-----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, GxQi7SNqddco4oYZFGovbDcXWlrJ/k3O47wZ8TVSXFTneKDAvWgX0zpdni1LAa6+ Ij5X16u/FrVWAykxuZcyNg== 0000950146-99-000689.txt : 19990409 0000950146-99-000689.hdr.sgml : 19990409 ACCESSION NUMBER: 0000950146-99-000689 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN MORTGAGE INVESTORS TRUST CENTRAL INDEX KEY: 0000878774 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 136972380 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14583 FILM NUMBER: 99583996 BUSINESS ADDRESS: STREET 1: 625 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124215333 MAIL ADDRESS: STREET 1: 625 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-K 1 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, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - - ------- EXCHANGE ACT OF 1934 Commission File Number 0-23972 AMERICAN MORTGAGE INVESTORS TRUST --------------------------------- (Exact name of registrant as specified in its governing instrument) Massachusetts 13-6972380 - - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 625 Madison Avenue, New York, New York 10022 - - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 421-5333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Shares of Beneficial Interest, par value $.10 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] DOCUMENTS INCORPORATED BY REFERENCE Registrant's prospectus dated March 29, 1993, as supplemented April 22, 1993, August 9, 1993, November 9, 1993, January 31, 1994, April 25, 1994, September 2, 1994, November 9, 1994 and January 31, 1995, as filed with the Commission pursuant to Rules 424(b) and 424(c) of the Securities Act of 1933, but only to the extent expressly incorporated by reference in Parts I, II, III and IV. Index to exhibits may be found on page 31 Page 1 of 97 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. -2- PART I Item 1. Business. General American Mortgage Investors Trust (the "Company") is a business trust which was formed under the laws of the State of Massachusetts on June 11, 1991. The Company has elected to be treated as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The Advisor to the Company is Related AMI Associates, Inc., a Delaware corporation (the "Advisor"). The Advisor manages the day to day affairs of the Company under the control of the Company's trustees and pursuant to an Advisory Services Agreement, dated as of March 29, 1993 and as amended as of October 26, 1993, December 31, 1993 and March 29, 1994, between the Company and the Advisor (the "Advisory Services Agreement"). See Item 10, Directors and Executive Officers of the Registrant. The Company's principal investment objectives are to: (i) preserve and protect the Company's capital; (ii) provide quarterly cash distributions; and (iii) provide additional distributions from additional interest arising from participations in the annual cash flow of the Developments (defined below) and/or the sale or refinancing of a Development. There can be no assurance that such objectives can be achieved. On or about February 11, 1999, the Company mailed definitive proxy materials to shareholders of record on February 5, 1999 regarding, among other matters, proposals to restructure the Company from a finite to infinite life REIT, modify the investment objectives of the Company, permit the Company to incur a specified amount of indebtedness and list the Company's shares on a national exchange (the "Proposals"). The deadline for returning consent forms is April 12, 1999. If the Company receives consents from a majority of the total eligible shareholder vote, the Proposals will be deemed adopted. If the Proposals are approved, the transaction expenses will be paid by the Company. If the Proposals are not approved, an affiliate of the Advisor will bear the transaction expenses. The Company intends to borrow the funds necessary to pay the transaction expenses. The Company has invested principally in two types of Mortgage Investments ("Mortgage Investments"): (i) new mortgage loans originated by or on behalf of the Company and Ginnie Mae mortgage-backed securities and pass-through certificates ("Originated Mortgages") and (ii) existing mortgage loans that it acquires ("Acquired Mortgages") on multifamily residential rental properties ("Developments"). Mortgage Investments As of December 31, 1998, the Company's Mortgage Investments consisted of the following: Originated Mortgages Mortgage Loans Information relating to the Company's investments in Mortgage Loans as of December 31, 1998 is as follows:
Date of Invest- ment/ Amounts Advanced Final Interest ------------------------------------- Matur- Rate on Total Descrip- rity Mortgage Mortgage Additional Amounts Property tion Date Loan (A) Loans Loans (D) Advanced - - -------- -------- ------- -------- ----------- ----------- -------- The Cove 308 12/93 7.625%- $ 6,800,000 $ 840,500 $ 7,640,500 Apts. Apt 1/29 9.129% Houston, TX Units (B) Oxford on 405 12/93 7.625%- 9,350,000 1,156,000 10,506,000 Greenridge Apt. 1/29 9.129% Apts. Units (B) Houston, TX Town & 330 4/94 7.375%- 9,348,000 1,039,000 10,387,000 Country IV Apt. 5/29 9.167% Apts. Units (E) (I) (B)(H) Urbana, IL Columbiana 204 4/94 (C) 8,276,895 563,000 8,839,895 Lakes Apts. Apt. 11/35 Columbia, SC Units (F) (I) Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909 Village II Apt. 6/37 9.128% Apts. Units (F) (I) (G) East Haven, CT -------------------------------------- Total $42,274,895 $4,362,409 $46,637,304 ====================================== Total Out- Mortgage Amounts standing Loan Advanced Loan Occu- Amounts and Balance at pancy at Property Unadvanced Unadvanced 12/31/98 3/1/99 - - -------- ---------- ---------- -------- ------ The Cove $ 0 $ 7,640,500 $ 7,408,843 90.8% Apts. Houston, TX Oxford on 0 10,506,000 10,187,473 91.7% Greenridge Apts. Houston, TX Town & 0 10,387,000 10,077,666 98.5% Country IV Apts. Urbana, IL Columbiana 406,105 9,246,000 8,796,833 88.5% Lakes Apts. Columbia, SC Stony Brook 0 9,263,909 9,214,129 95.2% Village II Apts. East Haven,CT --------------------------------------------------- Total $406,105 $47,043,409 $45,684,944 ===================================================
On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for $15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to the Company -3- totaling $12,109,036 including the outstanding balance of an FHA first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922 prepayment premium due the Company on the FHA loan and $1,483,664 in Additional Interest. On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove Obligor then fully repaid its outstanding debt due to the Company totaling $8,541,781 including the outstanding balance of an FHA first mortgage loan in the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment premium due the Company on the FHA loan and $814,465 in Additional Interest. (A) The minimum interest rate shown represents base interest, which is fully insured by HUD ("Base Interest"). The additional interest rate represents interest which is not contingent upon cash flow and is secured by partnership interests in the partnerships which own the Developments ("Additional Interest"). (B) In addition to the interest rate, the Company is entitled to 30% of the cash flow remaining after payment of Base Interest and Additional Interest. (C) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan period and 7.4% during the construction period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 25% of the cash flow remaining after payment of 8.678% interest. Payments at the rate of 8.678% were guaranteed by the developer until December 1998. The operations of Columbiana have not been able to support the payment of Additional Interest for the period October 1, 1997 through June 30, 1998 which amounted to $48,760. Accordingly, the accrued interest income that has been deemed uncollectible has been reversed from interest income from mortgage loans in the Statements of Income. (D) Additional loans are non-interest bearing. (E) The Originated Mortgage has a term of 35 years, subject to mandatory prepayment at any time after 12 years and upon one year's notice. (F) The Originated Mortgages have terms of 40 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice. (G) In addition to the interest rate, the Company is entitled to 40% of the cash flow remaining after payment of Base and Additional Interest. (H) The operations of Town and Country have not been able to support the payment of Additional Interest for the period July 1, 1997 through December 31, 1997 which amounted to $83,628. Accordingly, the accrued interest income that has been deemed uncollectible has been reversed from interest income from mortgage loans in the Statements of Income. (I) In order for the Company to exercise an acceleration option it must terminate the mortgage insurance contract with FHA not later than the accelerated payment date and, in certain circumstances, must terminate the mortgage insurance contract upon the exercise of the acceleration option. Since the exercise of such option would be at the Company's discretion, it is intended to be exercised only where the value of the Development has increased by an amount which would justify accelerating payment in full and assuming the risks of foreclosure if the mortgagor failed to make the accelerated payment. GNMA Certificates Information relating to the Company's investments in GNMA Certificates as of December 31, 1998 is as follows:
Principal Balances at Purchase Price 12/31/98 Fair Value Stated Final Certificate Date --------------------- Including at Interest Payment Seller Number Purchased % Amount (Discount) 12/31/98 Rate Date - - ------ ----------- --------- ------ --------- ---------- ----------- --------- --------- Bear Stearns & Co. 0355540 7/27/94 90.7500% $ 2,407,102 $2,328,787 $ 2,589,414 7.125% 3/15/2029 Malone Mortgage Co. 0382486 7/28/94 99.6250% 2,197,130 2,147,061 2,252,798 8.500 8/15/2029 Goldman Sachs 0328502 7/29/94 99.9063% 3,928,615 3,632,325 3,761,846 8.250 7/15/2029 SunCoast Capital Group, Ltd. G22412 6/23/97 99.34375% 1,981,566 1,659,021 1,698,944 7.000 4/20/2027 ----------- ---------- ----------- $10,514,413 $9,767,194 $10,303,002 =========== ========== ===========
-4- Acquired Mortgages REMIC Certificates As of January 1, 1998 the Company held investments in four REMIC Certificates, all of which made their final payment during 1998. Information relating to the Company's investments in REMIC Certificates as of December 31, 1998 and 1997 is as follows:
Principal Principal Balances at Balances at Purchase Price 12/31/98 12/31/97 Stated Final Certificate Date --------------------------- Including Including Interest Payment Seller Number Purchased % Amount Prem/(Disc) Prem/(Disc) Rate Date - - ------ ----------- --------- ------------- ------------ ----------- ----------- -------- ------- SunCoast Capital FHLMC 17218 5/30/97 100.453125 $507,288 $ 0 $467,023 7.00% 2/1/98 Group, Ltd. SunCoast Capital FHLMC 17161 5/30/97 100.203125 251,967 0 196,512 6.50 2/1/98 Group, Ltd. SunCoast Capital FHLMC 17125 6/23/97 100.343750 147,437 0 146,444 7.00 1/1/98 Group, Ltd. SunCoast Capital FNMA 1997-42V 6/30/97 98.312500 983,125 0 983,125 7.50 10/18/09 (1) Group, Ltd.
(1) The stated final payment date was October 18, 2009. The actual final payment amounting to $420,228 was received on October 20, 1998. Competition The Company's business is affected by competition to the extent that the developments from which it is to derive interest and principal payments may be subject to competition from neighboring properties. Employees The Company does not directly employ anyone. All services are performed for the Company by the Advisor and its affiliates. The Advisor receives compensation in connection with such activities as set forth in Item 8, Financial Statements and Supplementary Data, Item 11, Executive Compensation and Item 13, Certain Relationships and Related Transactions. In addition, the Company reimburses the Advisor and certain of its affiliates for expenses incurred in connection with the performance by their employees of services for the Company in accordance with the Declaration of Trust. Item 2. Properties. The Company does not own or lease any properties. Item 3. Legal Proceedings. The Company is not a party to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Shareholders. On or about February 11, 1999, the Company mailed definitive proxy materials to shareholders of record on February 5, 1999 regarding, among other matters, proposals to restructure the Company from a finite to infinite life REIT, modify the investment objectives of the Company, permit the Company to incur a specified amount of indebtedness and list the Company's shares on a national exchange (the "Proposals"). The deadline for returning consent forms is April 12, 1999. If the Company receives consents from a majority of the total eligible shareholder vote, the Proposals will be deemed adopted. If the Proposals are approved, the transaction expenses will be paid by the Company. If the Proposals are not approved, an affiliate of the Advisor will bear the transaction expenses. The Company intends to borrow the funds necessary to pay the transaction expenses. PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters. On March 29, 1993, the Company commenced a public offering (the "Offering") through Related Equities Corporation, (the "Dealer Manager") an affiliate of the Advisor, and other broker-dealers on a "best efforts" basis, for up to 10,000,000 of its shares of beneficial interest at an initial offering price of $20 per share. The Company's initial offering (the "Offering") terminated as of November 30, 1994. As of November 30, 1994, a total of 3,809,601 shares of beneficial interest have been sold to the public, either through the Offering or the Company's dividend reinvestment plan (the "Reinvestment Plan"), representing Gross Proceeds of $76,192,021 (before volume discounts of $40,575). Pursuant to the Redemption Plan, which became effective November 30, 1994, the Company is required to redeem eligible shares presented for redemption for cash to the extent it has sufficient net proceeds from the sale of shares under the Reinvestment Plan. Since November 30, 1994, 314,708 shares have been sold through the Reinvestment Plan, the proceeds of which are restricted for use in connection with the Redemption Plan and are not included in Gross Proceeds. Pursuant to the Redemption Plan as of December 31, 1998, 333,373 shares have been redeemed for an aggregate price of $5,941,851. The number of shareholders as of December 31, 1998 was 3,463. Although the shares are freely transferable, shareholders may not be able to liquidate their investment because the shares are not intended to be included for listing or quotation on any established -5- market and no public trading market is expected to develop for the shares, although there may be an informal market. Shares may, therefore, not be readily accepted as collateral for a loan. Furthermore, even if an informal market for the sale of shares develops, a shareholder may only be able to sell its shares at a substantial discount from the public offering price. Consequently, the purchase of shares should be considered only as a long-term investment. Reinvestment Plan A Reinvestment Plan is available which enables shareholders to have their distributions from the Company invested in shares of the Company, or fractions thereof. The Reinvestment Plan became effective on March 29, 1993, the effective date of the Offering. During the offering period the price per share purchased pursuant to the Reinvestment Plan equaled $20. From November 30, 1994 (the termination of the offering period) until November 30, 1997 (the third anniversary of the final closing date), the price per share purchased pursuant to the Reinvestment Plan was equal to $19. Effective November 30, 1997, the Board adopted a policy to adjust the reinvestment price annually to reflect the net asset value of a share of the Company's shares of beneficial interest ($15.16 at December 31, 1998). Shares received pursuant to the Reinvestment Plan will entitle participants to the same rights and be treated in the same manner as those issued pursuant to the Offering. In connection with shares issued pursuant to the Company's Reinvestment Plan, the Company will issue shares to the Advisor in an amount which will equal (after such issuance) 1% of the outstanding shares. Experience under the Reinvestment Plan may indicate that changes are desirable. The Company's Declaration of Trust gives the Trustees broad powers to renew, modify, extend, consolidate or cancel the Company's Reinvestment Plan without the consent of shareholders. Redemption Plan The Company's Redemption Plan became effective November 30, 1994. Under the Redemption Plan, any shareholder (except the Advisor who cannot participate in the Redemption Plan) who acquired or received shares directly from the Company or the Reinvestment Plan (such shares, for so long as owned by the original holder, are called "Eligible Shares") may present such Eligible Shares to the Company for redemption. The Company is required to redeem such Eligible Shares presented for redemption for cash to the extent it has sufficient net proceeds ("Reinvestment Proceeds") from the sale of shares under the Reinvestment Plan. There is no assurance that there will be Reinvestment Proceeds available for redemption and, accordingly, an investor's shares may not be redeemed. The full amount of Reinvestment Proceeds in any quarter will be used to redeem Eligible Shares presented for redemption during such quarter. If the full amount of Reinvestment Proceeds available for redemption in any given quarter is insufficient to redeem all Eligible Shares presented for redemption during such quarter, the Company will redeem the Eligible Shares presented for redemption on a pro rata whole share basis, without redemption of fractional shares. Through the quarter ended March 31, 1997, the redemption price was $19 per Eligible Share. As permitted by the provisions of the Redemption Plan, the Board of Trustees implemented the following change to the calculation of the redemption price for the quarter ended June 30, 1997: the original $19 per share redemption price was reduced to reflect any return of principal received by shareholders. As of June 30, 1997, the amount of principal which had been distributed to shareholders was $1.53 per share and, therefore, the redemption price was $17.47 per share ($19 per share less $1.53 per share) for redemptions which occurred in October 1997 for the quarter ended June 30, 1997. The Board subsequently adopted a policy to adjust the redemption price annually to reflect the then net asset value of a share of the Company's shares of beneficial interest ($15.16 at December 31, 1998). This new policy is effective for redemptions with respect to quarters ended September 30, 1997 and thereafter. As of December 31, 1998, the backlog of shares to be redeemed is 179,232. A shareholder may present less than all his or her Eligible Shares to the Company for redemption, provided, however, that (i) he or she must present the lesser of all of his or her Eligible Shares or 125 Eligible Shares (50 Eligible Shares for an Individual Retirement Account or Keogh Plan) for redemption, and (ii) if he or she retains any Eligible Shares, he or she must retain at least 125 Eligible Shares (50 Eligible Shares for an Individual Retirement Account or Keogh Plan). Pursuant to the Redemption Plan, through March 30, 1999, the Company redeemed 354,098 shares aggregating $6,267,849. The Trustees, may amend or suspend the Redemption Plan at any time they determine, in their sole discretion, that it is in the best interest of the Company. -6- Distribution Information Cash distributions per share for the years ended December 31, 1998 and 1997 are as set forth in the following table:
Cash Distribution Total Amount for Quarter Ended Date Paid Per Share Distributed - - ----------------- --------- --------- ----------- March 31, 1998 5/15/98 $ .3575 $1,372,660 June 30, 1998 8/14/98 .3615 1,387,913 September 30, 1998 11/14/98 .3655 1,403,165 December 31, 1998 2/14/99 .3655 1,403,165 ------- ---------- Total for 1998 $1.4500 $5,566,903 ======= ========== March 31, 1997 5/15/97 $ .3575 $1,379,996 June 30, 1997 8/14/97 .3615 1,388,505 September 30, 1997 11/14/97 .3655 1,403,266 December 31, 1997 2/14/98 .3655 1,403,165 ------- ---------- Total for 1997 $1.4500 $5,574,932 ======= ==========
Quarterly distributions were made 45 days following the close of the calendar quarter and were funded from cash collections of debt service payments and the continued accrual without payment of asset management fees and expense reimbursements to the Advisor and its affiliates through approximately the distribution dates. There are no material legal restrictions upon the Company's present or future ability to make distributions in accordance with the provisions of the Declaration of Trust. The Company had adopted a policy of attempting to maintain stable distributions to shareholders during the offering and acquisition stages of the Company. In order to accomplish this result, it disposed of a portion of the Mortgage Investments consisting of CMOs and REMICs during this period. The effect of this policy has been the following: (a) a portion of the distributions have constituted a return of capital; (b) earlier investors' returns from an investment in the Company were greater than later investors' returns; and (c) there was a decrease in funds remaining to be invested in Mortgage Investments. The Company has completed the offering and acquisition stage and therefore, in 1997, the Board reviewed and changed the distribution policy. Beginning in 1998, the Company's distribution policy calls for quarterly distributions which more closely reflect collections of interest payments and regularly scheduled principal amortization. Of the total distributions of $5,566,903 and $5,575,532 made in the years ended December 31, 1998 and 1997, $2,170,291 ($.56 per share or 39%) and $2,029,717 ($.53 per share or 36%) represented returns of capital determined in accordance with generally accepted accounting principles. As of December 31, 1998, the aggregate amount of the distributions made since the commencement of the Offering representing a return of capital, in accordance with generally accepted accounting principles, totaled $11,183,023. The portion of the distributions which constitutes a return of capital was significant during the acquisition stage in order to maintain level distributions to shareholders. -7- Item 6. Selected Financial Data. The information set forth below presents selected financial data of the Company. Additional financial information is set forth in the audited financial statements and footnotes thereto contained in Item 8, Financial Statement and Supplementary Data.
Year ended December 31, --------------------------------------------------------------------- OPERATIONS 1998 1997 1996 1995 1994 - - ---------- ----------- ----------- ----------- ----------- ------------- Interest income: Mortgage loans $ 3,037,882 $ 3,118,027 $ 2,866,017 $ 2,257,883 $ 1,817,057 REMIC and GNMA Certificates and FHA Insured Project Loan 880,680 975,599 1,306,658 1,582,724 1,089,333 Temporary investments 112,953 151,228 252,140 515,295 631,825 Other income 0 0 0 0 97,221 ----------- ----------- ----------- ----------- ------------- Total revenues 4,031,515 4,244,854 4,424,815 4,355,902 3,635,436 Total expenses 634,903 699,039 1,137,184 1,208,770 1,015,734 ----------- ----------- ----------- ----------- ------------- Net income $ 3,396,612 $ 3,545,815 $ 3,287,631 $ 3,147,132 $ 2,619,702 =========== =========== =========== =========== ============= Basic net income per weighted average share $ .88 $ .92 $ .83 $ .81 $ .72 =========== =========== =========== =========== ============= Distribution per share $ 1.4500 $ 1.4500 $ 1.4500 $ 1.4500 $.1391-1.4500* =========== =========== =========== =========== ============= December 31, --------------------------------------------------------------------- FINANCIAL POSITION 1998 1997 1996 1995 1994 - - ------------------ ----------- ----------- ----------- ----------- ------------- Total assets $59,993,040 $61,645,922 $63,147,215 $65,517,610 $ 65,041,319 =========== =========== =========== =========== ============= Total liabilities $ 1,788,466 $ 1,259,997 $ 986,551 $ 1,002,976 $ 356,602 =========== =========== =========== =========== ============= Total shareholders' equity $58,204,574 $60,385,925 $62,160,664 $64,514,634 $ 64,684,717 =========== =========== =========== =========== =============
*Amounts received by shareholders varied depending on the dates they became shareholders. -8- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The Company has utilized the Net Proceeds of the Offering primarily to invest in Originated Mortgages and Acquired Mortgages ("Mortgage Investments") and has also invested in uninsured Additional Loans made directly to the developers or sponsors of Developments. The Company's liquidity is based primarily on interest or repayment of principal received from its Mortgage Investments. For a description of the Company's investments in Originated Mortgages, REMIC and GNMA Certificates (see Notes 3 and 4 of Notes to Financial Statements). During the year ended December 31, 1998, cash and cash equivalents increased approximately $1,112,000 primarily due to principal repayments of mortgage loans and GNMA and REMIC Certificates ($2,494,000) and cash provided by operating activities ($4,180,000) which exceeded distributions to shareholders ($5,567,000). Included in the adjustments to reconcile the net income to cash provided by operating activities is net amortization in the amount of $532,000. Net unrealized gains on REMIC and GNMA investments included in shareholders' equity pursuant to Statement of Financial Accounting Standards No. 115 aggregated $162,533 at December 31, 1998. This represents a decrease of $11,065 in the unrealized gain for the year ended December 31, 1998, of which a decrease of $35,467 is attributable to the sale of securities (which resulted in a net realized gain of $12,144) and an increase of $24,402 is attributable to an increase in market prices for the investments held at December 31, 1998 and 1997. As of March 23, 1999, the net unrealized loss was approximately $22,000. The yield on the GNMA Certificates will depend, in part, upon the rate and timing of principal prepayments on the underlying mortgages in the asset pool. Generally, as market interest rates decrease, mortgage prepayment rates increase and the market value of interest rate sensitive obligations like the GNMA Certificates increases. As market interest rates increase, mortgage prepayment rates tend to decrease and the market value of interest rate sensitive obligations like the GNMAs tends to decrease. The effect of prepayments on yield is greater the earlier a prepayment of principal is received. Due to the complexity of the GNMA structure and the uncertainty of future economic and other factors that affect interest rates and mortgage prepayments, it is not possible to predict the effect of future events upon the yield to maturity or the market value of the GNMA Certificates upon any sale or other disposition or whether the Company, if it chose to, would be able to reinvest proceeds from prepayments at favorable rates relative to the coupon rate. The yield on the mortgage loans will depend, in part, on when, and if, the Company disposes of the mortgage loans prior to maturity or the obligor fully repays the outstanding debt. The mortgage loans have fixed interest rates, the base amount of which is insured by HUD, resulting in a minimal amount of interest rate risk. The effects of prepayment on yield is greater the earlier a prepayment of principal is received. Due to the uncertainty of future economic and other factors that affect interest rates and mortgage prepayments, it is not possible to predict the effects of future events upon the yield to maturity or the market value of the mortgage loans upon any sale or other disposition or whether the Company, if it chose to, would be able to reinvest proceeds from prepayments at favorable rates relative to the current mortgage loan rates. Asset management fees and expense reimbursements owed to the Advisor and its affiliates amounting to approximately $1,327,000 and $844,000 were accrued and unpaid at December 31, 1998 and 1997, respectively. If the Proposals (see Item 1) are adopted, such amounts will become subordinated to a minimum quarterly distribution to shareholders ($.36 per share, which is equal to the current quarterly per share distribution) and will be paid to the Advisor from the Company's earnings. If the Proposals are not adopted, the Company may suspend shareholder distributions for one or more quarters and use such funds to pay all such accrued and unpaid fees and other payables to the Advisor. In addition, the operations of Town and Country and Columbiana have not been able to support the payment of Additional Interest for the period July 1, 1997 through December 31, 1997 and October 1, 1997 through June 30, 1998, respectively, in the aggregate amount of $132,000. Accordingly, the accrued interest income that has been deemed uncollectible has been reversed from interest income from mortgage loans. Pursuant to the Redemption Plan which became effective November 30, 1994, the Company is required to redeem eligible shares presented for redemption for cash to the extent it has sufficient net proceeds from the sale of shares under the Reinvestment Plan and does not expect to have reinvested dividends available for investment. As of December 31, 1998, the backlog of shares to be redeemed is 179,232. Unadvanced amounts of Originated Mortgages are invested in temporary investments. The Company expects that cash generated from the Company's investments will be sufficient to pay all of the Company's expenses in the foreseeable future. In order to qualify as a REIT under the Internal Revenue Code, as amended, the Company must, among other things, distribute at least 95% of its taxable income. The Company is in compliance with the Code. On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for $15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to the Company totaling $12,109,036 including the outstanding balance of an FHA first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922 prepayment premium due the Company on the FHA loan and $1,483,664 in Additional Interest. On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove Obligor then fully repaid its outstanding debt due to the Company totaling $8,541,781 including the outstanding balance of an FHA first mortgage loan in the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment premium due the Company on the FHA loan and $814,465 in Additional Interest. The Company anticipates that it will re-deploy the proceeds from the repayment of the Cove and Oxford debt into additional FHA insured/co-insured mortgage loans. Management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed that will or are likely to impact liquidity in a material way. -9- Results of Operations The following is a summary of the results of operations of the Company for the years ended December 31, 1998, 1997 and 1996. The net income for the years ended December 31, 1998, 1997 and 1996 was $3,396,612, $3,545,815 and $3,287,631, respectively. The total of the annual operating expenses of the Company may not exceed the greater of (i) 2% of the Average Invested Assets of the Company or (ii) 25% of the Company's net income, unless such excess is approved by the Independent Trustees. There was no such excess for the years ended December 31, 1998, 1997 and 1996. 1998 vs 1997 Interest income from mortgage loans decreased approximately $80,000 for the year ended December 31, 1998 as compared to 1997 primarily due to the reversal of Additional Interest in 1998 relating to Town and Country and Columbiana, partially offset by an increase due to additional advances on the Stonybrook mortgage loan during 1997. Interest income from REMIC and GNMA Certificates and the FHA Insured Project Loan decreased approximately $95,000 for the year ended December 31, 1998 as compared to 1997 primarily due to the repayment of the FHA Insured Project Loan in May 1997. Interest income from temporary investments decreased approximately $38,000 for the year ended December 31, 1998 as compared to 1997 primarily due to a decrease in temporarily invested proceeds earning interest during 1998. Realized (gain) loss on sale of REMIC and GNMA Certificates and the FHA Insured Project Loan decreased approximately $79,000 for the year ended December 31, 1998 as compared to 1997 primarily due to the repayment, in 1997, of four REMICs and the FHA Insured Project Loan on which losses had been recognized and a gain on a repayment of one REMIC in 1998. 1997 vs 1996 Interest income from mortgage loans increased approximately $252,000 for the year ended December 31, 1997 as compared to 1996 primarily due to additional advances on the Stonybrook mortgage loan during 1997. Interest income from REMIC and GNMA Certificates and the FHA Insured Project Loan decreased approximately $331,000 for the year ended December 31, 1997 as compared to 1996 primarily due to the sale of one REMIC in August 1996 and the repayment of the FHA Insured Project Loan in May 1997, partially offset by the purchase of two REMICs in May 1997 and two REMICs and one GNMA in June 1997. Interest income from temporary investments decreased approximately $101,000 for the year ended December 31, 1997 as compared to 1996 primarily due to a decrease in temporarily invested proceeds earning interest in 1997. General and administrative expenses decreased approximately $89,000 for the year ended December 31, 1997 as compared to 1996 primarily due to a decrease in legal, engineering, accounting fees and expense reimbursements to affiliates of the Advisor. Realized loss on sale of REMIC and GNMA Certificates and the FHA Insured Project Loan decreased approximately $349,000 for the year ended December 31, 1997 as compared to 1996 primarily due to the sale of one REMIC in August 1996. Distribution Policy The Company has completed the offering and acquisition stage and therefore, in 1997, the Board reviewed and changed the distribution policy. Beginning in 1998, the Company's distribution policy calls for quarterly distributions which more closely reflect collections of interest payments and regularly scheduled principal amortization. Of the total distributions of $5,566,903, $5,575,532 and $5,569,283 made in the years ended December 31, 1998, 1997 and 1996, $2,170,291 ($.56 per share or 39%), $2,029,717 ($.53 per share or 36%) and $2,281,652 ($.57 per share or 41%) represented a return of capital determined in accordance with generally accepted accounting principles. As of December 31, 1998, the aggregate amount of the distributions made since the commencement of the Offering representing a return of capital, in accordance with generally accepted accounting principles, totaled $11,183,023. The portion of the distributions which constitute a return of capital was significant during the acquisition stage in order to maintain level distributions to shareholders. Management expects that cash flow from operations will be sufficient to fund the Company's operating expenses and to make distributions as determined by the Board on a quarterly basis. Accounting Standards Issued But Not Yet Adopted In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have any impact on the financial position or results of operations of the Company. Year 2000 Compliance The Company utilizes the computer services of an affiliate of the Advisor. The affiliate of the Advisor has upgraded its computer information systems to be year 2000 compliant and beyond. The year 2000 compliance issue concerns the inability of a computerized system to accurately record dates after 1999. The affiliate of the Advisor recently underwent a conversion of its financial systems applications and upgraded all of its non-compliant, in-house software and hardware inventory. The work stations that -10- experienced problems from the testing process were corrected with an upgrade patch. The costs incurred by the Advisor are not being charged to the Company. The most likely worst case scenario that the Company faces is that computer operations will be suspended for a few days to a week at January 1, 2000. The Company's contingency plan is to have a complete backup done on December 31, 1999 and to have both electronic and printed reports generated for all critical data up to and including December 31, 1999. With regard to third parties, the Company's Advisor is in the process of evaluating the potential adverse impact that could result from the failure of material service providers to be year 2000 compliant. A detailed survey and assessment was sent to material third parties in the fourth quarter of 1998. The Company has received assurances from a majority of its third parties with which it interacts that they have addressed the year 2000 issues and is evaluating these assurances for their adequacy and accuracy. In cases where the Company has not received assurances from third parties, it is initiating further mail and/or phone correspondence. The Company relies heavily on third parties and is vulnerable to the failures of third parties to address their year 2000 issues. There can be no assurance given that the third parties will adequately address their issues. -11- Item 8. Financial Statements and Supplementary Data.
Page ---- (a) 1. Financial Statements Independent Auditors' Report 13 Balance Sheets as of December 31, 1998 and 1997 14 Statements of Income for the years ended December 31, 1998, 1997 and 1996 15 Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 16 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 18 Notes to Financial Statements 20 (a) 2. Financial Statement Schedules All schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes thereto.
-12- INDEPENDENT AUDITORS' REPORT To the Board of Trustees American Mortgage Investors Trust: We have audited the accompanying balance sheets of American Mortgage Investors Trust (a Massachusetts Business Trust) as of December 31, 1998 and 1997, and the related statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Trust'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. 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 American Mortgage Investors Trust as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP New York, New York January 15, 1999, except as to Notes 3 and 6 which are as of March 1, 1999 -13- AMERICAN MORTGAGE INVESTORS TRUST BALANCE SHEETS DECEMBER 31, 1998 AND 1997
ASSETS 1998 1997 ------------ ------------ Investments in mortgage loans (Notes 3 and 6) $ 45,965,488 $ 46,792,853 Investments in REMIC and GNMA Certificates (Note 4) 10,303,002 12,495,878 Cash and cash equivalents 2,953,125 1,840,715 Deferred costs (net of accumulated amortization of $50,000 and $45,000, respectively) 4,723 14,549 Accrued interest receivable 766,702 501,927 ------------ ------------ Total assets $ 59,993,040 $ 61,645,922 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 73,372 $ 49,123 Due to affiliates (Note 5) 1,715,094 1,210,874 ------------ ------------ Total liabilities 1,788,466 1,259,997 ------------ ------------ Commitments and contingencies (Note 6) Shareholders' equity: Shares of beneficial interest; $.10 par value; 12,500,000 shares authorized; 4,172,790 and 4,087,583 shares issued and outstanding, respectively 417,280 408,759 Treasury shares of beneficial interest; $.10 par value; 333,545 and 248,339 shares, respectively (33,355) (24,834) Additional paid-in capital 68,849,730 68,849,725 Distributions in excess of net income (11,191,614) (9,021,323) Accumulated other comprehensive income 162,533 173,598 ------------ ------------ Total shareholders' equity 58,204,574 60,385,925 ------------ ------------ Total liabilities and shareholders' equity $ 59,993,040 $ 61,645,922 ============ ============
See accompanying notes to financial statements -14- AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ---------- ---------- Revenues: Interest income: Mortgage loans (Note 3) $ 3,037,882 $3,118,027 $2,866,017 REMIC and GNMA Certificates and the FHA Insured Project Loan (Note 4) 880,680 975,599 1,306,658 Temporary investments 112,953 151,228 252,140 ----------- ---------- ---------- Total revenues 4,031,515 4,244,854 4,424,815 ----------- ---------- ---------- Expenses: General and administrative (Note 5) 642,047 622,304 711,209 Realized (gain) loss on sale of REMIC and GNMA Certificates and the FHA Insured Project Loan (Note 4) (12,144) 66,735 415,975 Amortization 5,000 10,000 10,000 ----------- ---------- ---------- Total expenses 634,903 699,039 1,137,184 ----------- ---------- ---------- Net income $ 3,396,612 $3,545,815 $3,287,631 =========== ========== ========== Basic net income per weighted average share $ .88 $ .92 $ .83 =========== ========== ==========
See accompanying notes to financial statements -15- AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Treasury Shares of Shares of Beneficial Interest Beneficial Interest Additional ----------------------------- ------------------------ Paid-in Shares Amount Shares Amount Capital ----------- ---------- ---------- ---------- -------------- Balance at January 1, 1996 3,934,423 393,443 (93,539) (9,354) 68,899,562 Comprehensive income: Net income 0 0 0 0 0 Other comprehensive loss: Net unrealized gain (loss) on first mortgage bonds: Net unrealized holding loss arising during the period Add: reclassification adjustment for losses included in net income Other comprehensive loss Comprehensive income Issuance of shares of beneficial interest 75,577 7,558 0 0 1,428,396 Distributions 0 0 0 0 0 Purchase of treasury shares 0 0 (75,576) (7,558) (1,428,391) Offering costs 0 0 0 0 (50,000) ----------- -------- ---------- -------- ----------- Balance at December 31, 1996 4,010,000 401,001 (169,115) (16,912) 68,849,567 Comprehensive income: Net income 0 0 0 0 0 Other comprehensive income Net unrealized gain (loss) on first mortgage bonds: Net unrealized holding gain arising during the period Add: reclassification adjustment for losses included in net income Other comprehensive income Comprehensive income Issuance of shares of beneficial interest 77,583 7,758 0 0 1,390,751 Distributions 0 0 0 0 0 Purchase of treasury shares 0 0 (79,224) (7,922) (1,390,593) ----------- -------- ---------- -------- ----------- Accumu- lated Other Distributions Comprehen- Comprehen- in Excess sive sive of Net Income Income Income Total ------------- ------------- ------------- ----------- Balance at January 1, 1996 (4,709,954) (59,063) 64,514,634 Comprehensive income: Net income 3,287,631 $3,287,631 0 3,287,631 ---------- Other comprehensive loss: Net unrealized gain (loss) on first mortgage bonds: Net unrealized holding loss arising during the period (438,298) Add: reclassification adjustment for losses included in net income 415,975 ---------- Other comprehensive loss (22,323) (22,323) (22,323) ---------- Comprehensive income $3,265,308 ========== Issuance of shares of beneficial interest 0 0 1,435,954 Distributions (5,569,283) 0 (5,569,283) Purchase of treasury shares 0 0 (1,435,949) Offering costs 0 0 (50,000) ------------ -------- ----------- Balance at December 31, 1996 (6,991,606) (81,386) 62,160,664 Comprehensive income: Net income 3,545,815 $3,545,815 0 3,545,815 ---------- Other comprehensive income Net unrealized gain (loss) on first mortgage bonds: Net unrealized holding gain arising during the period 188,249 Add: reclassification adjustment for losses included in net income 66,735 ---------- Other comprehensive income (loss) 254,984 254,984 254,984 ---------- Comprehensive income $3,800,799 ========== Issuance of shares of beneficial interest 0 0 1,398,509 Distributions (5,575,532) 0 (5,575,532) Purchase of treasury shares 0 0 (1,398,515) ------------ -------- -----------
See accompanying notes to financial statements -16- AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Treasury Shares of Shares of Beneficial Interest Beneficial Interest Additional ----------------------------- ------------------------ Paid-in Shares Amount Shares Amount Capital ----------- ---------- ---------- ---------- -------------- Balance at December 31, 1997 4,087,583 $408,759 (248,339) $(24,834) $68,849,725 Comprehensive income: Net income 0 0 0 0 0 Other comprehensive income (loss): Net unrealized gain on first mortgage bonds: Net unrealized holding gain arising during the period Add: reclassification adjustment for gains included in net income Other comprehensive loss Comprehensive income Issuance of shares of beneficial interest 85,207 8,521 0 0 1,328,465 Distributions 0 0 0 0 0 Purchase of treasury shares 0 0 (85,206) (8,521) (1,328,460) Balance at December 31, 1998 4,172,790 $417,280 (333,545) $(33,355) $68,849,730 ========= ======== ======== ======== =========== Accumu- lated Other Distributions Comprehen- Comprehen- in Excess sive sive of Net Income Income Income Total ------------- ------------- ------------- ----------- Balance at December 31, 1997 $(9,021,323) $173,598 $60,385,925 Comprehensive income: Net income 3,396,612 $3,396,612 0 3,396,612 ---------- Other comprehensive income (loss): Net unrealized gain on first mortgage bonds: Net unrealized holding gain arising during the period 1,079 Less: reclassification adjustment for gains included in net income (12,144) ---------- Other comprehensive loss (11,065) (11,065) (11,065) ---------- Comprehensive income $3,385,547 ========== Issuance of shares of beneficial interest 0 0 1,336,986 Distributions (5,566,903) 0 (5,566,903) Purchase of treasury shares 0 0 (1,336,981) Balance at December 31, 1998 $(11,191,614) $162,533 $58,204,574 ============ ======== ===========
See accompanying notes to financial statements. -17- AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 3,396,612 $ 3,545,815 $ 3,287,631 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Amortization expense-organization costs 5,000 10,000 10,000 Amortization expense-loan premium and origination costs 553,608 510,101 477,342 Amortization of REMIC premium 0 3,181 19,523 Accretion of REMIC, GNMA and FHA Insured Project Loan discount (26,272) (31,860) (43,376) (Gain) loss on sale of REMIC Certificates (12,986) 21,849 408,692 Loss on sale of GNMA Certificates 842 1,807 5,689 Loss on sale of FHA Insured Project Loan 0 43,080 1,594 Changes in operating assets and liabilities: (Increase) decrease in accrued interest receivable (264,775) 56,219 (204,120) Increase (decrease) in due to affiliates 504,220 324,091 (32,338) Increase (decrease) in accounts payable and accrued expenses 24,249 (50,645) 15,913 ----------- ----------- ----------- Total adjustments 783,886 887,823 658,919 ----------- ----------- ----------- Net cash provided by operating activities 4,180,498 4,433,638 3,946,550 ----------- ----------- ----------- Cash flows from investing activities: Investments in mortgage loans 0 (2,466,104) (6,148,482) Proceeds from sale of REMIC Certificates 0 0 4,940,625 Principal repayments of mortgage loans 273,757 215,778 177,095 Purchase of REMIC Certificates 0 (1,981,566) 0 Purchase of GNMA Certificates 0 (1,889,817) 0 Principal repayments of GNMA Certificates 413,254 127,621 95,396 Principal repayments of REMIC Certificates 1,806,973 739,904 1,149,123 Principal repayments of FHA Insured Project Loan 0 3,408,238 44,598 Decrease (increase) in deferred costs 4,826 0 (11) ----------- ----------- ----------- Net cash provided by (used in) investing activities 2,498,810 (1,845,946) 258,344 ----------- ----------- ----------- Cash flows from financing activities: Distributions to shareholders (5,566,903) (5,575,532) (5,569,283) Proceeds from issuance of shares of beneficial interest 1,336,986 1,398,509 1,435,954 Purchase of treasury shares (1,336,981) (1,398,515) (1,435,949) Increase in offering costs 0 0 (50,000) ----------- ----------- ----------- Net cash used in financing activities (5,566,898) (5,575,538) (5,619,278) ----------- ----------- -----------
(continued) See accompanying notes to financial statements. -18- AMERICAN MORTGAGE INVESTORS TRUST STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (continued)
1998 1997 1996 ---------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,112,410 (2,987,846) (1,414,384) Cash and cash equivalents at the beginning of the year 1,840,715 4,828,561 6,242,945 ---------- ----------- ----------- Cash and cash equivalents at the end of the year $2,953,125 $ 1,840,715 $ 4,828,561 ========== =========== =========== Supplemental schedule of noncash investing activities: Decrease in deferred costs $ 0 $ 3,032 $ 58,418 Increase in investments in mortgage loans 0 (3,032) (58,418) ---------- ----------- ----------- $ 0 $ 0 $ 0 ========== =========== ===========
-19- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 NOTE 1 - General American Mortgage Investors Trust (the "Company") was formed on June 11, 1991 as a Massachusetts business trust for the primary purpose of investing in government-insured mortgages and guaranteed mortgage-backed certificates. The Company is electing to be treated as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. The Company issued 10,000 shares of beneficial interest at $20 per share in exchange for $200,000 cash from Related AMI Associates, Inc., the current advisor to the Company (the "Advisor"). On March 29, 1993, the Company commenced a public offering (the "Offering") through Related Equities Corporation, (the "Dealer Manager") an affiliate of the Advisor, and other broker-dealers on a "best efforts" basis, for up to 10,000,000 of its shares of beneficial interest at an initial offering price of $20 per share. The Offering terminated as of November 30, 1994. As of November 30, 1994, a total of 3,809,601 shares had been sold to the public, either through the Offering or the Company's dividend reinvestment plan (the "Reinvestment Plan"), representing Gross Proceeds (the "Gross Proceeds") of $76,192,021 (before volume discounts of $40,575). Pursuant to the Redemption Plan which became effective November 30, 1994, the Company is required to redeem eligible shares presented for redemption for cash to the extent it has sufficient net proceeds from the sale of shares under the Reinvestment Plan. As of December 31, 1998, the backlog of shares to be redeemed is 179,232. As permitted by the provisions of the Redemption Plan, the Board of Trustees have adopted a policy to adjust the redemption price annually to reflect the then net asset value of a share of the Company's stock. This new policy is effective for redemptions with respect to quarters ended September 30, 1997 and thereafter. With respect to the Reinvestment Plan, the Board also adopted a policy to adjust the reinvestment price annually at which participants may acquire additional shares under the Reinvestment Plan to also reflect the then net asset value of a share of the Company's stock. The change in policy with respect to the reinvestment price was effective November 30, 1997 ($15.16 at December 31, 1998). As of December 31, 1998 the Company's mortgage investments consisted of new mortgage loans originated by or on behalf of the Company and Ginnie Mae mortgage-backed securities and pass-through certificates ("Originated Mortgages"). Due to the complexity of the GNMA structure and the uncertainty of future economic and other factors that affect interest rates and mortgage prepayments, it is not possible to predict the effect of future events upon the yield to maturity or the market value of the GNMA Certificates upon any sale or other disposition or whether the Company, if it chose to, would be able to reinvest proceeds from prepayments at favorable rates relative to the coupon rate. NOTE 2 - Accounting Policies a) Basis of Accounting The books and records of the Company are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles. b) Accounting by Creditors for Impairment of a Loan The Company follows SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." Under SFAS 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS No. 114 requires lenders to measure impaired loans based on: (i) the present value of expected future cash flows discounted at the loans' effective interest rate; (ii) the loan's observable market price; or (iii) the fair value of the collateral if the loan is collateral-dependent. An allowance for loan losses is maintained if the measure of an impaired loan is less than its recorded investment. Adjustments to the allowance are made through corresponding charges or credits to the provision for loan losses. Interest on mortgage loans is recognized on the accrual basis. Interest which was accrued but not received is reversed from income if deemed to be uncollectible. c) Investments in Mortgage-Backed Securities The Company follows the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." At December 31, 1998 and 1997, the Company has classified its securities as available-for-sale. Available-for-sale securities are carried at fair value with net unrealized gain (loss) reported as a separate component of comprehensive income until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses on securities are included in earnings and are derived using the specific identification method for determining the cost of the securities sold. -20- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 d) Cash and Cash Equivalents Cash and cash equivalents include temporary investments with original maturity dates equal to or less than three months and are carried at cost plus accrued interest, which approximates market. e) Loan Origination Costs Acquisition fees and expenses incurred for the investment in mortgage loans have been capitalized and are included in Investment in Mortgage Loans in the balance sheets. Loan origination costs are being amortized using the effective yield method over the lives of the respective mortgages. f) Organization and Offering Costs Costs incurred to organize the Company including, but not limited to, legal, accounting and registration fees are considered organization costs. These costs have been capitalized and are amortized on a straight line basis over a 60-month period. Costs incurred to sell shares including brokerage costs and a nonaccountable expense allowance are considered offering costs. These costs were charged directly to shareholders' equity. g) Financial Instruments The Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. Financial instruments held by the Company at December 31, 1998 and 1997 include cash equivalents, investments in loans, investments in REMIC and GNMA Certificates, interest receivable and accounts payable and accrued expenses. For cash and cash equivalents, investments in loans (other than the two loans that were prepaid, see Note 3), interest receivable and accounts payable and accrued expenses the carrying amounts are a reasonable estimate of fair value. The fair value of investments in mortgage loans, REMIC and GNMA Certificates and FHA Insured Project Loan are based on actual market price quotes or by determining the present value of the projected future cash flows using appropriate discount rates, credit losses and prepayment assumptions. h) Net Income Per Weighted Average Share Basic net income per weighted average share equals net income for the period, divided by the weighted average number of shares outstanding for the period. The weighted average number of shares outstanding for the years ended December 31, 1998, 1997 and 1996 were 3,845,101, 3,851,029 and 3,972,625, respectively. i) Income Taxes The Company has qualified as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the "Code"). A real estate investment trust is generally not subject to federal income tax on that portion of its real estate investment trust taxable income ("Taxable Income") which is distributed to its shareholders provided that at least 95% of Taxable Income is distributed. No provision for federal income taxes has been made in the financial statements, as the Company is in compliance with the Code and has distributed all of its Taxable Income. j) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reporting of revenues and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. k) Other Comprehensive Income The Company adopted SFAS No. 130 "Reporting Comprehensive Income" on January 1, 1998. SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a financial statement with the same prominence as other financial statements. The financial statements for earlier periods, provided for comparative purposes, have been reclassified as required. Accumulated other comprehensive income is displayed separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. l) Recent Pronouncements The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" on January 1, 1998. SFAS No. 131 establishes standards for reporting information about operating segments in annual and interim financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating officer in deciding how to allocate resources and in assessing performance. Categories required to be reported as well as reconciled to the financial statements are segment profit or loss, certain specific revenue and expense items, and segment assets. The Company operates in one segment, investment in mortgages or mortgage backed securities. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This Statement is effective for all fiscal quarters of -21- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have any impact on the financial position or results of operations of the Company. m) Reclassifications Certain prior year amounts have been reclassified to conform with current year presentation. Note 3 - Investments in Mortgage Loans The Company originally funded five mortgage loans, five non-interest bearing Additional Loans and two additional loan-bridge loans in the aggregate amount of $46,837,304. The Columbiana and Town and Country mortgage loans are considered impaired loans, as they have not performed in accordance with the contractual terms of the loan agreement. No allowance for loan losses has been provided for these loans. Information relating to investments in mortgage loans and Additional Loans for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 ------------ ------------ ------------ Investments in mortgage loans - January 1, $ 46,792,853 $ 45,049,596 $ 39,497,133 ------------ ------------ ------------ Additions: Columbiana - advances 0 260,767 464,028 Columbiana - loan origination costs 0 3,032 5,395 Stonybrook - advances 0 2,205,337 5,684,454 Stonybrook - loan origination costs 0 0 53,023 ------------ ------------ ------------ 0 2,469,136 6,206,900 ------------ ------------ ------------ Deductions: Amortization of Additional Loans (372,916) (372,916) (372,916) Amortization of loan origination costs (180,692) (137,185) (104,426) Collection of principal - Cove (54,375) (50,395) (46,706) - Oxford (74,765) (69,293) (64,222) - Town and Country (76,648) (71,215) (66,167) - Columbiana (34,145) (8,918) 0 - Stonybrook (33,824) (15,957) 0 ------------ ------------ ------------ (827,365) (725,879) (654,437) ------------ ------------ ------------ Investments in mortgage loans - December 31, $ 45,965,488 $ 46,792,853 $ 45,049,596 ============ ============ ============
On March 1, 1999, Oxford Apartments, L.L.C. (the "Oxford Obligor"), the owner of Oxford on Greenridge Apartments ("Oxford"), sold Oxford to a third party for $15.25 million. The Oxford Obligor then fully repaid its outstanding debt due to the Company totaling $12,109,036 including the outstanding balance of an FHA first mortgage loan in the amount of $9,018,450, a $1,156,000 additional loan, a $450,922 prepayment premium due the Company on the FHA loan and $1,483,664 in Additional Interest. On March 1, 1999, Cove Apartments L.L.C. (the "Cove Obligor"), the owner of Cove Apartments ("Cove"), sold Cove to a third party for $10.25 million. The Cove Obligor then fully repaid its outstanding debt due to the Company totaling $8,541,781 including the outstanding balance of an FHA first mortgage loan in the amount of $6,558,872, an $840,500 additional loan, a $327,944 prepayment premium due the Company on the FHA loan and $814,465 in Additional Interest. -22- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS NOTE 3 - Investments in Mortgage Loans (continued) Further information relating to investments in Mortgage Loans as of December 31, 1998 and 1997 is as follows:
Date of Invest- ment/ Amounts Advanced Total Final Interest ---------------------------------------- Mortgage Amounts Out- Matur- Rate on Total Loan Advanced standing Descrip- rity Mortgage Mortgage Additional Amounts Amounts and Loan Property tion Date Loan (A) Loans Loans (D) Advanced Unadvanced Unadvanced Balance - - -------- -------- -------- -------- ----------- ------------ ----------- ---------- ------------ ---------- The Cove 308 12/93 7.625%- $6,800,000 $ 840,500 $ 7,640,500 $ 0 $ 7,640,500 $7,408,843 Apts. Apt 1/29 9.129% Houston, TX Units (B) Oxford on 405 12/93 7.625%- 9,350,000 1,156,000 10,506,000 0 10,506,000 10,187,473 Greenridge Apt. 1/29 9.129% Apts. Units (B) Houston, TX Town & 330 4/94 7.375%- 9,348,000 1,039,000 10,387,000 0 10,387,000 10,077,666 Country IV Apt. 5/29 9.167% Apts. Units (E) (B)(H) Urbana, IL Columbiana 204 4/94 (C) 8,276,895 563,000 8,839,895 406,105 9,246,000 8,796,833 Lakes Apts. Apt. 11/35 Columbia, Units (F) SC Stony Brook 125 12/95 7.75%- 8,500,000 763,909 9,263,909 0 9,263,909 9,214,129 Village II Apt. 6/37 9.128% Apts. Units (F) (G) East Haven, CT ------------------------------------------------------------------------------------------ Total $42,274,895 $4,362,409 $46,637,304 $406,105 $47,043,409 $45,684,944 ========================================================================================== Accum- ulated Amor- tization- Interest Additional Earned Less Origi- Loans and Balance at Balance at by the 1998 Net nation Origina- December December Company Amor- Interest Property Costs tion 31, 1998 31, 1997 for 1998 tization Earned - - -------- ---------- ----------- ---------- ---------- ---------- -------- -------- The Cove $ 444,215 $ 509,985 $7,343,073 $7,498,346 $595,064 $100,901 $494,163 Apts. Houston, TX Oxford on 610,814 701,372 10,096,915 10,310,443 889,671 138,766 750,905 Greenridge Apts. Houston, TX Town & 603,895 546,601 10,134,960 10,327,840 727,780 116,232 611,548 Country IV Apts. Urbana, IL Columbiana 532,835 314,970 9,014,698 9,158,473 614,112 109,631 504,481 Lakes Apts. Columbia, SC Stony Brook 413,492 251,779 9,375,842 9,497,751 764,863 88,078 676,785 Village II Apts. East Haven, CT --------------------------------------------------------------------------------------- Total $2,605,251 $2,324,707 $45,965,488 $46,792,853 $3,591,490 $553,608 $3,037,882 ========================================================================================
-23- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS (A) The minimum interest rate shown represents base interest, which is fully insured by HUD ("Base Interest"). The additional interest rate represents interest which is not contingent upon cash flow and is secured by partnership interests in the partnerships which own the Developments ("Additional Interest"). (B) In addition to the interest rate, the Company is entitled to 30% of the cash flow remaining after payment of Base Interest and Additional Interest. (C) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan period and 7.4% during the construction period. In addition to the interest rate during the permanent loan period, the Company will be entitled to 25% of the cash flow remaining after payment of 8.678% interest. Payments at the rate of 8.678% are guaranteed by the developer until December 1998. The operations of Columbiana have not been able to support the payment of Additional Interest for the period October 1, 1997 through June 30, 1998 which amounted to $48,760. Accordingly, the accrued interest income that has been deemed uncollectible has been reversed from mortgage loans in the Statements of Income. (D) Additional loans are non-interest bearing. (E) The Originated Mortgage has a term of 35 years, subject to mandatory prepayment at any time after 12 years and upon one year's notice. (F) The Originated Mortgages have terms of 40 years, subject to mandatory prepayment at any time after 10 years and upon one year's notice. (G) In addition to the interest rate, the Company is entitled to 40% of the cash flow remaining after payment of Base and Additional Interest. (H) The operations of Town and Country have not been able to support the payment of Additional Interest for the period July 1, 1997 through December 31, 1997 which amounted to $83,628. Accordingly, the accrued interest income that has been deemed uncollectible has been reversed from mortgage loans in the Statements of Income. (I) Aggregate cost for federal income tax purposes is $47,121,296. -24- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS NOTE 4 - Investments in REMIC Certificates, GNMA Certificates and the FHA Insured Project Loan Information relating to investments in REMIC Certificates, GNMA Certificates and the FHA Insured Project Loan for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 --------------- -------------- ------------- Investments in REMIC and GNMA Certificates and FHA Insured Project Loan - January 1, $12,495,878 $12,683,331 $19,327,518 ---------- ---------- ---------- Additions: Purchase of GNMA Certificates 0 1,981,566 0 Purchase of REMIC Certificates 0 1,889,817 0 Accretion of Discounts 26,272 33,394 43,376 ---------- ---------- ---------- 26,272 3,904,777 43,376 ---------- ---------- ---------- Deductions: Principal Repayments of GNMA Certificates (413,254) (127,621) (95,396) Principal Repayments of REMIC Certificates (1,806,973) (739,904) (1,149,123) Principal Repayments of FHA Insured Project Loan 0 (3,408,238) (44,598) Proceeds from sale of REMIC Certificates 0 0 (4,940,625) Gain (loss) on Sale of REMIC Certificates 12,986 (21,849) (408,692) Loss on Sale of GNMA Certificates (842) (1,807) (5,689) Loss on Sale of FHA Insured Project Loan 0 (43,080) (1,594) Amortization of Premiums 0 (4,715) (19,523) ---------- ---------- ---------- (2,208,083) (4,347,214) (6,665,240) ---------- ---------- ---------- Amortized Cost at December 31, (including unrealized gain (loss) of $162,533, $173,598 and ($81,386) at December 31, 1998, 1997 and 1996, respectively) 10,314,067 12,240,894 12,705,654 Change in net unrealized gain (loss) on securities available for sale (11,065) 254,984 (22,323) ---------- ---------- ---------- Carrying value at December 31, $10,303,002 $12,495,878 $12,683,331 ========== ========== ==========
-25- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS NOTE 4 - Investment in REMIC and GNMA Certificates (continued) Further information relating to investments in REMIC and GNMA Certificates as of December 31, 1998 and 1997 is as follows:
Original Accum- Date Purchase ulated Purchased Price Amorti- Loan Origi- /Final Stated Including Principal (Discount) zation at nation Costs Certificate Payment Interest Prem/ at December at December December at December Seller Number Date Rate (Disc) 31, 1998 31, 1998 31, 1998 31, 1998 - - ------ ----------- --------- ------- ----------- ------------ ----------- --------- ------------ GNMA Certificates - - ----------------- Bear Stearns & Co. 0355540 7/27/94 7.125% $2,407,102 $2,566,156 $(237,369) $88,611 $ 79,391 3/15/29 Malone Mortgage Co. 0382486 7/28/94 8.500% 2,197,130 2,155,143 (8,082) 3,150 73,196 8/15/29 Goldman Sachs 0328502 7/29/94 8.250% 3,928,615 3,635,731 (3,406) 1,444 123,830 7/15/29 SunCoast Capital Group, Ltd. G22412 6/23/97 7.000% 1,981,566 1,669,980 (10,959) 3,653 0 4/20/27 REMIC Certificates - - ------------------ SunCoast Capital Group, Ltd. FHLMC 5/30/97 7.000% 507,288 0 0 0 0 17218 2/1/98 SunCoast Capital Group, Ltd. FHLMC 5/30/97 6.500% 251,967 0 0 0 0 17161 2/1/98 SunCoast Capital Group, Ltd. FHLMC 6/23/97 7.000% 147,437 0 0 0 0 17125 1/1/98 SunCoast Capital Group, Ltd. FNMA 6/30/97 7.500% 983,125 0 0 0 0 1997-42V 10/18/09(1) ----------- ------------ ----------- --------- ------------ Total $12,404,230 $10,027,010 $(259,816) $96,858 $276,417 =========== ============ =========== ========= ============ Interest Unrealized Earned Gain at Balance at Balance at by the Net December December December Company 1998 Interest Seller 31, 1998 31, 1998 31, 1997 for 1998 Accretion Earned - - ------ ----------- ---------- ----------- --------- --------- -------- GNMA Certificates - - ----------------- Bear Stearns & Co. $ 92,625 $2,589,414 $ 2,604,394 $183,569 $20,147 $203,716 Malone Mortgage Co. 29,391 2,252,798 2,253,185 183,714 715 184,429 Goldman Sachs 4,247 3,761,846 3,833,576 302,912 331 303,243 SunCoast Capital Group, Ltd. 36,270 1,698,944 1,982,055 129,951 2,724 132,675 REMIC Certificates - - ------------------ SunCoast Capital Group, Ltd. 0 0 473,051 767 0 767 SunCoast Capital Group, Ltd. 0 0 198,075 869 0 869 SunCoast Capital Group, Ltd. 0 0 148,495 0 0 0 SunCoast Capital Group, Ltd. 0 0 1,003,047 52,626 2,355 54,981 ----------- ----------- ----------- --------- --------- -------- Total $162,533 $10,303,002 $12,495,878 $854,408 $26,272 $880,680 =========== =========== =========== ========= ========= ========
(1) The stated final payment date was October 18, 2009. The actual final payment amounting to $420,228 was received on October 20, 1998. -26- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS The amortized cost, unrealized gain (loss) and fair value for the investment in REMIC and GNMA Certificates at December 31, 1998 and 1997 were as follows:
Gross Gross Amortized Unrealized Fair Amortized Unrealized Cost at Gain at Value at Cost at Gain at December 31, December 31, December 31, December 31, December 31, Security 1998 1998 1998 1997 1997 - - -------- ---- ---- ---- ---- ---- Fannie Mae REMIC $ 0 $ 0 $ 0 $ 984,659 $ 18,388 Certificates Federal Home Loan REMIC 0 0 0 806,972 12,649 Certificates Ginnie Mae Certificates 10,140,469 162,533 10,303,002 10,530,649 146,012 ---------- ------- ---------- ---------- ------- $10,140,469 $162,533 $10,303,002 $12,322,280 $177,049 ========== ======= ========== ========== =======
Gross Unrealized Fair (Loss) at Value at December 31, December 31, Security 1997 1997 - - -------- ---- ---- Fannie Mae REMIC $ 0 $ 1,003,047 Certificates Federal Home Loan REMIC 0 819,621 Certificates Ginnie Mae Certificates (3,451) 10,673,210 ------ ---------- $(3,451) $12,495,878 ====== ==========
For the year ended December 31, 1998, there were gains and losses of $15,148 and $3,004, respectively, (including acquisition fees and expenses) on principal repayments of REMIC and GNMA Certificates. For the year ended December 31,1997, there were gains and losses of $942 and $67,677, respectively, (including acquisition fees and expenses) on principal repayments of REMIC and GNMA Certificates and the FHA Insured Project Loan. NOTE 5 - Related Party Transactions The Company has an agreement with the Advisor pursuant to which the Advisor receives compensation consisting primarily of (i) asset management fees calculated as a percentage of total assets invested by the Company, (ii) a subordinated incentive fee based on the economic gain on the sale of Mortgage Investments; (iii) certain other fees. In addition to the fees discussed above, the Company will reimburse affiliates of the Advisor for certain administrative and other costs incurred on behalf of the Company. The costs incurred to related parties for the years ended December 31, 1998, 1997 and 1996 were as follows:
Years Ended December 31, 1998 1997 1996 -------------- -------------- -------------- Expense reimbursement $ 120,029 $ 111,460 $ 137,856 Asset management fees 362,280 367,044 375,954 ---------- ---------- ---------- $ 482,309 $ 478,504 $ 513,810 ========== ========== ==========
Asset management fees and expense reimbursements owed to the Advisor and its affiliates amounting to approximately $1,327,000 and $844,000 were accrued and unpaid at December 31, 1998 and 1997, respectively. If the Proposals (see Note 7) are adopted, such amounts will become subordinated to a minimum quarterly distribution to shareholders ($.36 per share, which is equal to the current quarterly per share distribution) and will be paid to the Advisor from the Company's earnings. If the Proposals are not adopted, the Company may suspend shareholder distributions for one or more quarters and use such funds to pay all such accrued and unpaid fees and other payables to the Advisor. NOTE 6 - Subsequent Events On or about February 11, 1999, the Company mailed definitive proxy materials to shareholders of record on February 5, 1999 regarding, among other matters, proposals to restructure the Company from a finite to infinite life REIT, modify the investment objectives of the Company, permit the Company to incur a specified amount of indebtedness and list the Company's shares on a national exchange (the "Proposals"). The deadline for returning consent forms is April 12, 1999. If the Company receives consents from a majority of the total eligible shareholder vote, the Proposals will be deemed adopted. If the Proposals are approved, the transaction expenses will be paid by the Company. If the Proposals are not approved, an affiliate of the Advisor will bear the transaction expenses. The Company intends to borrow the funds necessary to pay the transaction expenses. -27- AMERICAN MORTGAGE INVESTORS TRUST NOTES TO FINANCIAL STATEMENTS On February 14, 1999, distributions of $1,385,509 and $17,656 were paid to the Investors and the Advisor, respectively, representing the 1998 fourth quarter distribution. The distributions were funded from cash collections of debt service payments and the continued accrual without payment of asset management fees and expense reimbursements to the Advisor and its affiliates through December 31, 1998. -28- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The Trustees are responsible for the management and control of the affairs of the Company but have retained the Advisor to manage the Company's day-to-day affairs and have delegated to the Advisor responsibilities with respect to, among other things, overseeing the portfolio of Mortgage Investments and the acquisition and disposition of investments. The Trustees and Executive Officers of the Company are as follows:
Year First Became Name Age Offices Held Officer/Director ---- --- ------------ ---------------- J. Michael Fried 54 Trustee, President, Chairman of the Board and Chief Executive Officer 1991 Peter T. Allen 53 Trustee 1991 Arthur P. Fisch 57 Trustee 1991 Stuart J. Boesky 42 Executive Vice President and Chief Operating Officer 1991 Alan P. Hirmes 44 Senior Vice President 1991 John B. Roche 41 Senior Vice President, Chief Financial Officer and Chief Accounting Officer 1998 Mark J. Schlacter 48 Vice President 1993 Richard A. Palermo 38 Treasurer 1997 Teresa Wicelinski 33 Secretary 1998
J. MICHAEL FRIED, age 54, is Trustee, President, Chairman of the Board and Chief Executive Officer of the Company, is Director and President of the Advisor and is the sole shareholder of one of the general partners of Related, the real estate finance affiliate of The Related Companies, L.P. In that capacity, he is generally responsible for all syndication, finance, acquisition and investor reporting activities of Related and its Affiliates. Mr. Fried practiced corporate law in New York City with the law firm of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Related in 1979. Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna cum laude; from Long Island University Graduate School with a Master of Science degree in Psychology; and from Michigan State University with a Bachelor of Arts degree in History. PETER T. ALLEN, age 53, is President of Peter Allen & Associates, Inc., a real estate development, consulting, brokerage and management firm, in which capacity he has been responsible for the leasing, refinancing and development of major commercial properties. Mr. Allen has also been an Adjunct Professor of the Graduate School of Business at the University of Michigan since 1981. Mr. Allen received a Bachelor of Arts Degree in history/economics from DePauw University and a Masters Degree in Business Administration with Distinction from the University of Michigan. Mr. Allen is an Independent Trustee. ARTHUR P. FISCH, age 57, has been an attorney in private practice specializing in real property and securities law since October 1987, with Arthur P. Fisch, P.C. and Fisch & Kaufman. From 1975-1987, Mr. Fisch was employed by E.F. Hutton & Company, serving as First Vice President in the Direct Investment Department from 1981-1987 and associate general counsel from 1975-1980 in the legal department. As First Vice President, he was responsible for the syndication and acquisition of millions of dollars in residential real estate. Mr. Fisch was the Corporate General Partner in four public real estate funds and responsible for the acquisition of several thousand apartment units. He was also in charge of the Subsidized Housing and Cable TV groups at E.F. Hutton's Direct Investment Department. Mr. Fisch received a B.B.A. from Bernard Baruch College of the City University of New York and a Juris Doctor degree from New York Law School. Mr. Fisch is admitted to practice law in New York and Pennsylvania. Mr. Fisch is an Independent Trustee. STUART J. BOESKY, age 42, is Executive Vice President and Chief Operating Officer of the Company and is a Senior Vice President and a Managing Director of the Advisor. Mr. Boesky practiced real estate and tax law in New York City with the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined Related. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of Kaye, Fialkow, Richmond & Rothstein (which subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980 was a consultant specializing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boesky is the sole shareholder of one of the general partners of Related. Mr. Boesky graduated from Michigan State University with a Bachelor of Arts -29- degree and from Wayne State School of Law with a Juris Doctor degree. He then received a Master of Laws degree in Taxation from Boston University School of Law. ALAN P. HIRMES, age 44, is a Senior Vice President of the Company and is a Senior Vice President of the Advisor. Mr. Hirmes has been a Certified Public Accountant in New York since 1978. Prior to joining Related in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also the sole shareholder of one of the general partners of Related. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree. JOHN B. ROCHE, age 41, is a Senior vice President, the Chief Financial Officer and the Chief Accounting Officer of the Company. Mr. Roche has approximately fourteen years experience in the accounting and finance field. Prior to joining the Company, he was the Vice President and Chief Financial Officer of Emmes Asset Management Company, a real estate and financial services firm. From 1991 through 1996, he was the Vice President of Finance of the Robert Martin Company, a developer, owner and operator in Westchester County, New York. He spent six years in public accounting with the firms of Peat Marwick & Mitchell and later, Kenneth Leventhal & Co. He has been a Certified Public Accountant in New York since 1986. Mr. Roche holds a Masters in Business Administration from the Columbia Business School and a Bachelor of Arts in Accounting from Queens College. MARK J. SCHLACTER, age 48, is a Vice President of the Company. Mr. Schlacter is a Vice President of Mortgage Acquisitions of Related, and has been with Related since June 1989. Mr. Schlacter is responsible for the origination of Related's taxable participating debt programs and low-income housing tax credit debt programs. Prior to joining Related, Mr. Schlacter garnered 16 years of direct real estate experience covering commercial and residential construction, single and multifamily mortgage origination and servicing, commercial mortgage origination and servicing, multifamily property acquisition and financing, and multifamily mortgage lending program underwriting and development. He was a Vice President with Bankers Trust Company from 1986 to June 1989, and held prior positions with Citibank, Anchor Savings Bank and the Pyramid Companies covering the 1972-1986 period. Mr. Schlacter holds a Bachelor of Arts degree in Political Science from Pennsylvania State University and periodically teaches multifamily underwriting at the New York University School of Continuing Education, Real Estate Institute. RICHARD A. PALERMO, age 38, is the Treasurer of the Company and is the Treasurer of the Advisor. Mr. Palermo has been a Certified Public Accountant in New York since 1985. Prior to joining Related in September 1993, Mr. Palermo was employed by Sterling Grace Capital Management from October 1990 to September 1993, Integrated Resources, Inc. from October 1988 to October 1990 and E.F. Hutton & Company, Inc. from June 1986 to October 1988. From October 1982 to June 1986, Mr. Palermo was employed by Marks Shron & Company and Mann Judd Landau, certified public accountants. Mr. Palermo graduated from Adelphi University with a Bachelor of Business Administration degree. TERESA WICELINSKI, age 33, is the Secretary of the Company and of the Advisor. She joined Related in June 1992, and prior to that date was employed by Friedman, Alprin & Green, certified public accountants. Ms. Wicelinski graduated from Pace University with a Bachelor of Arts Degree in Accounting. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the "Commission"). These persons are required by regulation of the Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during the fiscal year ended December 31, 1998, the Company's officers, directors and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements. The Advisor The Advisor is Related AMI Associates, Inc. The directors and executive officers of the Advisor are set forth below. These officers of the Advisor may also provide services to the Company on behalf of the Advisor. Related AMI Associates, Inc.
Year First Became Name Age Offices Held Officer/Director ---- --- ------------ ---------------- J. Michael Fried 54 Director and President 1991 Stuart J. Boesky 42 Director and Senior Vice President 1991 Alan. P. Hirmes 44 Senior Vice President 1991 Richard A. Palermo 38 Treasurer 1997 Teresa Wicelinski 33 Secretary 1998
-30- Biographical information with respect to Messrs. Fried, Boesky, Hirmes, Palermo and Ms. Wicelinski is set forth above. Item 11. Executive Compensation. The Company has six executive officers and three Trustees (two of whom are Independent Trustees). The Company does not pay or accrue any fees, salaries or other forms of compensation to its officers. Independent Trustees receive compensation for serving as Trustees at the rate of $10,000 per year. Certain directors and officers of the Advisor and certain officers of the Company receive compensation from the Advisor and its affiliates for services performed for various affiliated entities, which may include services performed for the Company. Such compensation may be based in part on the performance of the Company; however, the Advisor believes that any compensation attributable to services performed for the Company is immaterial. See also Note 5 to the financial statements above in Item 8, Financial Statements and Supplementary Data, which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. As of December 31, 1998, no person was known by the Company to be the beneficial owner of more than five percent of the outstanding shares of the Company. The Advisor purchased 10,000 Shares at an aggregate purchase price of $200,000 prior to the Offering. In addition, pursuant to the terms of the Offering and the Advisory Services Agreement, the Company has issued shares to the Advisor in an amount which will equal (after such issuance) 1% of the shares of the Company as compensation for services rendered in connection with the organization of the Company. During the Offering the Advisor received 38,481 shares, in addition to the 10,000 shares purchased by the Advisor, however as a result of shares being redeemed the Advisor was required to return 172 shares as of December 31, 1994; no additional shares were required to be redeemed since then. As of December 31, 1998, shares received by the Advisor totaled 38,309 at a total value of $565,058 ($14.75 per share). Such costs have been charged directly to shareholders' equity as part of offering costs. No directors and officers of the Advisor or Trustees and officers of the Company own any shares of the Company. Item 13. Certain Relationships and Related Transactions. The Company has and will continue to have certain relationships with the Advisor and its affiliates, as discussed in Item 11, Executive Compensation and Note 5 to Item 8, Financial Statements and Supplementary Data. However, there have been no direct financial transactions between the Company and the directors and officers of the Advisor. -31- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Sequential Page ---- (a) 1. Financial Statements -------------------- Independent Auditors' Report 13 Balance Sheets as of December 31, 1998 and 1997 14 Statements of Income for the years ended December 31, 1998, 1997 and 1996 15 Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996 16 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 18 Notes to Financial Statements 20 (a) 2. Financial Statement Schedules ----------------------------- All schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes thereto. (a) 3. Exhibits -------- 1(a) Dealer Manager Agreement, dated March 29, 1993 as previously filed as an Exhibit to Amendment No. 3 dated March 23, 1993 to Registrant's Registration Statement No. 33-42481. 1(b) Form of Soliciting Dealer Agreement as previously filed as an Exhibit to Amendment No. 3 dated March 23, 1993 to Registrant's Registration Statement No. 33-42481. 3,4 Amended and Restated Declaration of Trust, dated as of March 29, 1993, as amended as of July 1, 1993 as previously filed as an Exhibit to Post-Effective Amendment No. 1 dated November 9, 1993. Amendment No. 2 to Amended and Restated Declaration of Trust, dated as of April 5, 1994 as previously filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1993. 10(a) Escrow Agreement, dated as of April 16, 1993 and amended as of August 25, 1993 as previously filed as an Exhibit to Post-Effective Amendment No. 1 dated November 9, 1993. 10(b) Advisory Services Agreement, dated as of March 29, 1993, as amended as of October 26, 1993 as previously filed as an Exhibit to Post-Effective Amendment No. 1 dated November 9, 1993. Amendment to Advisory Services Agreement, dated as of December 31, 1993 as previously filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1993. Third Amendment to Advisory Services Agreement, dated as of March 29, 1994 as previously filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1993. 10(c) TRI Capital Corporation Mortgage Note in the principal amount of $9,350,000 dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(d) Equity Loan Note in the principal amount of $1,156,000 dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993.
-32- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (continued)
Sequential Page ---- 10(e) Bridge Loan Note in the principal amount of $115,790, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(f) Subordinated Promissory Note by Oxford Apartments, L.C., dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(g) Limited Operating Guaranty between Al L. Bradley, Jr., Tim L. Myers, Allied Realty Services, Ltd. and American Mortgage Investors Trust, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(h) TRI Capital Corporation Mortgage Note in the principal amount of $6,800,000, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(i) Equity Loan Note in the principal amount of $840,500, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(j) Bridge Loan Note in the principal amount of $84,210, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(k) Subordinated Promissory Note by Cove Apartments, L.C., dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(l) Limited Operating Guaranty between Al L. Bradley, Jr., Tim L. Myers, Allied Realty Services, Ltd. and American Mortgage Investors Trust, dated December 16, 1993 as previously filed as an Exhibit to Current Report on Form 8-K dated December 16, 1993. 10(m) Cambridge Realty Capital LTD Mortgage Note in the principal amount of $9,348,000, dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 21, 1994. 10(n) Equity Loan Note in the principal amount of $1,039,000, dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 21, 1994. 10(o) Subordinated Promissory Note by Town and Country IV Apartments, L.C., dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 21, 1994. 10(p) Limited Operating Guaranty between Leonard E. Wineburgh, Arnold H. Dwinn and the Company, dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 21, 1994.
-33- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (continued)
Sequential Page ---- 10(q) American Capital Resource, Inc. Mortgage Note in the principal amount of $8,683,000 dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 28, 1994. 10(r) Equity Loan Note in the principal amount of $563,000 dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 28, 1994. 10(s) Subordinated Promissory Note by Columbiana Lakes Apartments, L.C., dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 28, 1994. 10(t) Limited Operating Guaranty between Anderson G. Wise, Ronald P. Curry and the Company, dated April 5, 1994 as previously filed as an Exhibit to Current Report on Form 8-K dated April 28, 1994. 10(u) Rockport Mortgage Corporation Mortgage Note in the principal amount of $8,500,000 dated December 15, 1995, as previously filed as an Exhibit to Current Report on Form 8-K dated December 15, 1995. 10(v) Equity Loan Note in the principal amount of $1,039,000 dated December 15, 1995, as previously filed as an Exhibit to Current Report on Form 8-K dated December 15, 1995. 10(w) Subordinated Promissory Note by SCI-ROEV East Haven Land Limited Partnership, dated December 15, 1995, as previously filed as an Exhibit to Current Report on Form 8-K dated December 15, 1995. 10(x) Limited Operating Guaranty between SCI Real Estate Development, Ltd., and Euro General East Haven, Inc., and the Company dated December 15, 1995, as previously filed as an Exhibit to Current Report on Form 8-K dated December 15, 1995. 23(a) Consent of KPMG LLP with respect to incorporation by reference in its report in the Company's Registration Statement on Form S-3 (filed herewith). 37 23(b) Consent of Hidalgo, Banfill, Zlotnick and Kermali, P.C. with respect to incorporation to reference on its report in the Company's Registration Statement on Form S-3 (filed herewith). 38 27 Financial Data Schedule (filed herewith) 39
-34- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (continued)
Sequential Page ---- 99. Additional Exhibits 99(a) The Financial Statements of Cove Apartments, L.L.C., a Limited Liability Company which owns and operates a multifamily housing project known as the Cove Apartments located in Houston, Texas, as required by Staff Accounting Bulletin No. 71 (filed herewith). 40 99(b) The Financial Statements of Oxford Apartments, L.L.C., a Limited Liability Company which owns and operates a multifamily housing project known as the Oxford Apartments located in Houston, Texas, as required by Staff Accounting Bulletin No. 71 (filed herewith). 69 (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter.
-35- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN MORTGAGE INVESTORS TRUST (Registrant) Date: March 30, 1999 By: /s/ J. Michael Fried -------------------- J. Michael Fried Trustee, President, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ J. Michael Fried Trustee, President, Chairman of the - - ------------------------- Board and Chief Executive Officer March 30, 1999 J. Michael Fried /s/ Peter T. Allen Trustee March 30, 1999 - - ------------------------- Peter T. Allen /s/ Arthur P. Fisch Trustee March 30, 1999 - - ------------------------- Arthur P. Fisch /s/ John B. Roche Senior Vice President, - - ------------------------- Chief Financial Officer and John B. Roche Chief Accounting Officer March 30, 1999 /s/ Richard A. Palermo Treasurer March 30, 1999 - - ------------------------- Richard A. Palermo
EX-23.A 2 EXHIBIT 23(a) ACCOUNTANTS' CONSENT The Board of Trustees American Mortgage Investors Trust We consent to incorporation by reference in the registration statement on Form S-3 (No. 33-42481) of American Mortgage Investors Trust of our report dated January 15, 1999 except for Notes 3 and 6 which are as of March 1, 1999, relating to the balance sheets of American Mortgage Investors Trust as of December 31, 1998 and 1997, and the related statements of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998 annual report on Form 10-K of American Mortgage Investors Trust. KPMG LLP New York, New York March 31, 1999 EX-23.B 3 ACCOUNTANT'S CONSENT [Letterhead] Hidalgo, Banfill, Zlotnik & Kermali, P.C. CERTIFIED PUBLIC ACCOUNTANTS (Originally Founded in 1949) March 29, 1999 The Board of Trustees American Mortgage Investors Trust The Board of Directors Related AMI Associates Inc. We consent to the use of our reports dated February 24, 1999, accompanying the Financial Statements and Supplemental Supporting Data for the year ended December 31, 1998 of Oxford Apartments, L.C. and Cove Apartments, L.C. contained in this form 10-K filed by American Mortgage Investors Trust for the year ended December 31, 1998. /s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. Houston, Texas March 29, 1999 EX-27 4
5 The Schedule contains summary financial information extracted from the financial statements for American Mortgage Investors Trust and is qualified in its entirety by reference to such financial statements 0000878774 American Mortgage Investors Trust 1 12-MOS DEC-31-1998 JAN-1-1998 DEC-31-1998 2,953,125 10,303,002 46,864,577 132,387 0 0 0 0 59,993,040 1,788,466 0 0 0 0 58,204,574 59,993,040 0 4,031,515 0 0 634,903 0 0 3,396,612 0 0 0 0 0 3,396,612 .88 .88
EX-99.(A) 5 ADDITIONAL EXHIBITS COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) FINANCIAL STATEMENTS AND SUPPLEMENTAL SUPPORTING DATA FOR THE YEAR ENDED DECEMBER 31, 1998 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) FOR THE YEAR ENDED DECEMBER 31, 1998
Page ---- Independent Auditors' Report 1 Financial Statements: Balance Sheet 2-3 Statement of Profit and Loss 4-5 Statement of Changes in Members' Equity 6 Statement of Cash Flows 7 Notes to Financial Statements 8-10 Supplemental Supporting Data Required by HUD 1l-21
[Letterhead of Hidalgo, Banfill, Zlotnik & Kermali, P.C.] INDEPENDENT AUDITORS' REPORT The Members Cove Apartments, L.C. We have audited the accompanying balance sheet of Cove Apartments, L.C. (a Texas limited liability company) ("the Company"), U.S. Department of Housing and Urban Development ("HUD") Project Number 114-11122-REF, as of December 31, 1998 and the related statements of profit and loss, changes in members' equity and cash flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cove Apartments, L.C. as of December 31, 1998 and the results of its operations, changes in members' equity and 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, we have also issued a report dated February 24, 1999, on our consideration of the Company's internal controls, and reports dated February 24, 1999, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 11-21 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Company. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. Certified Public Accountants February 24, 1999 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) BALANCE SHEET DECEMBER 31, 1998 ASSETS ------ CURRENT ASSETS: 1110 Petty Cash $ 300 1120 Depository account 149,159 1130 Tenant accounts receivable 1,745 1240 Prepaid insurance 45,662 1250 Mortgage insurance 32,637 ---------- Total current assets 229,503 ---------- Deposits Held in Trust - Funded: 1191 Tenant security deposits 56,998 ---------- Restricted Deposits and Funded Reserves: 1310 Mortgage escrow deposits: Property tax escrow 242,451 Insurance escrow 6,860 1320 Reserve for replacements 164,163 ---------- Total restricted deposits and funded reserves 413,474 ---------- Property, Furniture and Equipment 1410 Land 1,354,280 1420 Buildings 5,361,238 1450 Furniture and equipment 454,656 ---------- 7,170,174 Less accumulated depreciation 980,985 ---------- Total property, furniture and equipment 6,189,189 ---------- Other Assets: 1800 Financing and organization costs net of accumulated amortization of $54,599 320,294 ---------- Total Assets $7,209,458 ==========
See accompanying notes to financial statements. 2 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) BALANCE SHEET DECEMBER 31, 1998 LIABILITIES AND MEMBERS' EQUITY ------------------------------ Current Liabilities: 2110 Accounts payable $ 16,919 2120 Accrued wages and payroll taxes payable 3,829 2190 Sale escrow deposits 50,000 2150 Accrued property taxes 217,713 2210 Prepaid rents 3,902 2320 Current portion of mortgage loan payable - Note 2 59,042 ---------- Total current liabilities 351,405 Deposits Liabilities: 2191 Tenant security deposits 51,972 Long-Term Liabilities: 2310 Mortgage loan payable, net of current portion - Note 2 6,504,551 ---------- Total Liabilities 6,907,928 Members' Equity 301,530 ---------- Total Liabilities and Members' Equity $7,209,458 ==========
See accompanying notes to financial statements. 3 Statement of U.S. Department of Housing OMB Approval No. 2502-0052 Profit and Loss and Urban Development (Exp. 9/30/98) Office of Housing Federal Housing Commissioner Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and 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 (2502-0052), 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 Number: Project Name: Beginning: 01/01/98 12/31/98 114-11122-REF COVE APARTMENTS, L.C. - - --------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------ Part I Description of Account Acct. No. Amount* - - ------------------------------------------------------------------------------------------------------------------------------------ Apartments or Member Carrying Charges (Coops) 5120 $2,066,760 ------------------------------------------------------------------------------------------ Tenant Assistance Payments 5121 $ ------------------------------------------------------------------------------------------ Rental Furniture and Equipment 5130 $ ------------------------------------------------------------------------------------------ Income Stores and Commercial 5140 $ ------------------------------------------------------------------------------------------ 5100 Garage and Parking Spaces 5170 $ ------------------------------------------------------------------------------------------ Flexible Subsidy Income 5180 $ ------------------------------------------------------------------------------------------ Miscellaneous (specify) 5190 $ ----------------------------------------------------------------------------------------------------------------- Total Rent Revenue Potential at 100% Occupancy $2,066,760 - - ------------------------------------------------------------------------------------------------------------------------------------ Apartments 5220 (239,198) ------------------------------------------------------------------------------------------ Furniture and Equipment 5230 ------------------------------------------------------------------------------------------ Vacancies Stores and Commercial 5240 ------------------------------------------------------------------------------------------ 5200 Garage and Parking Spaces 5270 ------------------------------------------------------------------------------------------ Miscellaneous (specify) 5290 ----------------------------------------------------------------------------------------------------------------- Total Vacancies (239,198) ----------------------------------------------------------------------------------------------------------------- Not Rental Revenue Rent Revenue Less Vacancies $1,827,562 - - ------------------------------------------------------------------------------------------------------------------------------------ Elderly and Congregate Services Income-5300 Total Service Income (Schedule Attached) 5300 $ - - ------------------------------------------------------------------------------------------------------------------------------------ Interest Income-Project Operations 5410 $ 1,650 ------------------------------------------------------------------------------------------ Financial Income from Investments-Residual Receipts 5430 $ 4,746 ------------------------------------------------------------------------------------------ Revenue Income from Investments-Reserve for Replacement 5440 $ ------------------------------------------------------------------------------------------ 5400 Income from Investments--Miscellaneous 5490 $ ----------------------------------------------------------------------------------------------------------------- Total Financial Revenue $ 6,396 - - ------------------------------------------------------------------------------------------------------------------------------------ Laundry and Vending 5910 $ 14,032 ------------------------------------------------------------------------------------------ NSF and Late Charges 5920 $ 5,992 ------------------------------------------------------------------------------------------ Other Damages and Cleaning Fees 5930 $ 22,252 ------------------------------------------------------------------------------------------ Revenue Forfeited Tenant Security Deposits 5940 $ 12,633 ------------------------------------------------------------------------------------------ 5900 Other Revenue (specify) CREDIT REPORT REIMBURSE 5990 $ 8,525 ----------------------------------------------------------------------------------------------------------------- Total Other Revenue $ 63,434 ----------------------------------------------------------------------------------------------------------------- Total Revenue $1,897,392 - - ------------------------------------------------------------------------------------------------------------------------------------ Advertising 6210 $ 50,641 ------------------------------------------------------------------------------------------ Other Administrative Expense 6250 $ 6,994 ------------------------------------------------------------------------------------------ Office Salaries 6310 $ 88,103 ------------------------------------------------------------------------------------------ Office Supplies 6311 $ 4,882 ------------------------------------------------------------------------------------------ Office or Model Apartment Rent 6312 $ 6,288 ------------------------------------------------------------------------------------------ Administrative Management 6320 $ 75,344 ------------------------------------------------------------------------------------------ Expenses Manager or Superintendent Salaries 6330 $ ------------------------------------------------------------------------------------------ 6200/6300 Manager or Superintendent Rent Free Unit 6331 $ ------------------------------------------------------------------------------------------ Legal Expenses (Project) 6340 $ 5,558 ------------------------------------------------------------------------------------------ Auditing Expenses (Project) 6350 $ 5,000 ------------------------------------------------------------------------------------------ Bookkeeping Fees/Accounting Services 6351 $ 2,500 ------------------------------------------------------------------------------------------ Telephone and Answering Service 6360 $ 6,230 ------------------------------------------------------------------------------------------ Bad Debts 6370 $ ------------------------------------------------------------------------------------------ Miscellaneous Administrative Expenses (specify) 6390 $ 7,641 ----------------------------------------------------------------------------------------------------------------- Total Administrative Expenses $ 259,181 - - ------------------------------------------------------------------------------------------------------------------------------------ Fuel Oil/Coal 6420 $ ------------------------------------------------------------------------------------------ Utilities Electricity (Light and Misc. Power) 6450 $ 29,056 ------------------------------------------------------------------------------------------ Expense Water 6451 $ 23,492 ------------------------------------------------------------------------------------------ 6400 Gas 6452 $ 32,818 ------------------------------------------------------------------------------------------ Sewer 6453 $ ----------------------------------------------------------------------------------------------------------------- Total Utilities Expense $ 85,366 - - ------------------------------------------------------------------------------------------------------------------------------------ All amounts must be rounded to the nearest dollar; $.50 and over, Page 1 of 2 form HUD-92410 (7/91)
- - ------------------------------------------------------------------------------------------------------------------------------------ Janitor and Cleaning Payroll 6510 $ ------------------------------------------------------------------------------------------ Janitor and Clearing Supplies 6515 $ 2,007 ------------------------------------------------------------------------------------------ Janitor and Cleaning Contract 6517 $ ------------------------------------------------------------------------------------------ Exterminating Payroll/Contract 6519 $ 3,293 ------------------------------------------------------------------------------------------ Exterminating Supplies 6520 $ ------------------------------------------------------------------------------------------ Garbage and Trash Removal 6525 $ 10,401 ------------------------------------------------------------------------------------------ Security Payroll/Contract 6530 $ 11,275 ------------------------------------------------------------------------------------------ Grounds Payroll 6535 $ ------------------------------------------------------------------------------------------ Grounds Supplies 6536 $ ------------------------------------------------------------------------------------------ Operating and Grounds Contract 6537 $ 30,121 ------------------------------------------------------------------------------------------ Maintenance Repairs Payroll 6540 $ 87,661 ------------------------------------------------------------------------------------------ Expenses Repairs Material 6541 $ 43,965 ------------------------------------------------------------------------------------------ 6500 Repairs Contract 6542 $ 31,990 ------------------------------------------------------------------------------------------ Elevator Maintenance/Contract 6545 $ ------------------------------------------------------------------------------------------ Heating/Cooling Repairs and Maintenance 6546 $ 5,754 ------------------------------------------------------------------------------------------ Swimming Pool Maintenance/Contract 6547 $ 5,411 ------------------------------------------------------------------------------------------ Snow Removal 6548 $ ------------------------------------------------------------------------------------------ Decorating Payroll/Contract 6560 $ ------------------------------------------------------------------------------------------ Decorating Supplies 6561 $ ------------------------------------------------------------------------------------------ Other 6570 ------------------------------------------------------------------------------------------ Miscellaneous Operating and Maintenance Expenses 6590 $ (35) ----------------------------------------------------------------------------------------------------------------- Total Operating and Maintenance Expenses $ 231,843 - - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate Taxes 6710 $ 224,213 ------------------------------------------------------------------------------------------ Payroll Taxes (FICA) 6711 $ 19,532 ------------------------------------------------------------------------------------------ Miscellaneous Taxes, Licenses and Permits 6719 $ ------------------------------------------------------------------------------------------ Taxes Property and Liability Insurance (Hazard) 6720 $ 66,989 ------------------------------------------------------------------------------------------ and Fidelity Bond Insurance 6721 ------------------------------------------------------------------------------------------ Insurance Workmen's Compensation 6722 $ 16,525 ------------------------------------------------------------------------------------------ 6700 Health Insurance and Other Employee Benefits 6723 $ 13,637 ------------------------------------------------------------------------------------------ Other Insurance (specify) 6729 ----------------------------------------------------------------------------------------------------------------- Total Taxes and Insurance $ 340,896 - - ------------------------------------------------------------------------------------------------------------------------------------ Interest on Bonds Payable 6810 $ ------------------------------------------------------------------------------------------ Interest on Mortgage Payable 6820 $ 502,732 ------------------------------------------------------------------------------------------ Financial Interest on Notes Payable (Long-Term) 6830 $ ------------------------------------------------------------------------------------------ Expenses Interest on Notes Payable (Short-Term) 6840 $ ------------------------------------------------------------------------------------------ 6800 Mortgage Insurance Premium/Service Charge 6850 $ 32,969 ------------------------------------------------------------------------------------------ Miscellaneous Financial Expenses 6890 $ ----------------------------------------------------------------------------------------------------------------- Total Financial Expenses $ 535,701 - - ------------------------------------------------------------------------------------------------------------------------------------ Elderly & Total Service Expenses-Schedule Attached 6900 $ ----------------------------------------------------------------------------------------------------------------- Congregate Total Cost of Operations Before Depreciation $1,452,987 ----------------------------------------------------------------------------------------------------------------- Service Profit (Loss) Before Depreciation $ 444,405 ----------------------------------------------------------------------------------------------------------------- Expenses Depreciation (Total)-6600 (specify) 6600 $ 223,740 ----------------------------------------------------------------------------------------------------------------- 6900 Operating Profit or (Loss) $ 220,665 - - ------------------------------------------------------------------------------------------------------------------------------------ Officer Salaries 7110 $ ------------------------------------------------------------------------------------------ Corporate or Legal Expenses (Entity) 7120 $ ------------------------------------------------------------------------------------------ Mortgagor Taxes (Federal-State-Entity) 7130-32 $ ------------------------------------------------------------------------------------------ Entity Other Expenses (Entity) 7190 $ ----------------------------------------------------------------------------------------------------------------- Expenses Total Corporate Expenses ----------------------------------------------------------------------------------------------------------------- 7100 Net Profit or (Loss) $ 220,665 - - ------------------------------------------------------------------------------------------------------------------------------------
Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expense Sub-account Groups If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense.
- - ------------------------------------------------------------------------------------------------------------------------------------ Part II -------------------------------------------------------------------------------------------------------------------------------- 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage. $ 59,042 -------------------------------------------------------------------------------------------------------------------------------- 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 37,530 -------------------------------------------------------------------------------------------------------------------------------- 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ -------------------------------------------------------------------------------------------------------------------------------- 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ - - ------------------------------------------------------------------------------------------------------------------------------------ All amounts must be rounded to the nearest dollar; $.50 and over, Page 2 of 2 form HUD-92410 (7/91)
COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 Balance, December 31, 1997 $ 282,676 Contributions -- Distributions (201,811) Net Profit for the year 220,665 --------- Balance, December 31, 1998 $ 301,530 =========
See accompanying notes to financial statements. 6 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 Cash Flows from Operating Activities: Net Income $ 220,665 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 223,740 (increase) decrease in: Accounts receivable - tenants (993) Mortgage insurance 308 Prepaid insurance (4,386) Escrow accounts 23,196 Security deposits (1,650) Accounts receivable - other 607 Increase (decrease) in: Accounts payable and accrued liabilities 8,895 Accrued taxes payable (5,581) Deposit liabilities (3,627) Prepaid rents (5,835) --------- 455,339 --------- Cash Flows from Investing Activities: Property improvements (149,393) Sale escrow deposits 50,000 --------- (99,393) --------- Cash Flows from Financing Activities: Mortgage principal payments (54,750) Distributions (201,811) --------- (256,561) --------- Net Increase in Cash 99,385 Cash, Beginning of Year 50,074 --------- Cash, End of Year $ 149,459 ========= Supplemental Disclosures of Cash Flow Information: Interest paid during the year $ 502,732
See accompanying notes to financial statements. 7 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note 1 Organization and Summary of Significant Accounting Policies Organization Cove Apartments, L.C. (the "Company") was organized as a limited liability company on June 25, 1992, under the laws of the State of Texas, for the purpose of acquiring and operating a housing project or projects with the assistance of mortgage insurance under the National Housing Act, Section 223F. Such projects are regulated by the Department of Housing and Urban Development ("HUD"). The Regulatory Agreement limits distributions of net operating income to "surplus cash" available for distribution at the end of a semiannual or annual fiscal period. The Company will terminate June 24, 2032, according to the terms of the Articles of Organization. On December 16, 1993, the members of Cove Apartments, L.C. contributed a 308 unit multifamily project located at 2000 Bay Area Blvd. in Houston, Texas, known as the Cove Apartments (the "Project") and certain other assets to the Company. Concurrently, the Company obtained a mortgage loan in the amount of $6,800,000, collateralized by the Project and other assets. The Project was recorded by the Company at the members' net carrying basis of $6,127,303 which represents cost less accumulated depreciation. The proceeds of the mortgage loan were used to repay the members' existing debt on the Project, fund escrow balances and pay closing costs, all of which were funded at closing and did not flow through the cash accounts of the Company. The aggregate amount of the assets contributed, including the Project and other assets and escrow balances, in excess of the mortgage loan totaled $378,206 and was recorded as a capital contribution. Revenue Recognition The Company recognizes real estate rental revenue in accordance with the terms of the respective leases. Property, Furniture and Equipment Property, furniture and equipment are carried at cost and are depreciated using the straight line method over the estimated useful lives of 5 to 10 years for furniture and equipment and 20 to 40 years for building and building improvements. 8 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note 1 Organization and Summary of Significant Accounting Policies (Continued) Financing Costs Financing costs consist principally of fees incurred in conjunction with obtaining the permanent mortgage loan and are being amortized over the 35-year term of the mortgage loan using the straight-line method. Income Taxes No provision for Federal income taxes is made in the accounts of the Company since taxes on its operations are the obligations of individual members. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 Mortgage Loan Payable The mortgage loan payable to TRI Capital Corporation bears interest at 7.625% and is due in monthly installments of $46,457, including interest, through January 1, 2029. The Company's property and equipment and the various funded reserves collateralize the mortgage loan. Annual principal payments for years subsequent to December 31, 1998 are as follows: Years Ending December 31, Amount ------------------------- ------ 1999 $ 59,042 2000 63,705 2001 68,735 2002 80,020 2003 86,340 Thereafter 6,205,751 ---------- $6,563,593 ========== 9 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note 3 Real Estate Leases At December 31, 1998 approximately 88% of the Project's 308 units were committed under either month-to-month leases or non-cancelable operating leases with terms varying from six to twelve months. Future minimum real estate rental income under the non-cancelable operating leases existing at December 31, 1998, expected during the year ending December 31, 1999 is approximately $552,730. Note 4 Related Party Transactions Operations of the Project are managed by Bradley Apartment Homes ("BAH"), which is affiliated with the members of the Company. Management fees paid to BAH are based on four percent of rents collected. Such fees aggregated $75,344 for the year ended December 31, 1998. At December 31, 1998, the Company had accounts payable to BAH of $2,027 for costs and expenses paid by BAH on behalf of the Company. Note 5 Commitments and Contingencies The Company has reached an agreement with Alliance LH Portfolio Limited Partnership to sell the Cove Apartments and its assets on March 1, 1999 for $10,250,000. At December 31, 1998, the Company had received $50,000 in nonrefundable escrow pertaining to the sale. 10 SUPPLEMENTAL SUPPORTING DATA REQUIRED BY HUD COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD December 31, 1998 Accounts Receivable (other than from regular tenants): None Delinquent Tenant Accounts Receivable:
1998 ------------------------------ Number of Amount Tenants Past Due ------- -------- Delinquent 30 days 7 $ 1,745 Delinquent 31 to 60 days 0 0 Delinquent 61 to 90 days 0 0 Delinquent over 90 days 0 0 ------- -------- 7 $ 1,745 ======= ========
Mortgage Escrow Deposits: Estimated amount required as of December 31, 1998 for future payment of:
1998 ---- Property insurance, 2 months $ 9,132 Mortgage insurance, 11 months 32,637 Real estate taxes, 12 months 217,713 -------- Total 259,482 Amount confirmed by mortgagee 281,948 -------- Amount on deposit in excess of estimated requirements $ 22,466 ========
11 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Reserve for Replacements: In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the TRI Capital Corporation to be used for replacement of property with the approval of HUD as follows: Balance, beginning of period $162,957 Deposits made during period 42,274 Withdrawals made during period (41,068) -------- Balance, end of period $164,163 ========
Accounts Payable (other than to trade creditors): None Compensation of Partners: None from Project funds Changes in Fixed Assets:
Furniture & Land Buildings Equipment Total ---- --------- --------- ----- Cost: ----- December 31, 1997 $1,354,280 $5,266,271 $400,230 $7,020,781 Additions - 94,967 54,426 149,393 Dispositions - - - - ---------- ---------- -------- ---------- December 31, 1998 $1,354,280 $5,361,238 $454,656 $7,170,174 ========== ========== ======== ========== Accumulated Depreciation: ------------------------- December 31, 1997 $ 586,852 $181,109 $ 767,961 Additions 153,398 59,626 213,024 Dispositions - - - ---------- -------- ---------- December 31, 1998 $ 740,250 $240,735 $ 980,985 ========== ======== ==========
12 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Accrued Taxes:
Description of Basis for Period Amount Tax Accrual Covered Date Due Accrued -------------- --------- ------- -------- ------- Clear Creek ISD Tax January 1, 1998 Statement through January 31, 1999 December 31, 1998 $130,688 City of Houston and Tax January 1, 1998 Harris County Statement through January 31, 1999 December 31, 1998 87,025 -------- Total $217,713 ========
Tenant Security Deposits: Tenant security deposits are held in account # 25526-00219 at Bank of America Texas N.A., Houston, Texas. This federally insured account, in the name of the Project, had a balance of $56,998 at December 31, 1998, including earned interest that does not inure to the tenants. Schedule of Unauthorized Distributions of Project Income: None Changes in Ownership Interests: No ownership changes occurred during the period covered by the financial statements. Distributions paid to the members:
Date Declared and Paid Period Covered Amount Declared and Paid - - ---------------------- -------------- ------------------------ February 1998 2nd half 1997 $ 69,300 July 1998 1st half 1998 132,511 -------- $201,811 ========
13 Computation of Surplus Cash, U.8. Department of Housing Distributions and Residual and Urban Development Receipts Office of Housing Federal Housing Commissioner - - -------------------------------------------------------------------------------- Project Name Fiscal Period Ended: Project Number COVE APARTMENTS, L.C. 06/30/98 114-11122-REF - - --------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------- Part A - Compute Surplus Cash - - ----------------------------------------------------------------------------------------------------- Cash - - ----------------------------------------------------------------------------------------------------- 1. Cash (Accounts 1110, 1120, 1191, 1192) $220,369 - - --------------------------------------------------------------------------------------- 2. Tenant subsidy vouchers due for period covered by financial statement $ - - --------------------------------------------------------------------------------------- 3. Other (describe) $ - - ----------------------------------------------------------------------------------------------------- (a) Total Cash (Add Lines 1, 2, and 3) $220,369 - - ----------------------------------------------------------------------------------------------------- Current Obligations - - ----------------------------------------------------------------------------------------------------- 4. Accrued mortgage interest payable $ - - --------------------------------------------------------------------------------------- 5. Delinquent mortgage principal payments $ - - --------------------------------------------------------------------------------------- 6. Delinquent deposits to reserve for replacements $ - - --------------------------------------------------------------------------------------- 7. Accounts payable (due within 30 days) $ - - --------------------------------------------------------------------------------------- 8. Loans and notes payable (due within 30 days) $ - - --------------------------------------------------------------------------------------- 9. Deficient Tax Insurance or MIP Escrow Deposits $ - - --------------------------------------------------------------------------------------- 10. Accrued expenses (not escrowed) $ 25,701 - - --------------------------------------------------------------------------------------- 11. Prepaid Rents (Account 2210) $ 7,238 - - --------------------------------------------------------------------------------------- 12. Tenant security deposits liability (Account 2191) $ 54,919 - - --------------------------------------------------------------------------------------- 13. Other (Describe) $ - - ----------------------------------------------------------------------------------------------------- (b) Less Total Current Obligations (Add Lines 4 through 13) $ 87,858 - - ----------------------------------------------------------------------------------------------------- (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $132,511 - - ----------------------------------------------------------------------------------------------------- Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts - - ----------------------------------------------------------------------------------------------------- 1. Surplus Cash $132,511 - - ----------------------------------------------------------------------------------------------------- Limited Dividend Projects - - ----------------------------------------------------------------------------------------------------- 2a. Annual Distribution Earned During Fiscal Period Covered by the Statement $ - - --------------------------------------------------------------------------------------- 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ - - --------------------------------------------------------------------------------------- 2c. Distributions Paid During Fiscal Period Covered by Statement $ - - --------------------------------------------------------------------------------------- 3. Amount to be Carried on Balance Sheet as Distribution Earned but Unpaid (Line 2a plus 2b minus 2c) $ - - ----------------------------------------------------------------------------------------------------- 4. Amount Available for Distribution During Next Fiscal Period $132,511 - - ----------------------------------------------------------------------------------------------------- 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ - - -----------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------- Prepared By Reviewed By - - -------------------------------------------------------------------------------- Loan Technician Date Loan Servicer Date - - -------------------------------------------------------------------------------- Page 1 of 2 form HUD-93486 (12-80) Computation of Surplus Cash, U.S. Department of Housing Distributions and Residual and Urban Development Receipts Office of Housing Federal Housing Commissioner - - -------------------------------------------------------------------------------- Project Name Fiscal Period Ended: Project Number COVE APARTMENTS, L.C. 12/31/98 114-11122-REF - - --------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------- Part A - Compute Surplus Cash - - ----------------------------------------------------------------------------------------------------- Cash - - ----------------------------------------------------------------------------------------------------- 1. Cash (Accounts 1110, 1120, 1191, 1192) $206,457 - - --------------------------------------------------------------------------------------- 2. Tenant subsidy vouchers due for period covered by financial statement $ - - --------------------------------------------------------------------------------------- 3. Other (describe) $ - - ----------------------------------------------------------------------------------------------------- (a) Total Cash (Add Lines 1, 2, and 3) $206,457 - - ----------------------------------------------------------------------------------------------------- Current Obligations - - ----------------------------------------------------------------------------------------------------- 4. Accrued mortgage interest payable $ - - --------------------------------------------------------------------------------------- 5. Delinquent mortgage principal payments $ - - --------------------------------------------------------------------------------------- 6. Delinquent deposits to reserve for replacements $ - - --------------------------------------------------------------------------------------- 7. Accounts payable (due within 30 days) $ - - --------------------------------------------------------------------------------------- 8. Loans and notes payable (due within 30 days) $ - - --------------------------------------------------------------------------------------- 9. Deficient Tax Insurance or MIP Escrow Deposits $ - - --------------------------------------------------------------------------------------- 10. Accrued expenses (not escrowed) $ 70,748 - - --------------------------------------------------------------------------------------- 11. Prepaid Rents (Account 2210) $ 3,902 - - --------------------------------------------------------------------------------------- 12. Tenant security deposits liability (Account 2191) $ 51,972 - - --------------------------------------------------------------------------------------- 13. Other (Describe) $ - - ----------------------------------------------------------------------------------------------------- (b) Less Total Current Obligations (Add Lines 4 through 13) $126,622 - - ----------------------------------------------------------------------------------------------------- (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ 79,835 - - ----------------------------------------------------------------------------------------------------- Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts - - ----------------------------------------------------------------------------------------------------- 1. Surplus Cash $212,346 - - ----------------------------------------------------------------------------------------------------- Limited Dividend Projects - - ----------------------------------------------------------------------------------------------------- 2a. Annual Distribution Earned During Fiscal Period Covered by the Statement $ - - --------------------------------------------------------------------------------------- 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ - - --------------------------------------------------------------------------------------- 2c. Distributions Paid During Fiscal Period Covered by Statement $132,511 - - --------------------------------------------------------------------------------------- 3. Amount to be Carried on Balance Sheet as Distribution Earned but Unpaid (Line 2a plus 2b minus 2c) $ 79,835 - - ----------------------------------------------------------------------------------------------------- 4. Amount Available for Distribution During Next Fiscal Period $ 79,835 - - ----------------------------------------------------------------------------------------------------- 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ - - -----------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------- Prepared By Reviewed By - - -------------------------------------------------------------------------------- Loan Technician Date Loan Servicer Date - - -------------------------------------------------------------------------------- Page 1 of 2 form HUD-93486 (12-80) COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998
Statement of Receipts and Disbursements: Source of Funds: Revenues: Rental income, net $1,827,562 Financial 6,396 Other income 63,434 ---------- 1,897,392 ---------- Expenses: Administrative 183,837 Management fees 75,344 Utilities 85,366 Operating 23,683 Maintenance 120,499 Maintenance payroll 87,661 Real estate taxes 224,213 Other taxes 19,532 Insurance 80,626 Workers' compensation 16,525 Mortgage insurance 32,969 Mortgage interest 502,732 ---------- 1,452,987 ---------- Cash provided by operations before principal payments and changes in assets and liabilities 444,405 Principal payments 54,750 ---------- Cash provided by operations before changes in assets and liabilities 389,655
16 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998
Statement of Receipts and Disbursements (Continued) Application of Funds: (Increase) decrease in: Accounts receivable - tenants (993) Accounts receivable - other 607 Prepaid insurance (4,386) Security deposits (1,650) Escrow accounts 23,196 Mortgage insurance 308 Increase (decrease) in: Accounts payable and accrued liabilities 8,895 Sale escrow deposits 50,000 Accrued taxes payable (5,581) Deposit and prepayment liabilities (9,462) Additions to property (149,393) Surplus cash distributions (201,811) --------- Increase in cash 99,385 Unrestricted cash, beginning period 50,074 --------- Unrestricted cash, end of period $ 149,459 =========
17 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD December 31, 1998
Schedule of Funds in Financial Institutions as of December 31, 1998: Funds Held by Mortgagor, Regular Operating Account: Chase Bank of Texas, (checking)(1) $259,589 Funds Held by Mortgagor in Trust, Tenant Security Deposits: Bank of America(2) 56,998 Funds Held by Mortgagee, (in Trust): Reserve for Replacements(3) Sanwa Bank, (checking) 3.5% $164,163 Mortgage Insurance Escrow(3), Sanwa Bank 32,637 Property Tax Escrow(3), Sanwa Bank 242,451 Property Insurance Escrow(3), Sanwa Bank 6,860 -------- Funds Held by Mortgagee 446,111 -------- Total Funds in Financial Institutions $762,698 ========
(1) Balances confirmed by Chase Bank of Texas (2) Balances confirmed by Bank of America (3) Balances confirmed by TRI 18 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Listing of Identity of Interest Companies and Activities Doing Business with Owner/Agent during the year ended December 31, 1998
Company Name Type of Service Amount Received ------------ --------------- --------------- Bradley Apartment Homes Property Management $75,344
19 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Certification of Members DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT We hereby certify that we have examined the foregoing financial statements of Cove Apartments, L.C. Project Number 114-11122-REF, and, to the best of our knowledge and belief, the same is complete and accurate. /s/ Tim Myers /s/ Al Bradley, Jr. - - ------------- ------------------- Tim Myers Al Bradley, Jr. President Vice-President 3/17/99 3/17/99 - - ------------- ------------------- Date Date Limited Liability Company Identification Number 76-0372786 19 COVE APARTMENTS, L.C. (HUD Project Number 114-11122-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Management Agent's Certification DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT We hereby certify that we have examined the foregoing financial statements of Cove Apartments, L.C. Project Number 114-11122-REF, and, to the best of our knowledge and belief, the same is complete and accurate. /s/ Gene R. Blevins /s/ Al Bradley, Jr. - - ------------------------------ ------------------------------ Gene R. Blevins Al Bradley, Jr. President Chairman Allied Development Corporation Allied Development Corporation dba, Bradley Apartment Homes dba, Bradley Apartment Homes /s/ 3/16/99 /s/ 3/17/99 - - ------------------------------ ------------------------------ Date Date Allied Development Corporation Identification Number 76-0156150 20 [LETTERHEAD OF HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] February 24, 1999 To the Department of Housing and Urban Development Attached is the financial report of Cove Apartments, L.C. (HUD Project No. 114-11122-REF) for the year ended December 31, 1998. /s/ HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. Certified Public Accountants Houston, Texas Employer Identification No.: 74-1716599 Engagement Partner: Mr. Naushad Kermali 4925 San Felipe, #220 Houston, TX 77027 (713) 963-8008 [LETTERHEAD OF HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROLS (COMBINED REPORT APPLICABLE TO THE FINANCIAL STATEMENTS AND HUD-ASSISTED PROGRAMS) To Members Cove Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11122-REF Cove Apartments, L.C. (the "Company"), for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. We have also audited the Company's compliance with requirements applicable to major HUD-assisted programs and have issued our report thereon dated February 24, 1999. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. 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 misstatements and about whether the Company complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Cove Apartments, L.C. 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 internal controls 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. To Members Cove Apartments, L.C. Page 2 In planning and performing our audits, we obtained an understanding of the design of relevant internal controls and determined whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinions on the Company's financial statements and on its compliance with specific requirements applicable to its major HUD-assisted programs and to report on internal controls in accordance with the provisions of the Guide and not to provide any assurance on internal controls. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal controls that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Company's major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal controls would not necessarily disclose all matters in internal controls 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 risk that errors or irregularities in the 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 internal controls and their operations that we consider to be material weaknesses as defined above. This report is intended for the information of audit committee, 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999 [LETTERHEAD OF HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS The Members Cove Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11122-REF, Cove Apartments L.C. (the "Company") as of and for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. In addition, we have audited the Company's compliance with the specific program requirements governing mortgage status, replacement reserve, security deposits and cash receipts and disbursements that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1998. The management of the Cove Apartments, L.C. 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 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 we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Company's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed no instances of noncompliance with the requirements referred to above, that are required to be reported herein. In our opinion, the Cove Apartments, L.C. complied, in all material respects, with the requirements governing Section 207 pursuant to Section 223(f) of the National Housing Act that are applicable to each of its HUD-assisted programs for the year ended December 31, 1998. This report is intended for the information of 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999 [LETTERHEAD OF HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To Members Cove Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11122-REF, Cove Apartments, L.C. (the "Company") as of and for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. We have applied procedures to test the Company's compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted programs for the year ended December 31, 1998. Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs 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 would be the expression of an opinion on the Company's compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999 EX-99.(B) 6 FINANCIAL STATEMENTS OF OXFORD APARTMENTS, L.L.C. Exhibit 99(b) OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) FINANCIAL STATEMENTS AND SUPPLEMENTAL SUPPORTING DATA FOR THE YEAR ENDED DECEMBER 31, 1998 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) FOR THE YEAR ENDED DECEMBER 31, 1998 Page Independent Auditors' Report 1 Financial Statements: Balance Sheet 2 - 3 Statement of Profit and Loss 4 - 5 Statement of Changes in Members' Equity 6 Statement of Cash Flows 7 Notes to Financial Statements 8 - 10 Supplemental Supporting Data Required by HUD 11 - 21 [Letterhead of HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT The Members Oxford Apartments, L.C. We have audited the accompanying balance sheet of Oxford Apartments, L.C. (a Texas limited liability company) (the "Company"), U.S. Department of Housing and Urban Development ("HUD") Project Number 114-11123-REF, as of December 31, 1998 and the related statements of profit and loss, changes in members' equity and cash flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oxford Apartments, L.C. as of December 31, 1998 and the results of its operations, changes in members' equity and 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, we have also issued a report dated February 24, 1999, on our consideration of the Company's internal controls, and reports dated February 24, 1999, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 11-21 are presented for purposes of additional analysis and is not a required part of the basic financial statements of the Company. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. Certified Public Accountants February 24, 1999 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) BALANCE SHEET DECEMBER 31, 1998 ASSETS ------ CURRENT ASSETS: 1110 Petty Cash $ 400 1120 Depository account 235,934 1130 Tenant accounts receivable 838 1900 Deposits 1,857 1240 Prepaid insurance 33,504 1250 Mortgage insurance 44,908 ---------- Total current assets 317,441 ---------- Deposits Held in Trust - Funded: 1191 Tenant security deposits 74,440 ---------- Restricted Deposits and Funded Reserves: 1310 Mortgage escrow deposits: Property tax escrow 271,284 Insurance escrow 14,362 1320 Reserve for replacements 428,747 ---------- Total restricted deposits and funded reserves 714,393 ---------- Property, Furniture and Equipment 1410 Land 2,304,054 1420 Buildings 6,764,716 1450 Furniture and equipment 599,922 ---------- 9,668,692 Less accumulated depreciation 2,327,811 ---------- Total property, furniture and equipment 7,340,881 ---------- Other Assets: 1800 Financing and organization costs net of accumulated amortization of $72,022 426,928 ---------- Total Assets $8,874,083 ==========
See accompanying notes to financial statements. 2 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) BALANCE SHEET DECEMBER 31, 1998 LIABILITIES AND MEMBERS' EQUITY ------------------------------- Current Liabilities: 2110 Accounts payable 31,546 2120 Accrued wages and payroll taxes payable 4,370 2190 Sale escrow receipts 50,000 2150 Accrued property taxes 256,190 2210 Prepaid rents 17,672 2320 Current portion of mortgage loan payable - Note 2 81,182 ----------- Total current liabilities 440,960 Deposits Liabilities: 2191 Tenant security deposits 74,965 Long-Term Liabilities: 2310 Mortgage loan payable, net of current portion - Note 2 8,943,758 ----------- Total Liabilities 9,459,683 Members' Equity (Deficit) (585,600) ----------- Total Liabilities and Members' Equity $ 8,874,083 ===========
See accompanying notes to financial statements. 3 Statement of U.S. Department of Housing OMB Approval No. 2502-0052 Profit and Loss and Urban Development (Exp. 9/30/98) Office of Housing Federal Housing Commissioner Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and 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 (2502-0052). 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 Number: Project Name: Beginning: 01/01/98 12/31/98 114-11123-REF OXFORD APARTMENTS, L.C. - - ---------------------------------------------------------------------------------------------------------- Part I Description of Account Acct. No. Amount* - - ---------------------------------------------------------------------------------------------------------- Apartments or Member Carrying Charges (Coops) 5120 $2,817,300 Tenant Assistance Payments 5121 $ Rental Furniture and Equipment 5130 $ Income Stores and Commercial 5140 $ 5100 Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenue Potential at 100% Occupancy $2,817,300 - - ---------------------------------------------------------------------------------------------------------- Apartments 5220 ( 253,202) Furniture and Equipment 5230 ( ) Vacancies Stores and Commercial 5240 ( ) 5200 Garage and Parking Spaces 5270 ( ) Miscellaneous (specify) 5290 ( ) Total Vacancies (253,202) Net Rental Revenue Rent Revenue Less Vacancies $2,564,098 - - ---------------------------------------------------------------------------------------------------------- Elderly and Congregate Services Income-5300 Total Service Income (Schedule Attached) 5300 $ - - ---------------------------------------------------------------------------------------------------------- Interest Income-Project Operations 5410 $ 1,988 Income from Investments-Residual Receipts 5430 $ Financial Income from Investments-Reserve for Replacement 5440 $ 12,711 Revenue Income from Investments-Miscellaneous 5490 $ 5400 Total Financial Revenue $ 14,699 - - ---------------------------------------------------------------------------------------------------------- Laundry and Vending 5910 $ 40,557 NSF and Late Charges 5920 $ 6,866 Other Damages and Cleaning Fees 5930 $ 21,994 Revenue Forfeited Tenant Security Deposits 5940 $ 14,348 5900 Other Revenue (specify) CREDIT REPORT REIMBURSE 5990 $ 10,111 Total Other Revenue $ 93,876 Total Revenue $2,672,673 - - ---------------------------------------------------------------------------------------------------------- Advertising 6210 $ 76,145 Other Administrative Expense 6250 $ 12,485 Office Salaries 6310 $ 124,489 Office Supplies 6311 $ 10,542 Office or Model Apartment Rent 6312 $ 13,225 Administrative Management 6320 $ 106,417 Expenses Manager or Superintendent Salaries 6330 $ 6200/6300 Manager or Superintendent Rent Free Unit 6331 $ Legal Expenses (Project) 6340 $ 5,181 Auditing Expenses (Project) 6350 $ 5,000 Bookkeeping Fees/Accounting Services 6351 $ 2,500 Telephone and Answering Service 6360 $ 9,512 Bad Debts 6370 $ Miscellaneous Administrative Expenses (specify) 6390 $ 8,244 Total Administrative Expenses $ 373,740 - - ---------------------------------------------------------------------------------------------------------- Fuel Oil/Coal 6420 $ Utilities Electricity (Light and Misc. Power) 6450 $ 46,315 Expense Water 6451 $ 93,483 6400 Gas 6452 $ 35,034 Sewer 6453 $ Total Utilities Expense $ 174,832 - - ----------------------------------------------------------------------------------------------------------
* All amounts must be rounded to the nearest dollar; $.50 and over. Page 1 of 2 form HUD-92410 (7/91) ref Handbook 4370.2 - - ---------------------------------------------------------------------------------------------------------- Janitor and Cleaning Payroll 6510 $ Janitor and Cleaning Supplies 6515 $ 3,807 Janitor and Cleaning Contract 6517 $ Exterminating Payroll/Contract 6519 $ 6,399 Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 10,878 Security Payroll/Contract 6530 $ 24,858 Grounds Payroll 6535 $ Grounds Supplies 6536 $ Operating and Grounds Contract 6537 $ 31,476 Maintenance Repairs Payroll 6540 $ 139,772 Expenses Repairs Material 6541 $ 60,010 6500 Repairs Contract 6542 $ 39,939 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 6,232 Swimming Pool Maintenance/Contract 6547 $ 1,995 Snow Removal 6548 $ Decorating Payroll/Contract 6560 $ Decorating Supplies 6561 $ Other 6570 $ Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $ 325,366 - - ---------------------------------------------------------------------------------------------------------- Real Estate Taxes 6710 $ 256,190 Payroll Taxes (FICA) 6711 $ 29,828 Miscellaneous Taxes, Licenses and Permits 6719 $ Taxes Property and Liability Insurance (Hazard) 6720 $ 41,827 and Fidelity Bond Insurance 6721 Insurance Workmen's Compensation 6722 $ 25,235 6700 Health Insurance and Other Employee Benefits 6723 $ 20,134 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ $ 373,214 - - ---------------------------------------------------------------------------------------------------------- Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 691,257 Financial Interest on Notes Payable (Long-Term) 6830 $ Expenses Interest on Notes Payable (Short-Term) 6840 $ 6800 Mortgage Insurance Premium/Service Charge 6850 $ 45,300 Miscellaneous Financial Expenses 6890 $ Total Financial Expenses $ 736,557 - - ---------------------------------------------------------------------------------------------------------- Elderly & Total Service Expenses--Schedule Attached 6900 $ Congregate Total Cost of Operations Before Depreciation $1,983,709 Service Profit (Loss) Before Depreciation $ 688,964 Expenses Depreciation (Total)--6600 (specify) 6600 $ 499,407 6900 Operating Profit or (Loss) $ 189,557 - - ---------------------------------------------------------------------------------------------------------- Officer Salaries 7110 $ Corporate or Legal Expenses (Entity) 7120 $ Mortgagor Taxes (Federal-State-Entity) 7130-32 $ Entity Other Expenses (Entity) 7190 $ Expenses Total Corporate Expenses $ 7100 Net Profit or (Loss) $ 189,557 - - ---------------------------------------------------------------------------------------------------------- Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expense Sub-account Groups If miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. - - ---------------------------------------------------------------------------------------------------------- Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under the mortgage. $ 81,182 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 48,892 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement. $ -- 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ --
* All amounts must be rounded to the nearest dollar; $.50 and over. Page 2 of 2 form HUD-92410 (7/91) ref Handbook 4370.2 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 Balance, December 31, 1997 $(468,960) Contributions -- Distributions (306,197) Net profit for the year 189,557 --------- Balance, December 31, 1998 $(585,600) ========= See accompanying notes to financial statements. 6 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 Cash Flows from Operating Activities: Net Income $ 189,557 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 499,407 (Increase) decrease in: Accounts receivable - tenants 1,539 Mortgage insurance 392 Prepaid insurance 1,600 Escrow accounts (71,872) Security deposits (1,988) Increase (decrease) in: Accounts payable and accrued liabilities (60,265) Accrued taxes payable 6,771 Deposit liabilities 936 Prepaid rents 552 --------- 566,629 --------- Cash Flows from Investing Activities: Property improvements (343,642) Sale escrow receipts 50,000 --------- (293,642) --------- Cash Flows from Financing Activities: Mortgage principal payments (75,282) Distributions (306,197) --------- (381,479) --------- Net Decrease in Cash (108,492) Cash, Beginning of Year 344,826 --------- Cash, End of Year $ 236,334 ========= Supplemental Disclosures of Cash Flow Information: Interest paid during the year $ 691,257
See accompanying notes to financial statements. 7 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note I Organization and Summary of Significant Accounting Policies Organization Oxford Apartments, L.C. (the "Company") was organized as a limited liability company on June 25, 1992, under the laws of the State of Texas, for the purpose of acquiring and operating a housing project or projects with the assistance of mortgage insurance under the National Housing Act, Section 223F. Such projects are regulated by the Department of Housing and Urban Development ("HUD"). The Regulatory Agreement limits distributions of net operating income to "surplus cash" available for distribution at the end of a semiannual or annual fiscal period. The Company will terminate June 24, 2032, according to the terms of the Articles of Organization. On December 16, 1993, the members of Oxford Apartments, L.C. contributed a 405 unit multifamily project located at 2815 Greenridge in Houston, Texas, known as the Oxford Apartments (the "Project") and certain other assets to the Company. Concurrently, the Company obtained a mortgage loan in the amount of $9,350,000, collateralized by the Project and other assets. The Project was recorded by the company at the members' net carrying basis of $8,614,164 which represents cost less accumulated depreciation. The proceeds of the mortgage loan were used to repay the members' existing debt on the Project, fund escrow balances and pay closing costs, all of which were funded at closing and did not flow through the cash accounts of the Company. The aggregate amount of the assets contributed, including the Project and other assets and escrow balances, in excess of the mortgage loan totaled $484,789 and was recorded as a capital contribution. Revenue Recognition The Company recognizes real estate rental revenue in accordance with the terms of the respective leases. Property, Furniture and Equipment Property, furniture and equipment are carried at cost and are depreciated using the straight line method over the estimated useful lives of 5 to 10 years for furniture and equipment and 20 to 40 years for building and building improvements. 8 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note I Organization and Summary of Significant Accounting Policies (Continued) Financing Costs Financing costs consist principally of fees incurred in conjunction with obtaining the permanent mortgage loan and are being amortized over the 35 year term of the mortgage loan using the straight-line method. Income Taxes No provision for Federal income taxes is made in the accounts of the Company since taxes on its operations are the obligations of individual members. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 Mortgage Loan Payable The mortgage loan payable to TRI Capital Corporation bears interest at 7.625% and is due in monthly installments of $63,878, including interest, through January 1, 2029. The Company's property and equipment and the various funded reserves collateralize the mortgage loan. Annual principal payments for years subsequent to December 31, 1998 are as follows: Years Ending December 31, Amount ------------------------- ---------- 1999 $ 81,182 2000 87,594 2001 94,511 2002 101,975 2003 110,028 Thereafter 8,549,650 ---------- $9,024,940 ========== 9 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 Note 3 Real Estate Leases At December 31, 1998 approximately 92% of the Project's 405 units were committed under either month-to-month leases or non-cancelable operating leases with terms varying from six to twelve months. Future minimum real estate rental income under the non-cancelable operating leases existing at December 31, 1998, expected during the year ending December 31, 1999 is approximately $779,611. Note 4 Related Party Transactions Operations of the Project are managed by Bradley Apartment Homes ("BAH"), which is affiliated with the members of the Company. Management fees paid to BAH are based on four percent of rents collected. Such fees aggregated $106,417 for the year ended December 31, 1998. At December 31, 1998, the Company had accounts payable to BAH of $2,430 for costs and expenses paid by BAH on behalf of the Company. Consulting services related to contracting for repair/replacement expenditures on the Project were provided during the year by Allied Construction services, which is also affiliated with the members of Oxford Apartments, L.C. Consulting fees paid to Allied Construction during the year ended December 31, 1998 aggregated $22,732 and were calculated on a percentage of the repair/replacement cost basis. Note 5 Commitments and Contingencies The Company has reached an agreement with Alliance LH Portfolio Limited Partnership to sell the Oxford Apartments and its assets on March 1, 1999 for $15,250,000.00. At December 31, 1998, the Company had received $50,000 in non-refundable escrows pertaining to the sale. 10 SUPPLEMENTAL SUPPORTING DATA REQUIRED BY HUD OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD December 31, 1998 Accounts Receivable (other than from regular tenants): None Delinquent Tenant Accounts Receivable:
1998 ------------------------ Number of Amount Tenants Past Due --------- -------- Delinquent 30 days 4 $ 838 Delinquent 31 to 60 days 0 0 Delinquent 61 to 90 days 0 0 Delinquent over 90 days 0 0 --------- ------- 4 $ 838 ========= ======= Mortgage Escrow Deposits: Estimated amount required as of December 31, 1998 for future payment of: 1998 -------- Property insurance, 2 months $ 6,701 mortgage insurance, 12 months 44,908 Real estate taxes, 12 months 256,189 -------- Total 307,798 Amount confirmed by mortgagee 330,553 -------- Amount on deposit in excess of estimated requirements 22,755 ========
11 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Reserve for Replacements: In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the TRI Capital Corporation to be used for replacement of property with the approval of HUD as follows: Balance, beginning of period $367,143 Deposits made during period 61,604 Withdrawals made during period -- -------- Balance, end of period $428,747 ======== Accounts Payable (other than to trade creditors): None Compensation of Partners: None from Project funds Changes in Fixed Assets:
Furniture & Land Buildings Equipment Total ---------- ---------- ----------- ---------- Cost: December 31, 1997 $2,304,054 $6,505,291 $ 515,706 $9,325,051 Additions -- 259,425 84,216 343,641 Dispositions -- -- -- -- ---------- ---------- ---------- ---------- December 31, 1998 $2,304,054 $6,764,716 $ 599,922 $9,668,692 ========== ========== ========== ========== Accumulated Depreciation: December 31, 1997 $1,589,354 $ 253,306 1,842,660 Additions 401,545 83,606 485,151 Dispositions -- -- -- ---------- ---------- ---------- December 31, 1998 $1,990,899 $ 336,912 $2,327,811 ========== ========== ==========
12 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998
Accrued Taxes: Description of Basis for Period Amount Tax Accrual Covered Date Due Accrued - - ------------------ --------- ----------------- ---------------- --------- Houston ISD Tax January 1, 1998 Statement through January 31, 1999 December 31, 1998 $ 131,706 City of Houston and Tax January 1, 1998 Harris County Statement through January 31, 1999 December 31, 1998 124,483 --------- Total $ 256,189 =========
Tenant Security Deposits: Tenant security deposits are held in account #25523-00220 at Bank of America Texas N.A., Houston, Texas. This federally insured account, in the name of the Project, had a balance of $74,440 at December 31, 1998, including earned interest that does not inure to the tenants. Schedule of Unauthorized Distributions of Project Income: None Changes in Ownership Interests: No ownership changes occurred during the period covered by the financial statements. Distributions paid to the members:
Date Declared and Paid Period Covered Amount Declared and Paid - - ---------------------- -------------- ------------------------ February 1998 2nd half 1997 $229,947 July 1998 1st half 1998 $ 76,250 -------- $306,197 ========
13 Computation of Surplus Cash, U.S. Department of Housing Distributions and Residual and Urban Development Receipts Office of Housing Federal Housing Commissioner
Project Name Fiscal Period Ended: Project Number OXFORD APARTMENTS, L.C. 06/30/98 114-11123-REF - - -------------------------------------------------------------------------------------------------------------------------- Part A - Compute Surplus Cash - - -------------------------------------------------------------------------------------------------------------------------- Cash - - -------------------------------------------------------------------------------------------------------------------------- 1. Cash (Accounts 1110, 1120, 1191, 1192) $ 317,054 - - ---------------------------------------------------------------------------------------------------- 2. Tenant subsidy vouchers due for period covered by financial statement $ - - ---------------------------------------------------------------------------------------------------- 3. Other (describe) $ - - -------------------------------------------------------------------------------------------------------------------------- (a) Total Cash (Add Lines 1, 2, and 3) $317,054 - - -------------------------------------------------------------------------------------------------------------------------- Current Obligations - - ---------------------------------------------------------------------------------------------------- 4. Accrued mortgage interest payable $ - - ---------------------------------------------------------------------------------------------------- 5. Delinquent mortgage principal payments $ - - ---------------------------------------------------------------------------------------------------- 6. Delinquent deposits to reserve for replacements $ - - ---------------------------------------------------------------------------------------------------- 7. Accounts payable (due within 30 days) $ - - ---------------------------------------------------------------------------------------------------- 8. Loans and notes payable (due within 30 days) $ - - ---------------------------------------------------------------------------------------------------- 9. Deficient Tax Insurance or MIP Escrow Deposits $ - - ---------------------------------------------------------------------------------------------------- 10. Accrued expenses (not escrowed) $ 145,905 - - ---------------------------------------------------------------------------------------------------- 11. Prepaid Rents (Account 2210) $ 17,256 - - ---------------------------------------------------------------------------------------------------- 12. Tenant security deposits liability (Account 2191) $ 77,643 - - ---------------------------------------------------------------------------------------------------- 13. Other (Describe) $ - - -------------------------------------------------------------------------------------------------------------------------- (b) Less Total Current Obligations (Add Lines 4 through 13) $ 240,804 - - -------------------------------------------------------------------------------------------------------------------------- (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ 76,250 ========================================================================================================================== Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts - - -------------------------------------------------------------------------------------------------------------------------- 1. Surplus Cash $ 76,250 - - -------------------------------------------------------------------------------------------------------------------------- Limited Dividend Projects - - ---------------------------------------------------------------------------------------------------- 2a. Annual Distribution Earned During Fiscal Period Covered by the Statement $ - - ---------------------------------------------------------------------------------------------------- 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ - - ---------------------------------------------------------------------------------------------------- 2c. Distributions Paid During Fiscal Period Covered by Statement $ - - ---------------------------------------------------------------------------------------------------- 3. Amount to be Carried on Balance Sheet as Distribution Earned but Unpaid (Line 2a plus 2b minus 2c) $ - - -------------------------------------------------------------------------------------------------------------------------- 4. Distribution During Next Fiscal Period $ 76,250 - - -------------------------------------------------------------------------------------------------------------------------- 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ ========================================================================================================================== Prepared By Reviewed By - - -------------------------------------------------------------------------------------------------------------------------- Loan Technician Date Loan Servicer Date
Page 1 of 2 form HUD-93486 (12-80) 14 Computation of Surplus Cash, U.S. Department of Housing Distributions and Residual and Urban Development Receipts Office of Housing Federal Housing Commissioner
Project Name Fiscal Period Ended: Project Number OXFORD APARTMENTS, L.C. 12/31/98 114-11123-REF - - -------------------------------------------------------------------------------------------------------------------------- Part A - Compute Surplus Cash - - -------------------------------------------------------------------------------------------------------------------------- Cash - - -------------------------------------------------------------------------------------------------------------------------- 1. Cash (Accounts 1110, 1120, 1191, 1192) $ 310,774 - - ---------------------------------------------------------------------------------------------------- 2. Tenant subsidy vouchers due for period covered by financial statement $ - - ---------------------------------------------------------------------------------------------------- 3. Other (describe) $ - - -------------------------------------------------------------------------------------------------------------------------- (a) Total Cash (Add Lines 1, 2, and 3) $310,774 - - -------------------------------------------------------------------------------------------------------------------------- Current Obligations - - ---------------------------------------------------------------------------------------------------- 4. Accrued mortgage interest payable $ - - ---------------------------------------------------------------------------------------------------- 5. Delinquent mortgage principal payments $ - - ---------------------------------------------------------------------------------------------------- 6. Delinquent deposits to reserve for replacements $ - - ---------------------------------------------------------------------------------------------------- 7. Accounts payable (due within 30 days) $ - - ---------------------------------------------------------------------------------------------------- 8. Loans and notes payable (due within 30 days) $ - - ---------------------------------------------------------------------------------------------------- 9. Deficient Tax Insurance or MIP Escrow Deposits $ - - ---------------------------------------------------------------------------------------------------- 10. Accrued expenses (not escrowed) $ 85,916 - - ---------------------------------------------------------------------------------------------------- 11. Prepaid Rents (Account 2210) $ 17,673 - - ---------------------------------------------------------------------------------------------------- 12. Tenant security deposits liability (Account 2191) $ 74,965 - - ---------------------------------------------------------------------------------------------------- 13. Other (Describe) $ - - -------------------------------------------------------------------------------------------------------------------------- (b) Less Total Current Obligations (Add Lines 4 through 13) $ 178,554 - - -------------------------------------------------------------------------------------------------------------------------- (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ 132,220 ========================================================================================================================== Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts - - -------------------------------------------------------------------------------------------------------------------------- 1. Surplus Cash $ 208,470 - - -------------------------------------------------------------------------------------------------------------------------- Limited Dividend Projects - - ---------------------------------------------------------------------------------------------------- 2a. During Fiscal Period Covered by the Statement $ - - ---------------------------------------------------------------------------------------------------- 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ - - ---------------------------------------------------------------------------------------------------- 2c. Distributions Paid During Fiscal Period Covered by Statement $ 76,250 - - ---------------------------------------------------------------------------------------------------- 3. Amount to be Carried on Balance Sheet as Distribution Earned but Unpaid (Line 2a plus 2b minus 2c) $ 132,220 - - -------------------------------------------------------------------------------------------------------------------------- 4. Distribution During Next Fiscal Period $ 132,220 - - -------------------------------------------------------------------------------------------------------------------------- 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ ========================================================================================================================== Prepared By Reviewed By - - -------------------------------------------------------------------------------------------------------------------------- Loan Technician Date Loan Servicer Date
Page 1 of 2 form HUD-93486 (12-80) 15 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Statement of Receipts and Disbursements: Source of Funds: Revenues: Rental income, net $2,564,098 Financial 14,699 Other income 93,876 ---------- 2,672,673 ---------- Expenses: Administrative 267,323 Management fees 106,417 Utilities 174,831 Operating 39,543 Maintenance 146,052 Maintenance payroll 139,772 Real estate taxes 256,190 Other taxes 29,828 Insurance 61,961 Workers' compensation 25,235 Mortgage insurance 45,300 Mortgage interest 691,257 ---------- 1,983,709 ---------- Cash provided by operations before principal payments and changes in assets and liabilities 688,964 Principal payments 75,282 ---------- Cash provided by operations before changes in assets and liabilities 613,682
16 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Statement of Receipts and Disbursements (Continued) Application of Funds: (Increase) decrease in: Accounts receivable - tenants $ 1,539 Prepaid insurance 1,600 Security deposits (1,988) Escrow accounts (71,872) Mortgage insurance 392 Increase (decrease) in: Accounts payable and accrued liabilities (60,265) Accrued taxes payable 6,770 Deposit and prepayment liabilities 1,489 Sale escrow deposits 50,000 Additions to Property (343,642) Surplus Cash Distributions (306,197) --------- Decrease in cash (108,492) Unrestricted cash, beginning period 344,826 --------- Unrestricted cash, end of period $ 236,334 =========
17 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD December 31, 1998 Schedule of Funds in Financial Institutions as of December 31, 1998: Funds Held by Mortgagor, Regular Operating Account: Chase Bank of Texas, (checking)(1) $ 443,743 Funds Held by Mortgagor in Trust, Tenant Security Deposits: Bank of America(2) 74,605 Funds Held by Mortgagee, (in Trust): Reserve for Replacements(3) Sanwa Bank, (checking) 3.5% $ 428,747 Mortgage Insurance Escrow(3), Sanwa Bank 44,907 Property Tax Escrow(3), Sanwa Bank 271,284 Property Insurance Escrow(3), Sanwa Bank 14,362 ---------- Funds Held by Mortgagee 759,300 ---------- Total Funds in Financial Institutions $1,277,648 ==========
(1) Balances Confirmed by Chase Bank of Texas (2) Balances Confirmed by Bank of America (3) Balances Confirmed by TRI 18 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Listing of Identity of Interest Companies and Activities Doing Business with Owner/Agent during the year ended December 31, 1998
Company Name Type of Service Amount Received - - ---------------------------- ------------------- --------------- Bradley Apartment Homes Property Management $106,417 Allied Construction Services Consulting Services 22,732
19 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Certification of Members DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT We hereby certify that we have examined the foregoing financial statements of Oxford Apartments, L.C. Project Number 114-11123-REF, and, to the best of our knowledge and belief, the same is complete and accurate. /s/ Tim Myers /s/ Al Bradley, Jr. - - ----------------------- ------------------- Tim Myers Al Bradley, Jr. President Vice-President 3/17/99 3/17/99 - - ----------------------- ------------------- Date Date Limited Liability Company Identification Number 76-0372784 20 OXFORD APARTMENTS, L.C. (HUD Project Number 114-11123-REF) Supplemental Supporting Data Required by HUD For the Year Ended December 31, 1998 Management Agent's Certification DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT We hereby certify that we have examined the foregoing financial statements of Oxford Apartments, L.C. Project Number 114-11123-REF, and, to the best of our knowledge and belief, the same is complete and accurate. /s/ Gene R. Blevins /s/ Al Bradley, Jr. - - ------------------------------ ------------------------------ Gene R. Blevins Al Bradley, Jr. President Chairman Allied Development Corporation Allied Development Corporation dba, Bradley Apartment Homes dba, Bradley Apartment Homes 3/16/99 3/17/99 - - ------------------------------ ------------------------------ Date Date Allied Development Corporation Identification Number 76-0156150 21 [Letterhead of HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] February 24, 1999 To the Department of Housing and Urban Development Attached is the financial report of Oxford Apartments, L.C. (HUD Project No. 114-11123REF) for the year ended December 31, 1998. /s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. Certified Public Accountants Houston, Texas Employer Identification No.: 74-1716599 Engagement Partner: Mr. Naushad Kermali 4925 San Felipe, #220 Houston, TX 77027 (713) 963-8008 [Letterhead of HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROLS (COMBINED REPORT APPLICABLE TO THE FINANCIAL STATEMENTS AND HUD-ASSISTED PROGRAMS) To Members Oxford Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11123-REF Oxford Apartments, L.C. (the "Company'), for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. We have also audited the Company's compliance with requirements applicable to major HUD-assisted programs and have issued our report thereon dated February 24, 1999. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. 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 misstatements and about whether the Company complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Oxford Apartments, L.C. 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 internal controls 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. To Members Oxford Apartments, L.C. Page 2 In planning and performing our audits, we obtained an understanding of the design of relevant internal controls and determined whether they have been placed in operation, and we assessed control risk in order to determine our auditing procedures for the purpose of expressing our opinions on the Company's financial statements and on its compliance with specific requirements applicable to its major HUD-assisted programs and to report on internal controls in accordance with the provisions of the Guide and not to provide any assurance on internal controls. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal controls that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Company's major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal controls would not necessarily disclose all matters in internal controls 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 risk that errors or irregularities in the 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 internal controls and their operations that we consider to be material weaknesses as defined above. This report is intended for the information of audit committee, 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999. [Letterhead of HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS The Members Oxford Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11123-REF, Oxford Apartments, L.C. (the "Company") as of and for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. In addition, we have audited the Company's compliance with the specific program requirements governing mortgage status, replacement reserve, security deposits and cash receipts and disbursements that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1998. The management of the Oxford Apartments, L.C. 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 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 we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Company's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed no instances of noncompliance with the requirements referred to above, that are required to be reported herein. In our opinion, the Oxford Apartments, L.C. complied, in all material respects, with the requirements governing Section 207 pursuant to Section 223(f) of the National Housing Act that are applicable to each of its HUD-assisted programs for the year ended December 31, 1998. This report is intended for the information of 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999 [Letterhead of HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.] INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To Members Oxford Apartments, L.C. We have audited the financial statements of U.S. Department of Housing and Urban Development ("HUD") Project No. 114-11123-REF, Oxford Apartments, L.C. (the "Company") as of and for the year ended December 31, 1998 and have issued our report thereon dated February 24, 1999. We have applied procedures to test the Company's compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted programs for the year ended December 31, 1998. Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs 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 would be the expression of an opinion on the Company's compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of 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/ Hidalgo, Banfill, Zlotnik & Kermali, P.C. HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C. February 24, 1999 -----END PRIVACY-ENHANCED MESSAGE-----