-----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, Fz9B9bBc5GSVVjf5H/wefscMYhg3FWW+Wd1Oaz9k3ZE+hvraeCHGMyJEhp0vitUn 2PV+FZDf5mQGnwcCI/3jNA== 0000950148-01-501518.txt : 20010815 0000950148-01-501518.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950148-01-501518 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOUSING PROGRAMS LTD CENTRAL INDEX KEY: 0000750304 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953906167 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13808 FILM NUMBER: 1708033 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: SUITE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 FORMER COMPANY: FORMER CONFORMED NAME: REAL ESTATE ASSOCIATES LTD VIII DATE OF NAME CHANGE: 19840823 10-Q 1 v74982e10-q.txt FORM 10Q PERIOD ENDED JUNE 30,2001 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended JUNE 30, 2001 Commission File Number 0-13808 HOUSING PROGRAMS LIMITED (A California Limited Partnership) I.R.S. Employer Identification No. 95-3906167 9090 WILSHIRE BLVD., SUITE 201 BEVERLY HILLS, CALIF. 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets, June 30, 2001 and December 31, 2000 ..............1 Statements of Operations, Six and Three Months Ended June 30, 2001 and 2000........2 Statement of Partners' Deficiency, Six Months Ended June 30, 2001 ..........................3 Statements of Cash Flow, Six Months Ended June 30, 2001 and 2000..................4 Notes to Financial Statements ....................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.....................12 PART II. OTHER INFORMATION Item 1. Legal Proceedings...............................................16 Item 6. Exhibits and Reports on Form 8-K................................16 Signatures...............................................................17
3 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 ASSETS
2001 (Unaudited) 2000 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ - $ - CASH AND CASH EQUIVALENTS 130,026 372,546 DUE FROM ESCROW - 15,000 ------------ ------------ TOTAL ASSETS $ 130,026 $ 387,546 ============ ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Notes payable (Notes 3 and 6) $ 4,600,000 $ 4,600,000 Accrued fees and expenses due general partners (Note 4) 1,020,289 1,097,089 Accrued interest payable (Notes 3 and 6) 6,670,361 6,451,861 Accounts payable 78,842 69,855 ------------ ------------ 12,369,492 12,218,805 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 4 and 5) PARTNERS' DEFICIENCY: General partners (373,142) (369,060) Limited partners (11,866,324) (11,462,199) ------------ ------------ (12,239,466) (11,831,259) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 130,026 $ 387,546 ============ ============
The accompanying notes are an integral part of these financial statements. 1 4 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (Unaudited)
Six months Three months Six months Three months ended ended ended ended June 30, 2001 June 30, 2001 June 30, 2000 June 30, 2000 ------------- ------------- ------------- ------------- INTEREST INCOME $ 6,027 $ 1,736 $ 150 $ 50 --------- --------- --------- --------- OPERATING EXPENSES: Management fees - general partner (Note 4) 100,599 49,797 130,556 50,360 General and administrative (Note 4) 29,458 14,884 32,899 23,450 Legal and accounting 45,289 27,639 70,024 17,366 Interest (Notes 3) 218,500 109,250 218,500 109,250 --------- --------- --------- --------- Total operating expenses 393,846 201,570 451,979 200,426 --------- --------- --------- --------- LOSS FROM OPERATIONS (387,819) (199,834) (451,829) (200,376) EQUITY IN INCOME OF LIMITED PARTNERSHIPS (Note 2) (96,589) (96,589) GAIN ON SALE OF LIMITED PARTNERSHIP INTEREST (Note 2) 65,000 - 323,759 75,582 DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 11,201 11,201 102,607 102,607 --------- --------- --------- --------- NET LOSS $(408,207) $(285,222) $ (25,463) $ (22,187) ========= ========= ========= ========= NET LOSS PER LIMITED PARTNERSHIP INTEREST $ (33) $ (23) $ (2) $ (2) ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. 2 5 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENT OF PARTNERS' DEFICIENCY SIX MONTHS ENDED JUNE 30, 2001 (Unaudited)
General Limited Partners Partners Total ---------- ------------ ------------ PARTNERSHIP INTERESTS 12,368 ============ DEFICIENCY, January 1, 2001 $(369,060) $(11,462,199) $(11,831,259) Net loss for the six months ended June 30, 2001 (4,082) (404,125) (408,207) ---------- ------------ ------------ DEFICIENCY, June 30, 2001 $ (373,142) $(11,866,324) $(12,239,466) ========== ============ ============
The accompanying notes are an integral part of these financial statements. 3 6 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (Unaudited)
2001 2000 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(408,207) $ (25,463) Adjustments to reconcile net loss to net cash used in operating activities: Gain on sale of partnership interests (65,000) (323,759) Equity in income of Limited Partnership 96,589 Decrease in due from escrow 15,000 - Increase in accrued interest payable 218,500 218,500 Decrease in accrued fees and expenses due general partners (76,800) (100,444) Increase in accounts payable 8,987 6,487 --------- --------- Net cash used in operating activities (210,931) (224,679) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of partnership interests 65,000 323,759 Advance to properties (96,589) - --------- --------- Net cash (used in) provided by investing activities (31,589) 323,759 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (242,520) 99,080 --------- --------- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 372,546 817,796 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 130,026 $ 916,876 ========= =========
The accompanying notes are an integral part of these financial statements. 4 7 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the annual audited financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the Housing Programs Limited (the "Partnership") annual report for the year ended December 31, 2000. National Partnership Investments Corp. (NAPICO) is the managing general partner of the Partnership. Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim period presented are not necessarily indicative of the results for the entire year. In the opinion of NAPICO, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position of the Partnership at June 30, 2001 and the results of operations and changes in cash flows for the six and three months then ended. ORGANIZATION Housing Programs Limited (the "Partnership"), formed under the California Uniform Limited Partnership Act, was organized on May 15, 1984. The Partnership was formed to invest primarily in other limited partnerships which own or lease and operate federal, state or local government-assisted housing projects. The general partners of the Partnership are NAPICO, Coast Housing Investment Associates, a limited partnership, and Housing Programs Corporation II. The general partners have a 1 percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments. Casden Properties Inc. owns a 95.25% economic interest in NAPICO, with the balance owned by Casden Investment Corporation ("CIC"). CIC, which is wholly owned by Alan I. Casden, owns 95% of the voting common stock of NAPICO. 5 8 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships for net proceeds of $202,714 to subsidiaries of Casden Properties Inc. BASIS OF PRESENTATION The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS The investments in local limited partnerships are accounted for on the equity method. Acquisition, selection fees and other costs related to the acquisition of the projects have been capitalized to the investment account and amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years. NET LOSS PER LIMITED PARTNERSHIP INTEREST Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 12,368 for all years presented. 6 9 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and bank certificates of deposit with an original maturity of three months or less. The Partnership has its cash and cash equivalents on deposit with high credit quality financial institutions. Such cash and cash equivalents are in excess of the FDIC insurance limit. INCOME TAXES No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. IMPAIRMENT OF LONG-LIVED ASSETS The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS As of June 30, 2001, the Partnership holds limited partnership interests in 10 limited partnerships, located in 5 different states. As of June 30, 2001, the limited partnerships own residential low income rental projects consisting of 1,685 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, is entitled to 99 percent of the profits and losses of the limited partnerships. Distributions from the limited partnerships are recognized as a reduction of capital until the investment balance has been reduced to zero or to a negative amount equal to further capital contributions required. Subsequent distributions are recognized as income. 7 10 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) The Partnership has no carrying value in investments in limited partnerships as of June 30, 2001. The following are unaudited combined estimated statements of operations for the six and three months ended June 30, 2001 and 2000 for the limited partnerships in which the Partnership has investments:
Six months Three months Six months Three months ended ended ended ended June 30, 2001 June 30, 2001 June 30, 2000 June 30, 2000 ------------- ------------- ------------- ------------- INCOME Rental and Other $3,784,000 $1,892,000 $5,160,000 $2,580,000 ---------- ---------- ---------- ---------- EXPENSES Depreciation 724,000 362,000 1,034,000 517,000 Interest 484,000 242,000 876,000 438,000 Operating 2,678,000 1,339,000 3,756,000 1,878,000 ----------- ----------- ----------- ----------- Total expenses 3,886,000 1,943,000 5,666,000 2,833,000 ----------- ----------- ----------- ----------- NET LOSS $ (102,000) $ (51,000) $ (506,000) $ (253,000) =========== =========== ========== ==========
NAPICO, or one of its affiliates, is the general partner and property management agent for certain of the limited partnerships included above. The Local Partnerships pay the affiliate property management fees in the amount of 5 percent of their gross rental revenues and data processing fees. The amounts paid were approximately $29,261 for the six months ended June 30, 2001. Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP 8 11 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. During the six months ended June 30, 2001, the Partnership surrendered its interests in one limited partnership for a net payment of $65,000. The Partnership recognized a gain of $65,000 from the sale because it had no investment balance related to this partnership. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships to the Operating Partnership. The sale resulted in cash proceeds to the Partnership of $202,714 which was collected in 1999. In March 1999, the Partnership made cash distributions of $695,687 to the limited partners and $7,027 to the general partners, which included using proceeds from the sale of the partnership interests. 9 12 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 3 - NOTES PAYABLE Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The Partnership is obligated for non-recourse notes payable of $4,600,000 to the sellers of the partnership interests, bearing interest at 9.5 percent per annum to the various sellers of the partnership interests. These obligations and the related interest are collateralized by the Partnership's investment in the investee limited partnerships and are payable only out of cash distributions from the investee partnerships, as defined in the notes. The notes matured in December 1999, at which time all unpaid interest became due. Notes payable and related accrued interest payable aggregating $11,270,361 as of June 30, 2001 matured on December 31, 1999. Due to the Partnership's lack of cash and partners' deficiency, there is substantial doubt about its ability to satisfy these obligations, which would result in the possible foreclosure of the investments in the local limited partnerships. As a result, there is substantial doubt about the Partnerships' ability to continue as a going concern. Management is in process of attempting to negotiate extensions of the maturity dates on the notes payable. NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS Under the terms of the Restated Certificate and Agreement of the Limited Partnership, the Partnership is obligated to the general partners for an annual management fee equal to 0.5 percent of the original invested assets of the limited partnerships. Invested assets is defined as the costs of acquiring project interests including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective limited partnerships. The Partnership reimburses NAPICO for certain expenses. The expenses incurred to NAPICO was approximately $10,997 and $10,000 for the period ended June 30, 2001 and June 30, 2000, respectively. 10 13 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS (CONTINUED) As of June 30, 2001, the fees and expenses due the general partners exceeded the Partnership's cash. The general partners, during the forthcoming year, will not demand payment of amounts due in excess of such cash or such that the Partnership would not have sufficient operating cash; however, the Partnership will remain liable for all such amounts. NOTE 5 - CONTINGENCIES On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to affiliates of Casden Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. On August 4, 1999, one investor holding one unit of limited partnership interest in the Partnership commenced a virtually identical action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. NAPICO, the managing general partner of such partnerships, and the other defendants believe that the plaintiffs' claims are without merit and are contesting the actions vigorously. NAPICO is a plaintiff in various lawsuits and has also been named as defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of NAPICO, the claims will not result in any material liability to the Partnership. 11 14 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2001 NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximate fair value due to their short-term maturity. 12 15 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary sources of funds include interest income on money market accounts and certificates of deposit and distributions from limited partnerships in which the Partnership has invested. It is not expected that any of the local limited partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to the Partnership's limited partners in any material amount. The Partnership made a distribution to the investors in March 1999, which included using proceeds from disposition of its investments in certain limited partnerships. RESULTS OF OPERATIONS Partnership revenues consist primarily of interest income earned on certificates of deposit and other temporary investment of funds. The Partnership also receives distributions from the lower-tier limited partnerships in which it has invested. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. Except for certificates of deposit and money market funds, the Partnership's investments consist entirely of interests in other limited partnerships owning government assisted housing projects. Available cash is invested to provide interest income as reflected in the statements of operations. These funds can be converted to cash to meet obligations as they arise. The Partnership intends to continue investing available funds in this manner. A recurring partnership expense is the annual management fee. The fee is payable to the General Partners of the Partnership and is calculated at .5 percent of the Partnership's invested assets. The management fee is paid to the General Partners for their continuing management of partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a local limited partnership. Management fees were $100,599 and $130,556 for the six months ended June 30, 2001 and 2000, respectively. 13 16 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) The Partnership is obligated on non-recourse notes payable of $4,600,000 at June 30, 2001 and December 31, 2000, which bear interest at 9.5 percent per annum and matured on December 31, 1999. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest was due at maturity of the notes. Operating expenses, other than management fees and interest expense, consist of legal and accounting fees for services rendered to the Partnership and administrative expenses, which were generally consistent for periods presented. Legal and accounting fees were $45,289 and $70,024 for the six months ended June 30, 2001 and 2000, respectively. General and administrative expenses were $29,458 and $32,899 for the six months ended June 30, 2001 and 2000, respectively. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. Under recently adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 14 17 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATION (CONTINUED) ("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain. During the six months ended June 30, 2001, the Partnership surrendered its interests in one limited partnership for a net payment of $65,000. The Partnership recognized a gain of $65,000 from the sale because it had no investment balance related to this partnership. On December 30, 1998, the Partnership sold its limited partnership interests in 7 local limited partnerships to the subsidiaries of Casden Properties Inc. The sale resulted in cash proceeds to the Partnership of $202,714, which was collected in 1999. In March 1999, the Partnership made cash distributions of $695,687 to the limited partners and $7,027 to the general partners, primarily using proceeds from the sale of the partnership interests. Notes payable and related accrued interest payable aggregating $11,270,361 as of June 30, 2001 matured on December 31, 1999. Due to the Partnership's lack of cash and partners' deficiency, there is substantial doubt about its ability to satisfy these obligations, which would 15 18 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATION (CONTINUED) result in the possible foreclosure of the investments in the local limited partnerships. As a result, there is substantial doubt about the Partnerships' ability to continue as a going concern. Management is in process of attempting to negotiate extensions of the maturity dates on the notes payable. 16 19 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to affiliates of Casden Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. On August 4, 1999, one investor holding one unit of limited partnership interest in the Partnership commenced a virtually identical action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. NAPICO, the managing general partner of such partnerships, and the other defendants believe that the plaintiffs' claims are without merit and are contesting the actions vigorously. As of June 30, 2001, NAPICO was a plaintiff or defendant in several lawsuits. None of these suits are related to the Partnership. In the opinion of NAPICO, the claims will not result in any material liability to the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are required per the provision of Item 6 of regulation S-K and no reports on Form 8-K were filed during the quarter ended June 30, 2001. 17 20 HOUSING PROGRAMS LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOUSING PROGRAMS LIMITED (a California limited partnership) By: National Partnership Investments Corp. General Partner /s/ BRUCE NELSON -------------------------------------- Bruce Nelson President Date: August 14, 2001 ------------------------------------- /s/ BRIAN H. SHUMAN -------------------------------------- Brian H. Shuman Chief Financial Officer Date: August 14, 2001 ------------------------------------ 18 -----END PRIVACY-ENHANCED MESSAGE-----