33,308) (200) Return of partnership distribution -- 7,700 ----------- ----------- Net cash (used) by financing activities (115,550) (69,081) ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (48,546) 68,632 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 87,531 18,899 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 38,985 $ 87,531 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 43 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 1997 1996 --------- --------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net loss $ (42,419) $ (72,077) --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 190,445 192,884 (Increase) decrease in accounts receivable (3,595) 6,721 Increase in prepaid expenses (5,100) -- Increase in inventory supplies (55) (1,414) Decrease in accounts payable (31,903) (14,380) (Decrease) increase in deferred rent (117) 117 Increase in accrued real estate taxes 87 9,669 Decrease in accrued interest payable (452) (420) --------- --------- Total adjustments 149,310 193,177 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 106,891 $ 121,100 ========= ========= The accompanying notes are an integral part of these financial statements. 6 44 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 1. ORGANIZATION, BASIS OF PREPARATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Austintown Associates, a partnership, was formed as a limited partnership on February 15, 1973 pursuant to the provisions of the laws of the State of Ohio. The Partnership operates a 200 unit apartment project, Compass West, (the Project) located in Youngstown, Ohio. The Project is operated under the terms of a Federal Housing Administration (FHA) Regulatory Agreement for Limited Distribution Mortgages under Section 236 of the National Housing Act dated February 22, 1973. Distributions to partners are allowable only from surplus cash and are limited in any one fiscal year to six percent of the initial equity investment, on a cumulative basis. The FHA, under commitment to the Partnership, makes interest subsidiary payments to the mortgage lender. On October 30, 1984, ownership interests for the partners amounting to 99% of the interests of the existing partners were transferred by the original partners to new partners. As a result of the transfer, the Partnership retained one of the original General Partners as a Local General Partner, admitted a new General Partner as Associate General Partner, and admitted a Sole Investor Limited Partner. During 1995, there was a substitution of the Associate General Partner. The Partnership accounted for this transfer of ownership interests by the goodwill method whereby assets and liabilities are adjusted to reflect the value of Partnership assets based on the cost to the new partners of their interests in the Partnership. Profit of loss and cash distributions: Pursuant to Article X of the Amended and Restated Certificate of Formation and Agreement of Limited Partnership, profits and losses are allocated 1% to the Local General Partner, 1% to the Associate General Partner and 98% to the Investor Limited Partner, provided all partners individually have only positive balances or only negative balances. The agreement requires that all losses be allocated to the Investor Limited Partner if any General Partner has a negative balance at a time when any Limited Partner has a positive capital balance. The agreement also specifies the order of allocations in such instances as gain from a sale or refinancing and loss from a sale. These allocations may differ from those for operating profits and losses. BASIS OF PREPARATION The financial statements of the Project have been prepared in accordance with accounting principles applicable to a U.S. Department of Housing and Urban Development (HUD) project, in conformity with generally accepted accounting principles and the disclosure requirements as outlined in HUD Handbook 4370.2 REV 1. 7 45 BASIS OF PREPARATION, CONTINUED PART I - Funds of the Project: Under the conditions of the Regulatory Agreement, the "borrower" is obligated to create a Revenue Fund account into which all operating income of the Project is deposited and a Reserve Fund for Replacements for application toward the cost of unusual or extraordinary maintenance or repairs, renewals or replacements with the prior permission of HUD. PART II - Investment restrictions: The Regulatory Agreement and Section 236 place certain restrictions on the investment of funds set aside in the required Reserve. In essence, investment is restricted to direct obligations of, or obligations the principal of and the interest on which are guaranteed to include both securities issued by the United States Government and its agencies, and those insured by the United States Government and its agencies, and those insured under the Federal Deposit Insurance Corporation. In addition, any interest earned on the investment of such funds must be retained in the required Reserve. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies have been followed in the preparation of the financial statements: Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash equivalents For purposes of the statement of cash flows, the Partnership considers all highly-liquid, debt instruments purchased with a maturity of three months or less, not invested in a Reserve required under the terms of its Regulatory Agreement, to be "cash equivalents." Property and equipment Property and equipment is recorded on the basis of cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets range from 3 to 30 years. Management continually reviews property and equipment to determine that the carrying values have not been impaired. Maintenance Routine maintenance is charged to maintenance expense. Expenditures which materially increase the value or extend the useful lives of the assets are capitalized. Unamortized loan costs Loan costs are being amortized over the appropriate loan period on a straight-line basis. 8 46 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Inventory, supplies Supplies consist of various maintenance and cleaning products carried at cost. Income taxes For income tax purposes, each partner is required to take into account his share of the Partnership's income or loss and, accordingly, no provision or benefit for income taxes is included in the financial statements. 2. MORTGAGE PAYABLE The mortgage is insured by the FHA and secured by the property and equipment of the Project. The mortgagee's recourse on the debt is limited to such security. The mortgage, which bears interest at 7% per annum, requires monthly principal and interest payments of $24,095 less monthly interest subsidy ($15,503 for 1997 and $15,538 for 1996) thru December, 2015. Annual principal payments for the next five years are as follows: 1998 -- $85,011; 1999 -- $91,157; 2000 -- $97,746; 2001 -- $104,812; 2002 - $112,389 and thereafter -- $2,463,550. Under Section 236 of the National Housing Act, developers are given an interest reduction, in that the interest rate to develop and build the Project is subsidized to an effective rate of 1%. 1997 1996 -------- -------- Expense $209,402 $214,778 Subsidy 186,002 186,417 -------- -------- Net interest $ 23,400 $ 28,361 ======== ======== Under agreements with the mortgage lender and the FHA, the Project is required to make escrow deposits for taxes, insurance and replacement of Project assets. The Project is also subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners. 3. OPERATING LOSS LOAN The operating loss loan is an FHA-secured note with interest payable at 9%, due in monthly installments of $444, including principal and interest through January, 2002. Annual principal payments for the next five years, are as follows: 1998 -- $3,729; 1999 -- $4,079; 2000 -- $4,462; 2001 -- $4,881; 2002 -- $2,357, and thereafter -- $-0-. 4. UNUSUAL TRANSACTIONS During the year ended December 31, 1997, the Project experienced two fires. Insurance proceeds of $363,109 and $35,778 were received and used to pay the contractor for the repairs. Additional insurance proceeds of $13,184 were received under a business interruption claim and recorded as an offset to the vacancy loss. The repairs were performed by a party related to one of the General Partners. At December 31, 1997, $5,000 is owed pending completion of all repairs. 9 47 5. TRANSACTIONS WITH RELATED PARTIES Distribution payable consists of administrative fees to the Associate General Partner for services in overseeing the operations of the Partnership. The $7,500 per annum fee is payable only out of surplus cash reserves. The fee owed at December 31, 1997 and 1996 was $7,500. Pursuant to a management agreement dated July 1, 1994, management fees of 9.9% of gross rental collections are payable to Federal Management Company, an affiliate of the Local General Partner. On October 12, 1990, HUD approved a monthly management fee of $32 per unit. Management fees were $76,800 per annum for the years ended December 31, 1997 and 1996. Included in operating expenses are reimbursements to Federal Management Company for payroll, payroll taxes, medical insurance, accounting fees, and office supplies. Payments for such reimbursements were $202,002 and $169,630 for the years 1997 and 1996, respectively. Miscellaneous revenue includes commissions for the collection of monthly fees for equipment provided by B & M Professional Services, an affiliate of the Local General Partner. Receipts for the fiscal years ending December 31, 1997 and 1996 were $2,115 and $2,105, respectively. Included in operating expenses are payments of $47,227 and $27,260 for 1997 and 1996 respectively, to B & M Professional Services for window replacement, painting and drywall repairs. Payables to related parties as of December 31 are as follows: 1997 1996 -------- -------- Federal Management Company $ - $ 16,656 B & M Professional Services $ 3,274 $ 9,809 6. HOUSING ASSISTANCE PAYMENTS HUD has contracted with the partnership, under Section 8 of Title II of the Housing and Community Development Act of 1974, to make housing assistance payments to the partnership on behalf of qualified tenants. One agreement covering 120 units expires on November 30, 1998. A second agreement covering 80 units expires on May 31, 1999. With congressional passage in October 1997 of the Multifamily Assisted Housing and Reform and Affordability Act (the Act), HUD has been given budgetary authority to approve requests for one-year renewals on all Section 8 contracts expiring through September 30, 1998. Under provisions of the Act, renewal of Section 8 contracts expiring after September 30, 1998 are subject to evaluation and assessment under a complex set of requirements as prescribed by this "mark-to-market" legislation. Further, implementing regulations by HUD affecting administration over the renewal process have not yet been finalized. As a result, it is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operation of the project. The project is economically dependent upon the rental income received from both of its agreements. If HUD were not to extend either one, the project's operating cash flows would be adversely affected. 10 48 SUPPLEMENTARY INFORMATION 49 Independent Auditor's Report on Supplementary Information Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio Our report on our audit of the basic financial statements of Austintown Associates, HUD Project No. 042-44213, for December 31, 1997 appears on page 1. That audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information on pages 12 to 18 is presented for the purpose of additional analysis and is not a required part of the basic financial statements of Austintown Associates, HUD Project No. 042-44213. 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/ Bick Fredman & Co. Cleveland, Ohio January 9, 1998 11 50
Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052(Exp. 1/31/95) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses. For Month/Period Ending: Project Project Name: Beginning: Number: January 1, 1997 December 31, 1997 042-44213 Austintown Associates Part I Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 175,419 Tenant Assistant Payments 5121 $ 700,101 Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $875,520 Vacancies 5200 Apartments 5220 $ (26,172) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) Business Interruption Proceeds 5290 13,184 Total Vacancies (12,988) Net Rental Revenue Rent Revenue Less Vacancies $862,532 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 5,079 Income from Investments--Residual Receipts 5430 $ Income from Investments--Reserve for Replacement 5440 $ 9,041 Income from Investments--Miscellaneous 5490 $ 701 Total Financial Revenue $ 14,821 Other Revenue 5900 Laundry and Vending 5910 $ 1,094 NSF and Late Charges 5920 $ 1,851 Damages and Cleaning Fees 5930 $ 3,217 Forfeited Tenant Security Deposits 5940 $ 444 Other Revenue (specify) 5990 $ 8,483 Total Other Revenue $ 15,089 Total Revenue $892,442 Administrative Expenses Advertising 6210 $ 2,171 6200/6300 Other Administrative Expense 6250 $ 868 Office Salaries 6310 $ 36,553 Office Supplies 6311 $ 12,536 Office or Model Apartment Rent 6312 $ Management 6320 $ 76,800 Manager or Superintendent Salaries 6330 $ 18,675 Manager or Superintendent Rent Free Unit 6331 $ Legal Expenses (Project) 6340 $ 391 Auditing Expenses (Project) 6350 $ 9,800 Bookkeeping Fees/Accounting Services 6351 $ Telephone and Answering Service 6360 $ 5,456 Bad Debts 6370 $ 1,840 Miscellaneous Administrative Expenses (specify) 6390 $ 6,920 Total Administrative Expenses $172,010 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 51,851 Water 6451 $ 75,902 Gas 6452 $ Sewer 6453 $ Total Utilities Expense $127,753 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. Page 1 of 2 12 51 Austintown Associates 042-44213 Operating and Janitor and Cleaning Payroll 6510 $ 30,796 Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 6,486 6500 Janitor and Cleaning Contract 6517 $ 2,137 Exterminating Payroll/Contract 6519 $ 206 Exterminating Supplies 6520 $ 713 Garbage and Trash Removal 6525 $ 17,880 Security Payroll/Contract 6530 $ 1,818 Grounds Payroll 6535 $ 11,997 Grounds Supplies 6536 $ 3,765 Grounds Contract 6537 $ 674 Repairs Payroll 6540 $ 48,205 Repairs Material 6541 $ 97,705 Repairs Contract 6542 $ Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 445 Swimming Pool Maintenance/Contract 6547 $ 2,990 Snow Removal 6548 $ 1,300 Decorating Payroll/Contract 6560 $ 21,565 Decorating supplies 6561 $ 6,508 Other 6570 $ 3,514 Miscellaneous Operating and Maintenance Expenses 6590 $ 1,594 Total Operating and Maintenance Expenses $260,298 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 87,303 Payroll Taxes (FICA) 6711 $ 23,846 Miscellaneous Taxes, Licenses and Permits 6719 $ 394 Property and Liability Insurance (Hazard) 6720 $ 12,595 Fidelity Bond Insurance 6721 $ 371 Workmen's Compensation 6722 $ 996 Health Insurance and Other Employee Benefits 6723 $ 11,271 Other Insurance (specify) 6729 $ Total Taxes and Insurance $136,776 Financial Expenses 6800 Interest on Bonds Payable 6810 $ 23,374 Interest on Mortgage Payable 6820 $ 1,924 Interest on Notes Payable (Long-Term) 6830 $ Interest on Notes Payable (Short-Term) 6840 $ 14,781 Mortgage Insurance Premium/Service Charge 6850 $ Miscellaneous Financial Expenses 6890 $ Total Financial Expenses $ 40,079 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $739,916 Profit (Loss) Before Depreciation $155,526 Depreciation (Total)--6600 (specify) 6600 $190,445 Operating Profit or (Loss) $(34,919) Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) Admin. Fee - 4,000 7190 $ 7,500 Total Corporate Expenses Amortization 982 $ 7,500 Net Profit or (Loss) $(42,419) Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 79,280 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 54,000 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ 48,623 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $
Page 2 of 2 13 52
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING - FEDERAL HOUSING COMMISSIONER OFFICE OF MULTIFAMILY HOUSING MANAGEMENT AND OCCUPANCY COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER Austintown Associates December 31, 1997 042-44213 PART A - COMPUTE SURPLUS CASH 1. Cash (Accounts 1110, 1120, 1191) $76,867 2. Tenant subsidiary vouchers due for period covered by financial statement $ 1,815 3. Other (describe) other accounts receivable $ 2,500 (a) Total Cash (Add Lines 1, 2, and 3) $81,222 4. Accrued mortgage interest payable $ 1,915 5. Delinquent mortgage principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $15,154 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 7,755 10. Accrued expenses (not escrowed) $ 11. Prepaid Rents (Account 2210) $ 12. Tenant security deposits liability (Account 2191) $26,939 13. Other (Describe) payable to HUD $ 855 (b) Less Total Current Obligations (Add Lines 4 through 13) $52,618 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $28,604 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $28,604 2a. Distribution Earned During Fiscal Period Covered by the Statement $25,850 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $153,796 2c. Distributions Paid During Fiscal Period Covered by Statement $40,808 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $138,838 4. Amount Available for Distribution During Next Fiscal Period $28,604 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE
HUD-93486 (12-80) 14 53
AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 CHANGES IN FIXED ASSET ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1997 ASSETS ACCUMULATED DEPRECIATION ------------------------------------------------ -------------------------------------------------- Balance Balance Balance Balance Fixed Assets 1/1/97 Additions Disposals 12/31/97 1/1/97 Expenses Disposals 12/31/97 - ----------------- ---------- --------- --------- ---------- ---------- --------- ----------- ---------- Land $ 397,105 $ -- $ -- $ 397,105 $ -- $ -- $ -- $ -- Building 4,999,696 27,314 22,588 5,004,422 2,004,842 185,887 22,588 2,168,141 Equipment: Furniture & fixtures 120,618 1,724 -- 122,342 113,144 3,034 -- 116,178 Maintenance equipment 29,867 -- -- 29,867 27,768 866 -- 28,634 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $5,547,286 $ 29,038 $ 22,588 $5,553,736 $2,145,754 189,787 $ 22,588 $2,312,953 ========== ========== ========== ========== ========== ========== ========== Amortization 657 -------- Total $190,444 ======== Fixed asset additions/disposals: Refrigerators $ 9,003 $ 8,830 Carpeting 14,811 13,758 Porch 3,500 -- Computer 1,724 -- ------- -------- $29,038 $ 22,588 ======= ======== Net Carrying Amount Fixed Assets 12/31/97 - ----------------- --------- Land $ 397,105 Building 2,836,281 Equipment: Furniture & fixtures 6,164 Maintenance equipment 1,233 ---------- TOTAL $3,240,783 ==========
15 54 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD DECEMBER 31, 1997 1. ACCOUNTS OR NOTES RECEIVABLE OTHER THAN REGULAR TENANT ACCOUNTS Duplicate payment to vendor. $ 2,500 ======= 2. DELINQUENT TENANT ACCOUNTS # of Tenants Amount Past Due 0 to 30 days 10 $ 304 31 to 60 days 15 277 61 to 90 days 6 138 Over 90 days 19 1,689 ------- $ 2,408 ======= 3. ACCOUNTS PAYABLE OTHER THAN TRADE CREDITORS Manchi Realty Co. - retention not currently payable $ 5,000 B & M Professional Services 3,274 ------- $ 8,274 ======= 4. LOANS OR NOTES PAYABLE OTHER THAN THE INSURED MORTGAGE 9% operating loss loan dated March 24, 1978 in the original amount of $57,300. Balance at December 31, 1997: Current $ 3,729 Long-term 15,779 -------- $ 19,508 ======== 5. COMPENSATION OF PARTNERS None. 6. CHANGES IN CAPITAL INTERESTS, PROFIT AND LOSS INTERESTS, AND CASH FLOW INTERESTS None. 7. TRANSACTIONS WITH PARTIES-AT-INTEREST Amount Company Description Paid --------------------------- ----------------------- -------- Liberty LGP Administrative fee $ 7,500 Federal Management Co. Management fee $ 83,200 Manchi Realty Co. Insurance repairs $390,546 James P. Manchi Maintenance supplies $ 2,390 B & M Professional Services Maintenance and repairs $ 47,227 8. UNAUTHORIZED DISTRIBUTIONS None. 9. DISTRIBUTIONS TO PARTNERS March 3, 1997 $ 40,808 ======== 16 55 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996 10. MORTGAGE ESCROW DEPOSITS Estimated amount required as of December 31, 1997 for future payment of: Mortgage insurance premium $ 14,546 Property insurance 7,347 Real estate taxes 29,100 -------- 50,993 Amount on deposit deficient of estimated requirements (7,755) -------- Total confirmed $ 43,238 ======== 11. ACCRUED TAXES Description Basis for Period Date Amount of tax Accrual Covered Due Accrued ----------- --------------- ----------- ----------- -------- Real Estate 1997 effective 01/01/97 to Semi-Annual tax rate 12/31/97 1998 $ 87,300 ======== 12. RESERVE FOR REPLACEMENTS In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgage servicing agent, Manufacturers and Traders Trust, and is used for replacement of property with the approval of HUD. Balance at January 1, 1997 $ 181,814 Monthly deposits ($4,500 x 12 mos.) 54,000 Authorized releases: October 28, 1997 (48,623) Interest income 9,041 --------- Balance at December 31, 1997, confirmed by mortgagee $ 196,232 ========= Invested in: Money Market $ 62,370 Treasury Bill, due March 5, 1998 133,862 --------- Balance at December 31, 1997 $ 196,232 ========= The following information pertains to Reserve for Replacement Reimbursement requests approved during December 31, 1997:
Amount Purpose Account of Request of Request Charged ---------- ---------- ------- $ 4,286 Parking Lot 6541 6,872 Kitchen cabinetry 6541, 6542 7,676 Refrigerators Building 1,400 Exterior walk and steps 6561 14,811 Carpeting Building 770 Windows 6542 11,325 Waterproofing and foundation repairs 6541, 6542 298 Disposals 6541 1,185 Hot water tanks 6541 -------- $ 48,623 Form HUD 9250 approved October 28, 1997 ========
17 56 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1997 13. TENANT SECURITY DEPOSITS Tenant security deposits in the total amount of $37,882, which is sufficient to fund the related liability, are held in the following bank accounts at December 31, 1997: Metropolitan Savings Certificate of Deposit (5.1% due 12/30/98) $ 32,577 Mahoning National Bank Savings 5,305 -------- $ 37,882 ======== 14. DETAIL OF STATEMENT OF PROFIT AND LOSS SELECTED ACCOUNTS Account 5990 Other Revenue Community room/office rentals $ 882 Air conditioning fee 2,115 Cable 4,216 Pool 487 Miscellaneous 783 -------- $ 8,483 ======== Account 6390 Miscellaneous Administration Expenses Computer services $ 1,497 Seminars 1,248 Miscellaneous 1,275 Comprehensive Needs Assessment 2,900 -------- $ 6,920 ======== 15. NON-REVENUE PRODUCING UNITS None. 18 57 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD Programs Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates as of and for the year ended December 31, 1997 and have issued our report thereon dated January 9, 1998. In addition, we have audited Austintown Associates' compliance with the following specific program requirements: Specific Compliance Requirements o Federal Financial Reports o Mortgage Status o Replacement Reserve o Residual Receipts o Security Deposits o Cash Receipts and Disbursements o Distributions to Owners o Tenant Application, Eligibility and Recertification o Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1997. The management of Austintown Associates is responsible for compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit of compliance in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General. Those standards and The Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about Austintown Associates' compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, Austintown Associates complied, in all material respects, with the requirements described above, that are applicable to each of its major HUD-assisted program for the year ended December 31, 1997. This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ Bick Fredman & Co. Cleveland, Ohio January 9, 1998 19 58 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Program Transactions Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates as of and for the year ended December 31, 1997, and have issued our report thereon dated January 9, 1998. In connection with our audit of the 1997 financial statements of Austintown Associates and with our consideration of the Project's internal control structure used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, we selected certain transactions applicable to a certain nonmajor HUD-assisted program for the year ended December 31, 1997. As required by the Guide, we performed auditing procedures to test compliance with the requirements governing cash expenditures and matching requirements that are applicable to those transactions. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Project's compliance with those requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of the Partners, management, and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ Bick Fredman & Co. Cleveland, Ohio January 9, 1998 20 59 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Fair Housing and Non-Discrimination Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates as of and for the year ended December 31, 1997, and have issued our report thereon dated January 9, 1998. We have applied procedures to test the Project's compliance with Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted programs, for the year ended December 31, 1997. Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Project's compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of those procedures disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of the Partners, management, and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ Bick Fredman & Co. Cleveland, Ohio January 9, 1998 21 60 Independent Auditor's Report on Internal Controls Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates as of and for the year ended December 31, 1997, and have issued our report thereon dated January 9, 1998. We have also audited the Project's compliance with requirements applicable to HUD-assisted programs and have issued our reports thereon dated January 9, 1998. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Project complied with laws and regulations, noncompliance with which would be material to a HUD- assisted program. The management of Austintown Associates is responsible for establishing and maintaining internal controls. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal controls. The objectives of internal controls are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. 22 61 In planning and performing our audits for the year ended December 31, 1997, we obtained an understanding of the internal control structure. With respect to the internal control structure, we obtained an understanding of the design of relevant policies and procedures and determined whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinions on the Project's financial statements and its compliance with specific requirements applicable to its major HUD-assisted programs and to report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Project's major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control structure policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited or that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. This report is intended for the information of the Partners, management, and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ Bick Fredman & Co. Cleveland, Ohio January 9, 1998 23 62 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 SCHEDULE OF FINDINGS AND QUESTIONED COSTS DECEMBER 31, 1997 None. 24 63 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 AUDIT RESOLUTION MATTERS DECEMBER 31, 1997 The findings noted on the prior year's audit report and their depositions are reported below: 1. RESERVE FOR TAXES AND INSURANCE At December 31, 1996, the Reserve for Taxes and Insurance was deficient by $1,830. Action taken Escrow payment was not increased until November of 1997 resulting in a continuation of the deficiency in the balance that exists at December 31, 1997. 2. SURPLUS CASH CALCULATION/CURRENT YEAR DISTRIBUTIONS On November 22, 1996, HUD informed the Project owner that the surplus cash calculation as of December 31, 1995 was in error in that Line 3 included a pending release from the Reserve for Replacements which was not authorized until 1996. As a consequence of eliminating this item, the Project had no surplus cash at December 31, 1995. In 1996, the Project distributed $7,700 to the partners based on the original surplus cash calculation. In order to comply with HUD's instructions, on December 6, 1996, one of the general partners returned the entire distribution of $7,700. This amount is repayable to him out of surplus cash that exists as of December 31, 1996. Action taken No additional action is needed. 25 64 MORTGAGOR'S CERTIFICATION We hereby certify that we have examined the accompanying financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate. /s/ James Manchi 2/25/98 Date EIN: 74-2343727 26 65 MANAGING AGENT'S CERTIFICATION We hereby certify that we have examined the accompanying 1997 financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate. Federal Management Company, Inc. By /s/ James Manchi James Manchi 2/25/98 Date Federal I.D. #34-1527725 27 66 OSUNA APARTMENTS COMPANY HUD Project No. 116-44052-LDP (A Limited Partnership) Financial Statements and Supplemental Data For the Year Ended December 31, 1997 67 OSUNA APARTMENTS COMPANY HUD Project No. 116-44052-LDP (A Limited Partnership) Table of Contents Independent Auditor's Report Financial Statements: Balance Sheet Exhibit A Statement of Profit and Loss Exhibit B Statement of Changes in Partners' Equity Exhibit C Statement of Cash Flows Exhibit D Notes to Financial Statements Supplemental Data: Supporting Data Required by HUD Schedule 1 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD Programs Schedule 2 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Transactions Schedule 3 Independent Auditor's Report on Internal Control Schedule 4 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Fair Housing and Non-Discrimination Schedule 5 Schedule of Findings and Questioned Costs Schedule 6 Auditor's Comments on Audit Resolution Matters Schedule 7 Auditee's Corrective Action Plan Schedule 8 Partners' Certification Schedule 9 Managing Agent's Certification Schedule 10 68 [Letterhead of James M. Klein, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of Osuna Apartments Company I have audited the accompanying balance sheet of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP, as of December 31, 1997, and the related statements of profit and loss, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my 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 I 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. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of December 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 and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, I have also issued a report dated January 28, 1998, on my consideration of Osuna Apartments Company's internal control, and reports dated January 28, 1998, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Affirmative Fair Housing, and specific requirements applicable to nonmajor HUD program transactions. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data required by HUD included in Schedule 1 provides additional analysis which is not a required part of the basic financial statements of the Partnership. The information in such schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ James M. Klein, P.C. January 28, 1998 69 OSUNA APARTMENTS COMPANY (A Limited Partnership) Exhibit A
Balance Sheet December 31, 1997 Assets Current assets: 1110 Petty cash $ 100 1120 Cash in bank - operations (Note 1) (Schedules 1 and 2) 47,658 1130 Accounts receivable - tenants (Schedule 1) 1,233 1143 Accounts receivable - HUD (Schedule 1) 121 1144 Accounts receivable - other (Schedule 1) 374 Prepaid expenses: 1240 Property insurance 4,593 1250 Mortgage insurance 3,442 8,035 ------------- -------------- Total current assets 57,521 Deposits held in trust - funded: 1191 Tenant security deposits (contra) (Schedules 1 and 2) 10,900 Restricted deposits and funded reserves: 1310 Mortgage escrow deposits (Schedules 1 and 2) 17,509 1320 Reserve for replacements 151,260 (Note 2 and Schedules 1 and 2) 1330 Reserve for exterior painting (Schedules 1 and 2) 35,276 1340 Reserve for residual receipts (Note 2 and Schedules 1 and 2) 253,300 457,345 ------------- Fixed assets (at cost) (Notes 1 and 3) (Schedule 1): 1410 Land 255,230 1420 Buildings 1,854,035 1430 Building equipment 7,487 1460 Furnishings 159,337 ------------- 2,276,089 Less accumulated depreciation 964,348 1,311,741 ------------- Other asset: 1900 Unamortized deferred expenses (Note 1) 18,614 -------------- $ 1,856,121 ============== Liabilities and Partners' Equity Current liabilities: 2110 Accounts payable - trade (Schedule 1) $ 8,733 2115 Accounts payable - HUD (Schedule 1) 3,147 2120 Accrued taxes (Schedule 1) 22,252 2130 Accrued interest payable 678 2140 Other accrued expenses (Note 4 and Schedule 1) 2,500 2210 Prepaid rent 38 2320 Current maturities of long-term debt (Note 3) 37,272 -------------- Total current liabilities 74,620 Deposit liabilities: 2191 Tenant security deposits (contra) (Schedules 1 and 2) 10,900 Long-term debt (Note 3): 2320 Mortgage payable, 7 percent, less current maturities of $37,272 1,211,614 Contingency (Note 8) 3130 Partners' equity (Notes 1 and 5) 558,987 -------------- $ 1,856,121 ============== The accompanying notes are an integral part of the financial statements.
70
Statement of Profit and Loss U.S. Department of Housing and Urban Development Exhibit B Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052(Exp. 1/31/95) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Paperwork Reduction Project (25020-0052), Office of Information Technology, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600. This agency may not collect this information, and you are not required to complete this form, unless it displays a currently valid OMB control number. Do not send this form to the above address. For Month/Period Ending: Project Project Name: Beginning Number: OSUNA APARTMENTS 1/97 12/97 116-44052-LDP Part I Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 376,353 Tenant Assistant Payments 5121 $ 37,095 Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $413,448 Vacancies 5200 Apartments 5220 $ (4,469) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies (4,469) Net Rental Revenue Rent Revenue Less Vacancies $408,979 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 1,935 Income from Investments--Residual Receipts 5430 $ 7,676 Income from Investments--Reserve for Replacement 5440 $ 4,652 Income from Investments--Miscellaneous 5490 Total Financial Revenue $ 14,263 Other Revenue 5900 Laundry and Vending 5910 $ 4,485 NSF and Late Charges 5920 $ 1,802 Damages and Cleaning Fees 5930 $ 694 Forfeited Tenant Security Deposits 5940 $ 1,842 Other Revenue (specify) 5990 $ 626 Total Other Revenue $ 9,449 Total Revenue $432,691 Administrative Expenses Advertising 6210 $ 6200/6300 Other Administrative Expense 6250 $ 41 Office Salaries 6310 $ 6,452 Office Supplies 6311 $ 4,619 Office or Model Apartment Rent 6312 $ Management 6320 $ 39,119 Manager or Superintendent Salaries 6330 $ 16,530 Manager or Superintendent Rent Free Unit 6331 $ 3,336 Legal Expenses (Project) 6340 $ 932 Auditing Expenses (Project) 6350 $ 5,884 Bookkeeping Fees/Accounting Services 6351 $ 5,280 Telephone and Answering Service 6360 $ 1,524 Bad Debts 6370 Miscellaneous Administrative Expenses (specify) 6390 $ 1,260 Total Administrative Expenses $ 84,977 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 46,934 Water 6451 $ 14,465 Gas 6452 $ 29,029 Sewer 6453 $ 7,336 Total Utilities Expense $ 97,764 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. Page 1 of 2 The accompanying notes are an integral part of the finacial statements. 71 OSUNA APARTMENTS 116-44052-LDP Operating and Janitor and Cleaning Payroll 6510 $ Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 68 6500 Janitor and Cleaning Contract 6517 $ 2,350 Exterminating Payroll/Contract 6519 $ 2,640 Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 7,638 Security Payroll/Contract 6530 $ Grounds Payroll 6535 $ Grounds Supplies 6536 $ 407 Grounds Contract 6537 $ 18,569 Repairs Payroll 6540 $ 20,563 Repairs Material 6541 $ 14,589 Repairs Contract 6542 $ 10,782 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 196 Swimming Pool Maintenance/Contract 6547 $ Snow Removal 6548 $ Decorating Payroll/Contract 6560 $ 14,724 Decorating supplies 6561 $ 3,997 Other 6570 $ 347 Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $ 96,870 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 42,753 Payroll Taxes (FICA) 6711 $ 4,073 Miscellaneous Taxes, Licenses and Permits 6719 $ Property and Liability Insurance (Hazard) 6720 $ 10,199 Fidelity Bond Insurance 6721 $ 533 Workmen's Compensation 6722 $ 1,047 Health Insurance and Other Employee Benefits 6723 $ 115 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ 58,720 Financial Expenses 6800 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 9,158 Interest on Notes Payable (Long-Term) 6830 $ Interest on Notes Payable (Short-Term) 6840 $ Mortgage Insurance Premium/Service Charge 6850 $ 6,418 Miscellaneous Financial Expenses 6890 $ 1,054 Total Financial Expenses $ 16,630 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $354,961 Profit (Loss) Before Depreciation $ 77,730 Depreciation (Total)--6600 (specify) 6600 64,519 $ 64,519 Operating Profit or (Loss) $ 13,211 Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) Admin. Fee - 4,000 7190 $ 2,500 Total Corporate Expenses Amortization 982 $ 2,500 Net Profit or (Loss) $ 10,711 Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 34,759 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 6,068 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ - 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ - Page 2 of 2 The accompanying notes are an integral part of the financial statements.
72 OSUNA APARTMENTS COMPANY (A Limited Partnership) Exhibit C
Statement of Changes in Partners' Equity For the Year Ended December 31, 1997 Associate Local General General Limited Total Partner Partner Partner ------------ ---------- ----------- ------------ Balance, January 1, 1997 $ 557,588 $ 2,940 $ 3,055 $ 551,593 Distributions to partners (9,312) (93) (118) (9,101) Net income (loss) for the year 10,711 557 557 9,597 ------------ ---------- ----------- ------------ Balance, December 31, 1997 $ 558,987 $ 3,404 $ 3,494 $ 552,089 ============ ========== =========== ============ The accompanying notes are an integral part of the financial statements.
73 Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership)
Statement of Cash Flows For the Year Ended December 31, 1997 Cash flows from operating activities: Rental receipts $ 402,449 Interest receipts 1,934 Other receipts 9,449 $ 413,832 ------------- Administrative expenses 28,492 Management fees 39,119 Utilities 102,215 Salaries and wages 34,482 Maintenance expenses 82,087 Real estate taxes and escrow deposits 27,914 Taxes - other 3,846 Insurance 11,856 Mortgage interest 9,346 Mortgage insurance premium 6,206 345,563 ------------- ------------- Net cash provided by operating activities 68,269 Cash flows from investing activities: Deposit to residual receipts (24,725) Deposits to reserve for replacements (6,068) Deposits to reserve for exterior painting (3,600) Purchase of fixed assets (2,061) ------------- Net cash used in investing activities (36,454) Cash flows from financing activities: Mortgage principal payments (34,759) Distribution to partners (9,312) ------------- Net cash used in financing activities (44,071) ------------- Decrease in cash (12,256) Cash, beginning of year 60,014 ------------- Cash, end of year $ 47,758 ============= The accompanying notes are an integral part of the financial statements.
74 Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership)
Statement of Cash Flows (Continued) For the Year Ended December 31, 1997 Cash flows from operating activities: Net income $ 10,711 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $ 65,573 Increase in accounts receivable - tenants (276) Increase in accounts receivable - HUD (10) Increase in accounts receivable - other (374) Decrease in prepaid expenses 250 Increase in mortgage escrow account (6,536) Decrease in accounts payable - trade (10,231) Increase in accounts payable - HUD 40 Decrease in accrued interest payable (187) Decrease in prepaid rent (337) Increase in accrued taxes 21,975 Interest earned on reserve accounts (12,329) 57,558 ----------- ------------ Net cash used in by operating activities $ 68,269 ============ Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 9,346 ============ Interest earned on restricted reserve accounts and maintained in the respective reserve accounts $ 12,329 ============ The accompanying notes are an integral part of the financial statements.
75 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1997 Note 1 Organization and Summary of Significant Accounting Policies The Partnership was organized as a limited partnership on February 25, 1974, to acquire an interest in real property located in Albuquerque, New Mexico and to construct and operate thereon an apartment complex of 110 units, under Section 236 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. Lower rental charges to tenants are recovered by the Partnership through rent subsidies provided by HUD. The project's major program is its insured loan under Section 236. The project's nonmajor program results from its participation in the Section 8 housing assistance program. During the year ended December 31, 1997, rental revenue from HUD totaled $37,095 representing nine percent of total revenue. The rent subsidy contract with HUD expires August 31, 1999. The Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner and 98% to the investor limited partner. However, the allocation of deductions in respect to depreciation on property contributed to the Partnership is to be allocated according to the basis contributed by respective partners. In the case of certain other events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property) the allocation may be different than as described above for profits and losses from operations. The partnership does business under the assumed name of "Osuna Apartments ". The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of the year. The maximum distributable amount for the year ended December 31, 1997 was $11,812 and "surplus cash" amounted to $34,405. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide "surplus cash" in excess of current requirements. The cumulative amount distributable at December 31, 1997 was $11,812. The following significant accounting policies have been followed in the preparation of the financial statements: Basis of accounting The Partnership's policy is to prepare its financial statements on the basis of accounting practices prescribed by the Department of Housing and Urban Development. Assets and liabilities are classified as current based on the instructions provided in the Consolidated Audit Guide for Audits of HUD Programs. For purposes of the statement of cash flows, cash does not include tenant security deposits or restricted deposits. 76 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1997 Note 1 Organization and Summary of Significant Accounting Policies (Continued) Depreciation Depreciation is provided using the accelerated and straight-line methods over the estimated useful lives of the assets which range from five to 40 years. Deferred expenses Unamortized deferred expenses consist of fees for obtaining the HUD insured mortgage loan which are being amortized on the straight-line method over the life of the mortgage loan. Income taxes No income tax provision has been included in the financial statements since income or loss of the partnership is required to be reported by the respective partners on their income tax returns. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Rental revenue Gross rental revenue earned (accounts 5120 and 5121) was based on the approved rental rate structure (revenue and non-revenue units) of the project. Two non-revenue apartments (a 1BR and a 2BR) were occupied by the resident manager and maintenance person during the year. Concentration of credit risk The Partnership maintains its cash in various insured bank accounts which, at times, may exceed Federally insured limits. The partnership has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash. Management is aware of the limitation and attempts to minimize any risk. 77 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1997 Note 2 - Replacement Reserves and Residual Receipts Replacement reserve funds are held in cash ($56,372) and U.S. Treasury bills ($94,888) due April 1998. Residual receipts are held in cash ($96,735) and U.S. Treasury bills ($156,565) due April 1998. The Treasury bills bear interest at approximately 5.64% per annum. The amounts reported approximate fair value and are based on quoted market prices. Note 3 Longterm Debt The seven percent mortgage note payable is insured by HUD and is payable in monthly installments of $10,293 (before any interest supplement) through August, 2015. A portion of the interest is paid by HUD under its 236 Program. The apartment project is pledged as collateral for the note. Current maturities of longterm debt over the next five years ending December 31, are as follows: 1998 $37,272 1999 $39,966 2000 $42,856 2001 $45,954 2002 $49,275 It is impractical to estimate, with any precision, the fair value of the outstanding debt without incurring excessive cost. Note 4 Related Party Transactions During 1997, the general partners earned $2,500 in local partnership administrative fees. This amount is reflected as an accrued expense at December 31, 1997. These fees are treated as a portion of the limited dividend payable and can only be paid as part of the allowable distribution from surplus cash. Note 5 - Restricted Equity Under the terms of the Regulatory Agreement, the Partnership is required to set aside specified amounts for the replacement of property and other project expenditures as approved by HUD. Restricted funds, which approximate $404,560 at December 31, 1997, are held in separate accounts and generally are not available for operating purposes without HUD's prior written approval. 78 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1997 Note 6 - Rent Increases Under the regulatory agreement, the partnership may not increase rents charged to tenants without HUD approval. Note 7 - Management Fees Management fees of $39,119 were earned under a HUD approved 9.4% management contract. Management fees are based on collections of rentals, commercial (laundry and vending), late and NSF fees and forfeited security deposits. In addition, accounting fees of four dollars per unit per month ($5,280) were paid to the management company. Note 8 - Contingency The Partnership has been named in a lawsuit stemming from the alleged wrongful death of a tenant. The Partnership's insurance carrier has retained counsel to represent the Partnership in this action. The allegations are denied and are being vigorously contested. However, the ultimate outcome of this litigation is unknown at the present time. Accordingly, no provision for any liability (if any) that might result has been made in the accompanying financial statements. Note 9 - Current Vulnerability Due to Certain Concentrations The Partnership's sole asset is Osuna Apartments. The Partnership's operations are concentrated in the mutifamily real estate market. In addition, the Partnership receives rental subsidies from HUD and operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of congress or an administrative change mandated by HUD. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. 79 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD Accounts and Notes Receivable (Other Than Tenants) Accounts receivable - HUD represents an adjustment of Section 8 funds received in January 1998. Accounts receivable - other represents an overpayment of state withholding taxes. Accounts Receivable - Tenants Tenant accounts receivable at December 31, 1997 were comprised primarily of unpaid rents. Number of Tenants Aging Amount Due 5 0 - 30 Days $ 1,233 ========= Mortgage Escrow Deposits Estimated amount required for future payment of: City, state and county taxes $ 7,125 Property insurance 6,095 Mortgage insurance 2,006 ------- 15,226 Amount in excess of estimated requirements 2,283 ------- Total held by mortgagee $17,509 ======= This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 80 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Reserve for Replacements In accordance with the provisions of the regulatory agreement, restricted cash and securities are held by GMAC Commercial Mortgage at December 31, 1997 to be used for replacement of property with the approval of HUD as follows: Balance, January 1, 1997 $140,540 Monthly deposits ($506 x 12) 6,068 Interest earned 4,652 -------- Balance, December 31, 1997 $151,260 ======== Reserve for Residual Receipts In accordance with the provisions of the regulatory agreement, residual receipts cash and securities are held by GMAC Commercial Mortgage. Use of these funds is contingent upon HUD's prior written approval. The following is an analysis of 1997 transactions. Balance, January 1, 1997 $220,898 Interest earned 7,677 1996 residual receipts transferred 24,725 -------- Balance, December 31, 1997 $253,300 ======== Reserve for Exterior Painting Restricted cash is held by a bank to be used for exterior painting as follows: Balance, January 1, 1997 $31,676 Deposits for 1997 ($300 x 12) 3,600 Interest earned 1,017 Interest transferred to operating (1,017) ------- Balance, December 31, 1997 $35,276 ======= This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 81 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Accounts Payable (Other Than Trade Creditors) None Accounts Payable - Trade Accounts payable trade represent current obligations of the Partnership due in 30 days. Accounts Payable - HUD Accounts payable HUD represents excess income collected and remitted in January 1997. Accrued Taxes Basis Amount Description of Tax of Accrual Period Covered Date Due Accrued Payroll Monthly December 1997 January 1997 $ 878 Ad valorem Annual 1997 May 1998 21,374 -------- $22,252 ======== Tenant Security Deposits Tenant security deposits are fully funded and are held in a separate interest bearing account in the name of the project in an account insured by the Federal government at Norwest Bank Texas, Waco, N.A. Interest earned on the account does not inure to the tenants and is transferred into the operating account. At December 31, 1997 the account consisted of $10,900 in cash. Partnership Changes There were no changes in the partners' ownership during 1997. Distributions to Partners In March 1997, $11,812 in limited dividends, earned in 1996, were paid to the partners. At December 31, 1997 an equal amount ($11,812) was earned and is expected to be paid in 1998. This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 82 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Unauthorized Distributions to Partners There were no unauthorized distributions to partners during 1997. Compensation of Partners There was no compensation paid to partners. Identity of Interest Companies During 1997, the general partners earned $2,500 in local partnership administrative fees. These fees are treated as part of the limited dividend and are only paid out of surplus cash. Loans (Other Than Insured Mortgages) and Notes Payable None Comments on Other Balance Sheet Items None Miscellaneous Information The lead auditor of the engagement was James M. Klein, the shareholder in the firm of James M. Klein, P.C. (EIN: 75-2465724), located at 4901 LBJ Freeway, Suite 120, Dallas, Texas 75244. This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 83 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1
Supporting Data Required By HUD (Continued) December 31, 1997 Changes in the Apartment Project Assets Accumulated Depreciation Net ------------------------------------------ ----------------------------------------- Carrying Balance Balance, Balance, Balance, Amount Jan. 1, Deduc- Dec. 31, Jan. 1, Deduc- Dec. 31, Dec. 31, 1997 Additions tions 1997 1997 Provision tions 1997 1997 Land $ 255,230 $ -- $ - $ 255,230 $ -- $ -- $ - $ -- $ 255,230 Buildings 1,854,035 -- - 1,854,035 743,049 61,848 - 804,897 1,049,138 Building equipment fixed 7,487 -- - 7,487 3,665 1,070 - 4,735 2,752 Furnishings 157,276 2,061 - 159,337 153,115 1,601 - 154,716 4,621 --------- --------- - --------- --------- --------- - --------- --------- Totals $ 2,274,028 $ 2,061 $ - $2,276,089 $ 899,829 $ 64,519 $ - $ 964,348 $1,311,741 ========= ========= = ========= ========= ========= = ========= ========= This supporting data is presented for purposes of additional analysis and is not a required part of the financial statements.
84
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING - FEDERAL HOUSING COMMISSIONER OFFICE OF MULTIFAMILY HOUSING MANAGEMENT AND OCCUPANCY COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND SCHEDULE 1 RESIDUAL RECEIPTS PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER OSUNA APARTMENTS 12/31/97 116-44052-LDP PART A - COMPUTE SURPLUS CASH 1. Cash (Accounts 1110, 1120, 1191, 1192) $58,658 2. Tenant subsidiary vouchers due for period covered by financial statement $ 121 3. Other (describe) $ (a) Total Cash (Add Lines 1, 2, and 3) $58,779 4. Accrued mortgage interest payable $ 678 5. Delinquent mortgage principal payments $ - 6. Delinquent deposits to reserve for replacements $ - 7. Accounts payable (due within 30 days) $ 8,733 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued expenses (not escrowed) $ 878 11. Prepaid Rents (Account 2210) $ 38 12. Tenant security deposits liability (Account 2191) $10,900 13. Other (Describe) Excess Income $ 3,147 (b) Less Total Current Obligations (Add Lines 4 through 13) $24,374 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $34,405 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $34,405 Limited Dividend Projects 2a. Distribution Earned During Fiscal Period Covered by the Statement $11,812 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $11,812 2c. Distributions Paid During Fiscal Period Covered by Statement $11,812 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $11,812 4. Amount Available for Distribution During Next Fiscal Period $11,812 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $22,593 PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE
See Reverse for Instructions) HUD-93486 This supporting data is presented for additional analysis and is not a required part of the basic financial statements. 85 Schedule 2 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), Project No. 116-44052-LDP, as of and for the year ended December 31, 1997, and have issued my report thereon dated January 28, 1998. I have also audited Osuna Apartments Company's compliance with the specific program requirements governing federal financial reports, mortgage status, the replacement reserve, the residual receipts, tenant security deposits, cash receipts and disbursements, distributions to owners, tenant application, tenant eligibility, tenant recertification, and management functions, that are applicable to its major HUD-assisted program for the year ended December 31, 1997. The management of the Partnership is responsible for compliance with those requirements. My responsibility is to express an opinion on compliance with those requirements based on my audit. I conducted my audit of compliance with those requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General. Those standards and the Guide require that I plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Partnership's compliance with those requirements. I believe that my audit provides a reasonable basis for my opinion. In my opinion, Osuna Apartments Company complied, in all material respects, with the requirements described above that are applicable to its major HUD-assisted program for the year ended December 31, 1997. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas January 28, 1998 86 Schedule 3 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR HUD TRANSACTIONS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1997, and have issued my report thereon dated January 28, 1998. In connection with my audit of the 1997 financial statements of Osuna Apartments Company and with my consideration of the Partnership's internal control used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General. I selected certain transactions applicable to certain nonmajor HUD-assisted programs for the year ended December 31, 1997. As required by the Guide, I performed auditing procedures to test compliance with the requirements governing fair housing and non-discrimination, management, maintenance, the replacement reserve, federal financial reports, tenant application, tenant eligibility, tenant recertification, and tenant security deposits that are applicable to those transactions. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Partnership's compliance with those requirements. Accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas January 28, 1998 87 Schedule 4 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1997, and have issued my report thereon dated January 28, 1998. I have also audited the Partnership's compliance with requirements applicable to its major HUD-assisted program and have issued my report thereon dated January 28, 1998. I conducted my audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Partnership complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Osuna Apartments Company is responsible for establishing and maintaining internal control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. The objectives of internal control are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of internal control to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of controls may deteriorate. In planning and performing my audits, I obtained an understanding of the design of relevant controls and determined whether they had been placed in operation, and I assessed control risk in order to determine my auditing procedures for the purpose of expressing my opinions on Osuna Apartments Company's financial statements and on its compliance with specific requirements applicable to its major HUD-assisted program and to report on internal control in accordance with the provisions of the Guide and not to provide any assurance on internal control. 88 I performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of controls that I considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Partnership's major HUD-assisted program. My procedures were less in scope than would be necessary to render an opinion on internal control. Accordingly, I do not express such an opinion. My consideration of internal control structure would not necessarily disclose all matters in internal control that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements or that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. I noted no matters involving internal control and its operation that I consider to be material weaknesses as defined above. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas January 28, 1998 89 Schedule 5 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company as of and for the year ended December 31, 1997, and have issued my report thereon dated January 28, 1998. I have also applied procedures to test Osuna Apartments Company's compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted program for the year ended December 31, 1997. My procedures were limited to the applicable compliance requirement described by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Osuna Apartments Company's compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas January 28, 1998 90 Schedule 6 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule of Findings and Questioned Costs December 31, 1997 There were no findings, including material questioned costs, noted during the audit. 91 Schedule 7 AUDITOR'S COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO HUD PROGRAMS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership) as of and for the year ended December 31, 1997, and have issued my report thereon dated January 28, 1998. During the 1996 audit, no material matters involving internal control and its operation or compliance with specific requirements applicable to its major HUD program were noted. Accordingly corrective action was not required during 1997. Further, based on the auditor's discussions with management, there were no HUD OIG audits, physical inspections or program reviews during 1997. Furthermore, there were no mortgagee physical inspections during 1997. /s/ James M. Klein, P.C. Dallas, Texas January 28, 1998 92 Schedule 8 OSUNA APARTMENTS COMPANY (A Limited Partnership) Auditee's Corrective Action Plan December 31, 1997 Section I - Internal Control Review There were no findings or recommendations which require comment. Section II - Compliance Review There were no instances of noncompliance with laws and regulations which require comment. Further, as noted in Schedule 7, there were no HUD audits or physical inspections on which to comment. NOTE: As a result of the above, there is no need for a separate mortgagor letter proposing a corrective action plan. 93 Schedule 9 OSUNA APARTMENTS COMPANY (A Limited Partnership) Partners' Certification We hereby certify that we have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1997, and, to the best of our knowledge and belief, the same is complete and accurate. By: /s/ Michael A. Stoller 2/19/98 President Liberty LGP LP. DATE GENERAL PARTNER (Printed Name) By: /s/ Samuel R. Campbell, Pres. 2/18/98 Personal Economics Development, Corp. DATE GENERAL PARTNER (Printed Name) Employer Identification No. 74-2347236 94 Schedule 10 OSUNA APARTMENTS COMPANY (A Limited Partnership) Managing Agent's Certification I hereby certify that I have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1997, and, to the best of my knowledge and belief, the same is complete and accurate. The Sovereign Management Corporation 2-17-98 DATE MANAGING AGENT BY: /s/ Joyce Brow Joyce Brow (Printed Name) TITLE: Director of Management 95 Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Liberty Housing Partners Limited Partnership Our report on the 1997 and 1996 financial statements of Liberty Housing Partners Limited Partnership is included on page 34 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Reznick Fedder & Silverman Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 12, 1998 96 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REGISTRANT HAS INVESTED At December 31,1997 Cost at Interest Net Gross Amount At Which Carried Date Life on Acquisition Date Improvements At December 31, 1997 B Which ---------------------- Capitalized --------------------------------- Accumu- u Depreci- Number Total Buildings Subsequent Buildings lated i ation is Of Encum- And to And Depre- l Computed Property Units brances Land Improvements Acquisition Land Improvements Total ciation t (Years) - ---------------------- ----- ----------- ---------- ----------- ---------- ---------- ----------- ----------- ----------- ----- ---- Garden Apartment Complexes - Elderly Housing: Surry Manor Apartments, 44 $ 934,598 $ 50,239 $ 1,259,177 $ 23,067 $ 50,239 $ 1,282,244 $ 1,332,483 $ 596,321 1981 3-30 Dobson, NC Glendale Manor 50 855,216 53,652 1,187,181 10,090 53,652 1,197,271 1,250,923 557,869 1980 3-30 Apartments, Clinton, SC Fuquay-Varina Homes, 60 743,122 72,396 1,401,073 22,123 72,396 1,423,196 1,495,592 650,806 1977 3-30 Fuquay, NC Williamston Homes, 50 586,767 60,967 1,096,520 14,692 60,967 1,111,212 1,172,179 513,983 1978 3-30 Williamston, NC Oxford Homes, Oxford, NC 50 590,460 64,360 1,085,939 25,772 64,360 1,111,711 1,176,071 510,287 1978 3-30 Garden Apartment Complexes - Low and Moderate Income Housing: Compass West 200 3,110,997 397,105 4,822,593 334,038 397,105 5,156,631 5,553,736 2,312,953 1974 7-30 Apartments, Austintown, OH Meadowwood Apartments, 80 788,895 90,146 1,337,358 39,379 90,146 1,376,737 1,466,883 746,723 1977 10-25 Tifton, GA Brierwood Apartments, 56 856,358 76,325 1,024,970 (26,931) 76,325 998,039 1,074,364 516,382 1979 10-25 Bainbridge, GA Pine Forest Apartments, 64 1,229,691 44,588 1,491,921 1,380 44,588 1,493,301 1,537,889 806,605 1980 10-25 Cairo, GA Osuna Apartments, 110 1,316,060 255,230 1,987,767 33,092 255,230 2,020,859 2,276,089 964,348 1975 5-30 Albuquerque, NM Linden Park Apartments 198 4,261,517 357,236 4,544,514 1,639,713 456,828 6,084,635 6,541,463 2,373,003 1975 5-30 Triangle, VA Brierwood II Apartments 18 369,139 27,288 423,387 -- 27,288 423,387 450,675 232,479 1984 10-25 Bainbridge, GA Garden Apartment Complexes - Other Assisted Housing: Fiddlers Creek 160 2,178,611 275,147 3,156,533 42,875 275,147 3,199,408 3,474,555 1,494,966 1977 5-30 Apartments, Winston Salem, NC ----- ----------- ---------- ----------- ---------- ---------- ----------- ----------- ----------- Total Local Limited Partnership Real Estate 1,140 $17,821,431 $1,824,679 $24,818,933 $2,159,290 $1,924,271 $26,878,631 $28,802,902 $12,276,725 ===== =========== ========== =========== ========== ========== =========== =========== =========== The aggregate cost of the above properties for Federal income tax purposes at December 31, 1997 is $35,803,153. A reconciliation of summarized carrying value of the above properties for the years ended December 31, 1997, 1996 and 1995 is a follows : 1997 1996 1995 Balance at beginning of year $28,708,988 $27,292,762 $27,237,957 Additions during the period - Improvements subse- equent to acquisition, net of dispositions 93,914 1,416,226 54,805 ---------------- ----------------- --------------- Balance at end of year $28,802,902 $28,708,988 $27,292,762 ================ ================= =============== A reconciliation of summarized accumulated depreciation on the above properties for the years ended December 31, 1997, 1996 and 1995 is as follows : 1997 1996 1995 Balance at beginning of year ($11,329,357) ($10,381,105) ($9,492,160) Current provision for depreciation (947,368) (948,252) (888,945) ================ ================= =============== Balance at end of year ($12,276,725) ($11,329,357) ($10,381,105) ================ ================= ===============
97 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Partnership (a-b) Identification of Directors and Executive Officers The Partnership has no directors or officers. As indicated in Item 1 of this report, the Managing General Partner of the Partnership, as of December 27, 1996, is TNG Properties Inc., a Massachusetts corporation. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. The names and ages of the directors and executive officers of the Managing General Partner, TNG Properties Inc., are as follows as of March 18, 1998:
Name Title Age - ---- ----- --- Michael A. Stoller President, Chief Executive Officer and Director 41 Wilma R. Brooks Vice President, Treasurer and Director 40 Barbara A. Gilman Vice President and Director of Management 48 Stephen D. Puliafico Director 42 James C. Coughlin Director 33
The directors of the Managing General Partner generally are elected at the annual meeting of stockholders of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. The executive officers the Managing General Partner generally are elected at the annual meeting of directors of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. (c) Identification of certain significant persons. None. (d) Family relationship Mr. Stoller and Ms. Brooks are husband and wife. 98 Item 10. Directors and Executive Officers of the Partnership, continued (e) Business experience Michael A. Stoller is President, CEO, and a Director of the Managing General Partner and The Newton Group, LLC. From 1992 to 1994, Mr. Stoller was President and Director of MBMC, Inc. of Boston, and the Managing General Partner of MB Management Company Limited Partnership, of Boston, a property management company. From 1983 to 1992, Mr. Stoller was employed by REMAS, Inc. and was a Partner and Chief Operating Officer of MB Associates, which companies engaged in the development and management of government assisted housing properties. Mr. Stoller holds a B.S. from Babson College and is a Certified Public Accountant. Stephen D. Puliafico is Director of the Managing General Partner. Since August 1995 Mr. Puliafico has been Executive Vice President of The Newton Group, LLC. From 1994 to 1995 Mr. Puliafico was a Regional Sales Manager for Staples, a seller of office supplies. From 1982 to 1994, Mr. Puliafico was a General Manager for Lechmere, a discount department store chain. Mr. Puliafico holds a B.S. from Southeastern Massachusetts University. James C. Coughlin is a Director of the Managing General Partner. Since September, 1997 Mr. Coughlin has been Vice President of Acquisitions of The Newton Group, LLC. Mr. Coughlin is responsible for corporate finance, project finance, project acquisitions, site selection and strategic planning. From 1995 to 1997, Mr. Coughlin was a principal of Peacock Associates, a real estate consulting and financial advisory firm. From 1992 to 1995, Mr. Coughlin was a real estate finance specialist for The Berkshire Group. Mr. Coughlin received his B.A. from Stonehill College and his M.B.A. from Suffolk University. Mr. Coughlin is a licensed Massachusetts real estate broker and a candidate at Boston University's Real Estate Finance Certificate Program. Wilma R. Brooks is Vice President, Treasurer and a Director of the Managing General Partner and Vice President and Treasurer of The Newton Group, LLC. From 1987 to 1993, Ms. Brooks was Chief Financial Officer and Treasurer of Congress Group Ventures, Inc., of Cambridge, Massachusetts, a commercial real estate developer. Ms. Brooks holds a B.S. from the University of Vermont and is a Certified Public Accountant. Barbara A. Gilman is Vice President and Director of Management of the Managing General Partner. For the seven years prior to joining the Managing General Partner in 1994, Ms. Gilman was Director of Management of Beacon Management Company, of Boston, Massachusetts, a property management company. Ms. Gilman holds a B.S. from Stonehill College. (f-g) Involvement in certain legal proceedings The Partnership is not aware of any legal proceedings during the past five years which may be material to the evaluation of the ability and integrity of any director or executive officer of the Managing General Partner. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Partnership's officers and directors, and persons who own more than ten percent of a registered class of the Partnership's equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission. 99 Item 10. Directors and Executive Officers of the Partnership, continued Such officers, directors and ten-percent security holders are also required by applicable rules to furnish the Partnership with copies of all Section 16(a) reports they file. Although the Partnership has no directors or officers, the rules promulgated under ss. 16(a) provide that, for purposes of ss. 16, officers of the Managing General Partner are considered to be officers of the Partnership. Based solely on its review of the copies of such forms received by it, or written representation from certain reporting persons that no Forms 3, 4 or 5 were required for such persons. The Partnership believes that, during the fiscal year ended December 31, 1997, its officers and ten percent security holders complied with all Section 16(a) filing requirements applicable to such individuals. Item 11. Executive Compensation (a), (b), (c), (d), and (e): The officers and directors of the Managing General Partner are compensated as employees of the Managing General Partner, but receive no compensation from the Partnership. The Managing General Partner and its affiliates receive compensation and expense reimbursement from the Partnership, as more fully described in Note 6 of the Notes to Financial Statements of the Partnership included in Item 8 of this report. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners and management. Because it is organized as a limited partnership, the Partnership has issued no securities possessing traditional voting rights. However, the Partnership Agreement provides that certain matters require the approval of a majority in interest of the Limited Partners. Such matters include: (1) Amendment of the Limited Partnership Agreement; (2) Termination of the Partnership; (3) Removal of any General Partner; and (4) Sale of substantially all the assets of the Partnership. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. On December 27, 1995, the Former Managing General Partner and Former Associate General Partner withdrew from the Partnership and TNG Properties Inc. was admitted in their place as Successor General Partner and became Managing General Partner of the Partnership. No person or group is known by the Managing General Partner to own beneficially more than 5% of the Partnership's 21,576 Units outstanding as of December 31, 1997. (b) Security ownership of management. 100 Item 12. Security Ownership of Certain Beneficial Owners and Management, continued By virtue of its organization as a limited partnership, the Partnership has no officers or directors. The Former Associate General Partner owned 10 Units which have been be assigned, as of January 1, 1997, to the current Managing General Partner. (c) Changes in Control. None. Item 13. Certain Relationships and Related Transactions (a), (b), and (c): The managing general partner of the Partnership is TNG Properties, Inc., a Massachusetts corporation. See Note 6 to the Financial Statements of the Partnership contained in Item 8 of this report for a description of the fees and expense reimbursement paid by the Partnership to the current or former Managing General Partner and its affiliates. Directors and executive officers of TNG Properties, Inc. are identified in Item 10 of this report. During 1997, the Partnership was not involved in any transaction involving any of these directors or officers of the Corporation or any member of the immediate family of these individuals, nor did any of these persons provide services to the Partnership for which they received direct or indirect remuneration. Similarly, there exists no business relationship between the Partnership and any of the directors or officers of the Managing General Partner, nor were any of the individuals indebted to the Partnership. Liberty LGP, formerly an affiliate of the predecessor general partners and now an affiliate of the Managing General Partner is entitled to receive certain administrative fees from the Local Limited Partnerships. At January 1, 1997 an aggregate of $113,917 in accrued and unpaid administrative fees were due to Liberty LGP from the Local Limited Partnerships. During 1997, Liberty LGP accrued $68,500 in administrative fees due from the Local Limited Partnership and received payment aggregating $60,738. At December 31, 1997 accrued and unpaid administrative fees aggregated $121,679. Liberty LGP is not entitled to interest on the accrued and unpaid amount. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements See Index included in Item 8, on page 15 of this Report. 2. Financial Statement Schedules See Index included in Item 8 on page 15 of this Report for schedules applicable to registrant. 3. Exhibits 101 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) See (c) below (b) Reports on Form 8-K None (c) Index to Exhibits Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable. 102
Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- 4. Instruments defining the rights of security holders: 4.1 The Amended and Restated Certificate Exhibit 4.1 to the registrants Annual of Limited Partnership Report on Form 10-K, for the periode nded December 31, 1995. 4.2 First Amendment to Second Amended and Exhibit 4.2 to the Restated Certificate of Limited registrants Annual Partnership Report on Form 10-K, for the period ended December 31, 1995. *4.39 Amended Agreement of Limited Exhibit A to the Partnership prospectus contained in Form S-11Registration Statement (File 2-90617) 4.4 Amendment to the Amended Agreement of Exhibit 4.4 to the Limited Partnership (withdrawal of registrants Annual Liberty Real Estate Corporation and Report on Form Admission of TNG Properties Inc. 10-K, for the period ended December 31, 1995. 4.5 Amendment to the Amended Agreement of Exhibit 4.5 to the registrants Limited Partnership (withdrawal of LHP Annual Report on Form Associates Limited Partnership) 10-K, for the period ended December 31, 1995. 10. Material Contracts and Other Documents 10.4 Documents Relating to Partnership Interest in Surry Manor, Ltd. *10.4 (a) Escrow Agreement dated August 31, 1984 Exhibit 10.4 (a) between Billy P. Shadrick, Bobby Ray Effective to Badgett, Housing Projects, Inc. and Post-Amendment No. 1 Liberty Housing Partners Limited to Form S-11 Partnership. Registration Statement (File 2-90617) *10.4 (b) Amended and Restated Certificate and Exhibit 10.4 (b) to Agreement of Limited Partnership of Post- Effective Surry Manor, Ltd. Amendment No. 1 to Form S-11 Registration Statement (File 2-90617) 103 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.4 (c) Promissory Notes dated August 31, 1984 Exhibit 10.4 (c) to from Liberty Housing Partners Limited Post-Effective Partnership to Billy P. Shadrick and Amendment No. 1 to from Liberty Housing Partners Limited Form S-11 Registration Partnership to Bobby Joe Davis. Statement (File 2-90617) *10.4 (d) Purchase Money Notes dated August 31, Exhibit 10.4 (d) to 1984 from Liberty Housing Partners to Post-Effective Billy P. Shadrick and from Liberty Amendment No. 1 to Housing Partners Limited Partnership Form S-11 Registration to Bobby Joe Davis. Statement (File 2-90617) *10.4 (e) Pledge Agreements dated August 31, Exhibit 10.4 (e) to 1984 between Billy P. Shadrick and Post-Effective Liberty Housing Partners Limited Amendment No. 1 to Partnership and between Bobby Joe Form S-11 Registration Davis and Liberty Housing Partners Statement (File Limited Partnership. 2-90617) *10.4 (f) Deed of Trust Note dated July 11, 1980 Exhibit 10.4 (f) to from Surry Manor, Ltd. to Highland Post-Effective Mortgage Company and related Deed of Amendment No. 1 to Trust dated July 11, 1980 among Surry Form S-11 Registration Manor, Ltd., James M. Tanner, and Statement (File Highland Mortgage Company. 2-90617) *10.4 (g) Regulatory Agreement dated July 11, Exhibit 10.4 (g) to 1980 between Surry Manor, Ltd. and the Post-Effective Secretary of Housing and Urban Amendment No. 1 to Development. Form S-11 Registration Statement (File 2-90617) *10.4 (h) Housing Assistance Payments Contract Exhibit 10.4 (h) to dated April 9, 1981 between Surry Post-Effective Manor, Ltd. and the Secretary of Amendment No. 1 to Housing and Urban Development. Form S-11 Registration Statement (File 2-90617) 10.5 Documents Relating to Partnership Interest in Glendale Manor Apartments *10.5 (a) Escrow Agreement dated August 31, 1984 Exhibit 10.5 (a) to between Billy P. Shadrick, Bobby Ray Post-Effective Badgett, Housing Projects, Inc. and Amendment No. 1 to Liberty Housing Partners Limited Form S-11 Registration Partnership. Statement (File 2-90617) *10.5 (b) Amended and Restated Certificate and Exhibit 10.5 (b) to Agreement of Limited Partnership of Post-Effective Glendale Manor Apartments. Amendment No. 1 to Form S-11 Registration Statement (File 2-90617) 104 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.5 (c) Promissory Notes dated August 31, 1984 Exhibit 10.5 (c) to from Liberty Housing Partners Limited Post-Effective Partnership to Billy P. Shadrick, from Amendment No. 1 to Liberty Housing Partners Limited Form S-11 Partnership to Bobby Joe Davis and Regis-tration from Liberty Housing Partners Limited Statement (File Partnership to Bobby R. Badgett. 2-90617) *10.5 (d) Purchase Money Notes dated August 31, Exhibit 10.5 (d) to 1984 from Liberty Housing Partners Post-Effective Limited Partnership to Billy P. Amendment No. 1 to Shadrick and from Liberty Housing Form S-11 Partners Limited Partnership to Bobby Registration Joe Davis. Statement (File 2-90617) *10.5 (e) Pledge Agreements dated August 31, Exhibit 10.5 (e) to 1984 between Billy P. Shadrick and Post-Effective Liberty Housing Partners Limited Amendment No. 1 to Partnership, between Bobby Joe Davis Form S-11 and Liberty Housing Partners Limited Regis-tration Partnership and between Bobby R. Statement (File Badgett and Liberty Housing Partners 2-90617) Limited Partnership. *10.5 (f) Mortgage Note dated April 11, 1979 Exhibit 10.5 (f) to from Glendale Manor Apartments to Post-Effective Cincinnati Mortgage Corporation and Amendment No. 1 to related Mortgage dated April 11, 1979 Form S-11 between Glendale Manor Apartments and Registration Cincinnati Mortgage Corporation. Statement (File 2-90617) *10.5 (g) Regulatory Agreement dated April 11, Exhibit 10.5 (g) to 1979 between Glendale Manor Apartments Post-Effective and the Secretary of Housing and Urban Amendment No. 1 to Development. Form S-11 *10.5 (h) Housing Assistance Payments Contract Exhibit 10.5 (h) to dated May 30, 1980 between Glendale Post-Effective Manor Apartments and the Secretary of Amendment No. 1 to Housing and Urban Development Form S-11 10.6 Documents Relating to Partnership Interest in Fiddlers Creek Apartments *10.6 (a) Escrow Agreement dated September 28, Exhibit 10.6 (a) To 1984 between Billy P. Shadrick, Bobby Post-Effective Ray Badgett, J. Thomas Dotson and Amendment No. 1 to Liberty Housing Partners Limited Form S-11 Registration Partnership. Statement (File 2-90617) 105 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.6 (b) Amended and Restated Certificate and Exhibit 10.6 (b) to Post-Effective Agreement of Limited Partnership of Amendment No. 1 to Form S-11 Fiddlers Creek Apartments. Registration Statement (File 2-90617) *10.6 (c) Promissory Note form dated September Exhibit 10.6 (c) to 28, 1984, Purchase Money Note form Post Effective dated September 28, 1984, Pledge Amendment No. 1 to Agreement form dated September 28, Form S-11 Registration 1984 and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Fiddlers Creek Apartments. *10.6 (d) Deed of Trust Note dated September 1, Exhibit 10.6 (d) to 1975 from Fiddlers Creek Apartments to Post-Effective Guaranty Mortgage Company of Nashville Amendment No. 1 to and related Deed of Trust dated Form S-11 September 1, 1975 between Fiddlers Registration Creek Apartments and Guaranty Mortgage Statement (File Company of Nashville. 2-90617) *10.6 (e) Regulatory Agreement dated September Exhibit 10.6 (e) to Post-Effective 1, 1975 between Fiddlers Creek Amendment No. 1 to Form S-11 Apartments and the Secretary of Registration Statement Housing and Urban Development. (File 2-90617) 10.7 Documents Relating to Partnership Interest Fuquay-Varina Homes for the Elderly, Ltd. *10.7 (a) Escrow Agreement dated September 28, Exhibit 10.7 (a) to Post-Effective 1984 between Billy P. Shadrick, Bobby Amendment No. 1 to Form S-11 Ray Badgett and Liberty Housing Registration Statement Partners Limited Partnership. (File 2-90617) 106 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.7 (b) Amended and Restated Certificate and Exhibit 10.7 (b) to Agreement of Limited Partnership of Post-Effective Fuquay-Varina Homes for the Elderly, Amendment No. 1 to Ltd. Form S-11 Registration Statement (File 2-90617) *10.7 (c) Promissory Note form dated September Exhibit 10.7 (c) to 28, 1984, Purchase Money Note form Post-Effective dated September 28, 1984, Pledge Amendment No. 1 to Agreement form dated September 28, Form S-11 Registration 1984 and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Fuquay-Varina Apartments. *10.7 (d) Deed of Trust Note dated May 23, 1977 Exhibit 10.7 (d) to from Fuquay-Varina Homes for Elderly, Post-Effective Ltd. to Cincinnati Mortgage Amendment No. 1 to Corporation and related Deed of Trust Form S-11 Registration dated May 23, 1977 between Statement (File Fuquay-Varina Homes for the Elderly, 2-90617) Ltd. and Cincinnati Mortgage Corporation. *10.7 (e) Regulatory Agreement dated May 23, Exhibit 10.7 (e) to Post-Effective 1977 between Fuquay-Varina Homes for Amendment No. 1 to Form S-11 the Elderly, Ltd. and the Secretary of Registration Statement Housing and Urban Development. (File 2-90617) *10.7 (f) Housing Assistance Payments Contract Exhibit 10.7 to dated May 3, 1978 between Post-Effective Fuquay-Varina Homes for the Elderly, Amendment No. 1 to Ltd. and the Secretary of Housing and Form S-11 Registration Urban Development. (File 2-90617) 10.8 Documents Relating to Partnership Interest in Oxford Homes for the Elderly, Ltd. 107 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.8 (a) Escrow Agreement dated September 28, Exhibit 10.8 (a) to Post-Effective 1984 between Billy P. Shadrick, Bobby Amendment No. 1 to Form S-11 Ray Badgett and Liberty Housing Registration Statement Partners Limited Partnership. (File 2-90617) *10.8 (b) Amended and Restated Certificate and Exhibit 10.8 (b) to Post-Effective Agreement of Limited Partnership of Amendment No. 1 to Form S-11 Oxford Homes for the Elderly, Ltd. Registration Statement (File 2-90617) *10.8 (c) Promissory Note form dated September Exhibit 10.8 (c) to 28, 1984, Purchase Money Note form Post-Effective dated September 28, 1984, Pledge Amendment No. 1 to Agreement form dated September 28, Form S-11 Registration 1984 and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Oxford Homes for the Elderly, Ltd. *10.8 (d) Mortgage Note dated May 23, 1977 from Exhibit 10.8 (d) to Oxford Homes for the Elderly, Ltd. to Post-Effective Cincinnati Mortgage Corporation and Amendment No. 1 to related Mortgage dated May 23, 1977 Form S-11 Registration between Oxford Homes for the Elderly, Statement (File Ltd. and Cincinnati Mortgage Corporation. 2-90617) *10.8 (e) Regulatory Agreement dated May 23, Exhibit 10.8 (e) to Post-Effective 1977 between Oxford Homes for the Amendment No. 1 to Elderly, Ltd. and the Secretary of Form S-11 Registration Housing and Urban Development. Statement (File 2-90617) *10.8 (f) Housing Assistance Payments Contract Exhibit 10.8 (f) to Post-Effective dated July 3, 1978 between Oxford Amendment No. 1 to Form S-11 Homes for the Elderly, Ltd. and the Registration Statement Secretary of Housing and Urban Development. (File 2-90617) 108 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- 10.9 Documents Relating to Partnership Interest in Williamston Homes for the Elderly, Ltd. *10.9 (a) Escrow Agreement dated September 28, Exhibit 10.9 (a) to Post-Effective 1984 between Billy P. Shadrick, Bobby Amendment No. 1 to Form S-11 Ray Badgett and Liberty Housing Registration Statement Partners Limited Partnership. (File 2-90617) *10.9 (b) Amended and Restated Certificate and Exhibit 10.9 (b) to Post-Effective Agreement of Limited Partnership of Amendment No. 1 to Williamston Homes for the Elderly, Form S-11 Registration Ltd. Statement (File 2-90617) *10.9 (c) Promissory Note form dated September Exhibit 10.9 (c) to 28, 1984, Purchase Money Note form Post-Effective dated September 28, 1984, Pledge Amendment No. 1 to Agreement form dated September 28, Form S-11 Registration 1984 and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Williamston Homes for the Elderly, Ltd. *10.9 (d) Deed of Trust Note dated May 24, 1977 Exhibit 10.9 (d) to from Williamston Homes for the Post-Effective Elderly, Ltd. and Cincinnati Mortgage Amendment No. 1 to Corporation and related Deed of Trust Form S-11 Registration between Williamston Homes for the Statement (File Elderly, Ltd. and Cincinnati Mortgage Corporation. 2-90617) *10.9 (e) Regulatory Agreement dated May 24, Exhibit 10.9 (e) to Post-Effective 1977 between Williamston Homes for the Amendment No. 1 to Form S-11 Elderly, Ltd. and the Secretary of Registration Statement Housing and Urban Development. (File 2-90617) *10.9 (f) Housing Assistance Payments Contract Exhibit 10.9 (f) to dated September 19, 1978 between Post-Effective Williamston Homes for the Elderly, Amendment No. 1 to Ltd. and the Secretary of Housing and Form S-11 Registration Urban Development. Statement (File 2-90617) 109 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- 10.10 Documents Relating to Partnership Interest in Austintown Associates *10.10 (a) Escrow Agreement dated October 30, Exhibit 10.10 (a) to 1984 between James P. Manchi, Robert Post-Effective P. Baker, First March Realty Amendment No. 1 to Corporation and Liberty Housing Form S-11 Registration Partners Limited Partnership. Statement (File 2-90617) *10.10 (b) Amended and Restated Certificate of Exhibit 10.10 (b) to Post-Effective Formation and Agreement of Limited Amendment No. 1 to Form S-11 Partnership of Austintown Associates. Registration Statement (File 2-90617) *10.10 (c) Promissory Note form dated October Exhibit 10.10 (c) to 30, 1984, Purchase Money Note form Post-Effective dated October 30, 1984, Pledge Amendment No. 1 to Agreement form dated October 30, 1984 Form S-11 Registration and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Austintown Associates. *10.10 (d) Mortgage Note dated February 22, 1973 Exhibit 10.10 (d) to from Austintown Associates to Post-Effective Metropolitan Mortgage Corporation of Amendment No. 1 to Ohio, Supplementary Mortgage Note Form S-11 Registration dated November, 1975 from Austintown Statement (File Associates to The Cleveland Trust 2-90617) Company, Supplementary Mortgage Note dated March 24, 1978 from Austintown Associates to Diversified Financial & Mortgage Services, Inc. and the related Mortgage dated February 22, 1973 between Austintown Associates and Metropolitan Mortgage Corporation of Ohio. 110 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.10 (e) Regulatory Agreement dated February Exhibit 10.10 (e) to Post-Effective 22, 1973 between Austintown Amendment No. 1 to Form S-11 Associates and the Secretary of Registration Statement Housing and Urban Development. (File 2-90617) *10.10 (f) Housing Assistance Payments Contracts Exhibit 10.10 (f) to dated December 1, 1983 and June 1, Post-Effective 1984 between Austintown Associates Amendment No. 1 to and the Secretary of Housing and Form S-11 Registration Urban Development. Statement (File 2-90617) 10.11 Documents Relating to Partnership Interest in Meadowwood, Ltd. *10.11 (a) Second Amended and Restated Exhibit 10.11 (a) to Post-Effective Certificate and Agreement of Limited Amendment No. 1 to Form S-11 Partnership of Meadowwood, Ltd. Registration Statement (File 2-90617) *10.11 (b) Promissory Note form dated October Exhibit 10.11 (b) to 30, 1984, Purchase Money Note form Post-Effective dated October 30, 1984, Pledge Amendment No. 1 to Agreement form dated October 30, 1984 Form S-11 Registration and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Meadowwood, Ltd. *10.11 (c) Promissory Notes dated October 3, Exhibit 10.11 (c) to 1977 and October 25, 1978 from Post-Effective Meadowwood, Ltd. to Farmers Home Amendment No. 1 to Administration and related Deed to Form S-11 Registration Secure Debt dated October 25, 1978 Statement (File between Meadowwood, Ltd. and Farmers 2-90617) Home Administration. *10.11 (d) Farmers Home Administration Loan Exhibit 10.11 (d) to Post-Effective Agreement between Meadowwood, Ltd. Amendment No. 1 to Form S-11 and Farmers Home Administration. Registration Statement (File 2-90617) 111 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.11 (e) Interest Credit and Rental Assistance Exhibit 10.11 (e) to Post-Effective Agreement dated October 1, 1983 Amendment No. 1 to Form S-11 between Meadowwood, Ltd. and the Registration Statement Farmers Home Administration. (File 2-90617) *10.12 Documents Relating to Partnership Interest in Brierwood, Ltd. *10.12 (a) Second Amended and Restated Exhibit 10.12 (a) to Post-Effective Certificate and Agreement of Limited Amendment No. 1 to Form S-11 Partnership of Brierwood, Ltd. Registration Statement (File 2-90617) *10.12 (b) Promissory Note form dated October Exhibit 10.12 (b) to 30, 1984, Purchase Money Note form Post-Effective dated October 30, 1984, Pledge Amendment No. 1 to Agreement form dated October 30, 1984 Form S-11 Registration and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Brierwood, Ltd. *10.12 (c) Promissory Note dated May 4, 1979 Exhibit 10.12 (c) to from Brierwood, Ltd. to Farmers Home Post-Effective Administration and related Deed to Amendment No. 1 to Secure Debt dated May 4, 1979 between Form S-11 Registration Brierwood, Ltd. and Farmers Home Administration. Statement (File 2-90617) *10.12 (d) Farmers Home Administration Loan Exhibit 10.12 (d) to Post-Effective Agreement dated June 15, 1978 between Amendment No. 1 to Form S-11 Brierwood, Ltd. and Farmers Home Registration Statement Administration. (File 2-90617) *10.12 (e) Interest Credit and Rental Assistance Exhibit 10.12 (e) to Post-Effective Agreement dated October 1, 1980 Amendment No. 1 to Form S-11 between Brierwood, Ltd. and the Registration Statement Farmers Home Administration. (File 2-90617) 112 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- 10.13 Documents Relating to Partnership Interest in Pine Forest Apartments, Ltd. *10.13 (a) Second Amended and Restated Exhibit 10.13 (a) to Post-Effective Certificate and Agreement of Limited Amendment No. 1 to Form S-11 Partnership of Pine Forest Registration Statement Apartments, Ltd. (File 2-90617) *10.13 (b) Promissory Note form dated October Exhibit 10.13 (b) to 30, 1984, Purchase Money Note form Post-Effective dated October 30, 1984, Pledge Amendment No. 1 to Agreement form dated October 30, 1984 Form S-11 Registration and Schedule of Promissory Notes, Statement (File Purchase Money Notes and Pledge 2-90617) Agreements between Liberty Housing Partners Limited Partnership and the partners of Pine Forest Apartments, Ltd. *10.13 (c) Promissory Note dated August 6, 1980 Exhibit 10.13 (c) to from Pine Forest Apartments, Ltd. to Post-Effective Farmers Home Administration and Amendment No. 1 to related Deed to Secure Debt dated Form S-11 Registration August 6, 1980 between Pine Forest Statement (File Apartments, Ltd. and Farmers Home Administration. 2-90617) *10.13 (d) Farmers Home Administration Loan Exhibit 10.13 (d) to Post-Effective Agreement dated May 10, 1979 between Amendment No. 1 to Form S-11 Pine Forest Apartments, Ltd. and Registration Statement Farmers Home Administration. (File 2-90617) *10.13 (e) Interest Credit and Rental Assistance Exhibit 10.13 (e) to Post-Effective Agreement dated June 1, 1982 between Amendment No. 1 to Form S-11 Pine Forest Apartments, Ltd. and the Registration Statement Secretary of Housing and Urban Development. (File 2-90617) 10.14 Documents Relating to Partnership Interest in Osuna Apartments Company 113 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.14 (a) Amended and Restated Certificate of Exhibit 10.14 (a) to Post-Effective Formation and Agreement of Limited Amendment No. 2 To Form S-11 Partnership of Osuna Apartments Registration Statement Company. (File 2-90617) *10.14 (b) Promissory Note form dated November Exhibit 10.14 (b) to 27, 1984, Purchase Money Note form Post-Effective dated November 27, 1984, Pledge Amendment No. 2 to Agreement dated November 27, 1984 Form S-11 Registration between Liberty Housing Partners Statement (File Limited Partnership, Liberty LGP 2-90617) Limited Partnership and the Sovereign Corporation, and Schedule of Promissory Notes and Purchase Money Notes between Liberty Housing Partners Limited Partnership and the partners of Osuna Apartments Company. *10.14 (c) Mortgage Note dated March 5, 1974 Exhibit 10.14 (c) to from Osuna Apartments Company to Post-Effective Housing America Mortgage Co., Inc. Amendment No. 2 to and related Mortgage dated March 5, Form S-11 Registration 1974 from Osuna Apartments Company to Statement (File Housing Mortgage Co., Inc. 2-90617) *10.14 (d) Regulatory Agreement dated March 5, Exhibit 10.14 (d) to Post Effective 1974 between Osuna Apartments Company Amendment No. 2 to Form S-11 and the Secretary of Housing and Registration Statement Urban Development. (File 2-90617) *10.14 (e) Housing Assistance Payments Contracts Exhibit 10.14 (e) to Post-Effective dated August 7, 1984 between Osuna Amendment No. 2 to Form S-11 Apartments Company and the Secretary Registration Statement of Housing and Urban Development. (File 2-90617) 10.15 Documents Relating to Partnership Interest in Linden Park Associates Limited Partnership 114 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.15 (a) Certificate and Agreement of Limited Exhibit 10.15 (a) to Post-Effective Partnership of Linden Park Associates Amendment No. 2 to Form S-11 Limited Partnership. Registration Statement (File 2-90617) *10.15 (b) Promissory Note form dated December Exhibit 10.15 (b) to 11, 1984, Purchase Money Note form Post-Effective dated December 11, 1984, Pledge Amendment No. 2 to Agreement dated December 11, 1984 by Form S-11 Registration and between Liberty LGP Limited Statement (File Partnership, John L. Wagner, Liberty 2-90617) Housing Partners Limited Partnership and Graham Park Venture, and Schedule of Promissory Notes and Purchase Money Notes between Linden Park Associates Limited Partnership and Graham Park Venture. *10.15 (c) Deed of Trust Note and related Deed Exhibit 10.15 (c) to of Trust both dated December 5, 1972 Post-Effective and Allonge of January 29, 1976, Amendment No. 2 to Supplemental Deed of Trust both dated Form S-11 Regis- December 17, 1974 and Allonge of tration Statement January 29, 1976, and Second (File 2-90617) Supplemental Deed of Trust Note and related Second Supplemental Deed of Trust both dated January 29, 1976 all documents between Graham Park Venture and Loyola Federal Savings and Loan Association. *10.15 (d) Loan Assumption Agreement dated March Exhibit 10.15 (d) to Post-Effective 23, 1976 between Pennamco, Inc. and Amendment No. 2 to Form S-11 Virginia Housing Development Authority. Registration Statement (File 2-90617) *10.15 (e) Regulatory Agreement dated December Exhibit 10.15 (e) to Post-Effective 12, 1984 between Linden Park Amendment No. 2 to Form S-11 Associates Limited Partnership and Registration Statement the Secretary of Housing and Urban Development. (File 2-90617) 115 Exhibit Page Number or Filing from Numbers Description which Incorporated by Reference - ------- ----------- ------------------------------- *10.15 (f) Regulatory Agreement dated January Exhibit 10.15 (f) to Post-Effective 31, 1976 between Graham Park Venture Amendment No. 2 to and Virginia Housing Development Form S-11 Registration Statement Authority. (File 2-90617) 10.16 Documents Relating to Partnership Interest Brierwood II, Ltd. *10.16 (a) Amended and Restated Certificate and Exhibit 10.16 (a) to Post-Effective Agreement of Limited Partnership of Amendment No. 2 to Form S-11 Brierwood II, Ltd. Registration Statement (File 2-90617) *10.16 (b) Promissory Note form dated January 4, Exhibit 10.16 (b) to 1985, Pledge Agreement form dated Post-Effective January 4, 1985 and Schedule of Amendment No. 2 to Promissory Notes and Pledge Form S-11 Registration Agreements between Liberty Housing Statement (File Partners Limited Partnership and the 2-90617) partners of Brierwood II, Ltd. *10.16 (c) Promissory Note dated January 4, 1985 Exhibit 10.16 (c) to from Brierwood II, Ltd. to Farmers Post-Effective Home Administration and related Deed Amendment No. 2 to to Secure Debt dated January 4, 1985 Form S-11 Registration between Brierwood II, Ltd. and Statement (File Farmers Home Administration. 2-90617) *10.16 (d) Farmers Home Administration Loan Exhibit 10.16 (d) to Post-Effective Agreement dated June 30, 1983 between Amendment No. 2 to Form S-11 Brierwood II, Ltd. and Farmers Home Registration Statement Administration. (File 2-90617) *10.16 (e) Interest Credit and Rental Assistance Exhibit 10.16 (e) to Post-Effective Agreement dated January 4, 1985 Amendment No. 2 to Form S-11 between Brierwood II, Ltd. and the Registration Statement Farmers Home Administration. (File 2-90617) *Incorporated by Reference as noted
116 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (Registrant) By: TNG Properties, Inc., Managing General Partner Date: 3/26/98 By: /s/ Michael A. Stoller Michael A. Stoller President, CEO, and Director of TNG Properties, Inc. Managing General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Vice President, Treasurer and Director (principal financial and accounting officer) of TNG Properties, Inc. Managing General Partner /s/ Wilma R. Brooks 3/26/98 Wilma R. Brooks 117 Signatures, continued Signature Title Date President, CEO and Director of TNG Properties, Inc. Managing General Partner /s/ Michael A. Stoller 3/26/98 Michael A. Stoller Director of TNG Properties, Inc. Managing General Partner /s/ Stephen D. Puliafico 3/26/98 Stephen D. Puliafico Director of TNG Properties, Inc. Managing General Partner /s/ James C. Coughlin 3/26/98 James C. Coughlin EX-27 2
5 This schedule contains summary financial information extracted from the unaudited financial statements of Liberty Housing Partners Limited Partnership at and for the period ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 65,685 0 0 0 0 65,685 0 0 2,228,945 462,846 11,544,195 0 0 0 (9,778,096) 2,228,945 0 142,373 0 0 145,864 0 2,214,122 0 0 0 0 0 0 (2,217,613) (101.75) 0
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