EX-99 8 pioneer05.txt EX 99.23.1 F/S PIONEER STREET ASSOCIATES FYE 12/31/05 AND 04 INDEPENDENT AUDITOR'S REPORT TO THE PARTNERS PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) VISALIA, CALIFORNIA I have audited the accompanying balance sheets of Pioneer Street Associates (A California Limited Partnership), as of December 31, 2005 and 2004, and the related statements of income, changes in partners capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pioneer Street Associates (A California Limited Partnership) as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Bernard E. Rea, CPA ----------------------- Stockton, California February 27, 2006 1 C O N T E N T S Page INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.............................................. 1 FINANCIAL STATEMENTS Balance sheets........................................................ 2-3 Statements of income.................................................. 4-7 Statements of changes in partners capital............................. 8 Statements of cash flows.............................................. 9-10 Notes to financial statements......................................... 11-14 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2005 AND 2004 ASSETS 2005 2004 ------------ ------------ CURRENT ASSETS Cash $ 8,049 $ 31,707 Real estate tax and insurance 17,512 3,559 Prepaid expense 12,519 10,455 ------------ ------------ Total current assets $ 38,080 $ 45,721 ------------ ------------ RESTRICTED DEPOSITS AND FUNDED RESERVES Tenant security deposits held in trust $ 44,020 $ 43,565 Replacement reserve 148,497 159,069 ------------ ------------ $ 192,517 $ 202,634 ------------ ------------ PROPERTY AND EQUIPMENT, AT COST Land $ 300,000 $ 300,000 Buildings 3,667,343 3,662,431 Equipment 178,017 178,017 ------------ ------------ $ 4,145,360 $ 4,140,448 Less accumulated depreciation 1,584,945 1,443,082 ------------ ------------ $ 2,560,415 $ 2,697,366 ------------ ------------ OTHER ASSETS Deferred charges, less accumulated amortization of $31,907 and $28,823 $ 33,943 $ 37,027 ------------ ------------ $ 2,824,955 $ 2,982,748 ============ ============ See Notes to Financial Statements. 2 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 2005 AND 2004 LIABILITIES AND PARTNERS CAPITAL 2005 2004 ------------ ------------ CURRENT LIABILITIES Current maturities of long-term debt $ 42,103 $ 33,616 Accounts payable 4,733 11,080 Accrued interest - - Accrued reporting and administrative fees 4,000 4,000 Accrued partnership management fee 5,600 - ------------ ------------ Total current liabilities $ 56,436 $ 48,696 ------------ ------------ DEPOSIT AND PREPAYMENT LIABILITIES Tenant security deposits $ 35,890 $ 34,175 Prepaid rents - - ------------ ------------ $ 35,890 $ 34,175 ------------ ------------ LONG-TERM DEBT Mortgage payable, less current maturities $ 1,673,185 $ 1,716,705 ------------ ------------ COMMITMENT PARTNERS CAPITAL $ 1,059,444 $ 1,183,172 ------------ ------------ $ 2,824,955 $ 2,982,748 ============ ============ See Notes to Financial Statements. 3 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ RENTAL INCOME Apartments $ 595,045 $ 581,172 Tenant assistance payments - - Subsidy income - - Miscellaneous - - ------------ ------------ Sub-total potential rent revenue $ 595,045 $ 581,172 ------------ ------------ VACANCIES Apartments $ (30,191) $ (47,932) Miscellaneous - - ------------ ------------ Sub-total vacancies $ (30,191) $ (47,932) ------------ ------------ Net rental revenue $ 564,854 $ 533,240 ------------ ------------ FINANCIAL REVENUE Interest Income - project operations $ 838 $ 672 Income from investments - replacement reserve 2,581 1,115 Income from investments - operating reserve - - Income from investments - miscellaneous - - ------------ ------------ Sub-total financial revenue $ 3,419 $ 1,787 ------------ ------------ OTHER REVENUE Laundry and vending $ 10,252 $ 12,754 NSF and late charges - - Damage and cleaning fees 24 2 Forfeited tenant security deposits 3,851 8,915 Other revenue 12,670 12,438 ------------ ------------ Sub-total other revenue $ 26,797 $ 34,109 ------------ ------------ Total revenues $ 595,070 $ 569,136 ------------ ------------ See Notes to Financial Statements. 4 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ OPERATING EXPENSES Renting expenses Advertising $ 659 $ 895 Miscellaneous renting expenses 4,630 3,429 ------------ ------------ Sub-total renting expenses $ 5,289 $ 4,324 ------------ ------------ Administrative expenses Office salaries $ - $ - Office supplies 1,858 4,607 Office rent - - Management fee 48,384 46,704 Manager's salary 26,358 30,016 Legal expense 2,022 9,408 Audit expense 4,725 4,532 Bookkeeping / accounting services - - Telephone and answering service 1,274 1,145 Bad debts - - Miscellaneous administrative expenses - 4,958 ------------ ------------ Sub-total administrative expenses $ 84,621 $ 101,370 ------------ ------------ Utilities expense Fuel oil / coal $ - $ - Electricity 16,371 12,012 Water 15,949 14,709 Gas - - Sewer - - ------------ ------------ Sub-total utilities expense $ 32,320 $ 26,721 ------------ ------------ See Notes to Financial Statements. 5 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ Operating and maintenance expense Janitor and cleaning payroll $ - $ - Janitor and cleaning supplies - - Janitor and cleaning contract - - Exterminating payroll / contract - - Exterminating supplies - - Garbage and trash removal 18,339 17,594 Security payroll / contract - - Grounds payroll - - Grounds supplies - - Grounds contract 29,967 23,727 Repairs payroll 45,494 37,938 Repairs material 32,121 20,742 Repairs contract 40,896 23,644 Heating / cooling repairs and maintenance - - Decorating payroll / contract - - Decorating supplies - 1,079 Vehicle and maintenance equipment o & r - - Miscellaneous operating and maint. expenses 8,304 19,720 ------------ ------------ Sub-total operating & maint. expense $ 175,121 $ 144,444 ------------ ------------ Taxes and insurance Real estate taxes $ 17,323 $ 25,744 Payroll taxes 6,809 7,511 Miscellaneous taxes, licenses, and permits 1,035 1,005 Property and liability insurance 12,958 12,832 Fidelity bond insurance - - Workman's compensation 8,292 7,776 Health insurance and other employee benefits 8,470 8,086 Other insurance - - ------------ ------------ Sub-total taxes & insurance $ 54,887 $ 62,954 ------------ ------------ Total operating expenses $ 352,238 $ 339,813 ------------ ------------ See Notes to Financial Statements. 6 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF INCOME (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ OTHER EXPENSES Interest expense - mortgage $ 136,413 $ 144,390 Interest expense - notes - - Miscellaneous financial expense - - Depreciation and amortization 144,947 143,936 Reporting fee 2,000 2,000 Admistrative fee 2,000 2,000 Partnership management fee 11,200 - ------------ ------------ Sub-total other expenses $ 296,560 $ 292,326 ------------ ------------ Total expenses $ 648,798 $ 632,139 ------------ ------------ Net income (loss) $ (53,728) $ (63,003) ============ ============ See Notes to Financial Statements. 7 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS CAPITAL YEARS ENDED DECEMBER 31, 2005 AND 2004 General Limited Total Partners Partner ------------- ------------ ------------- Partners capital December 31, 2003 $ 1,324,175 $ (410,640) $ 1,734,815 Partners capital contributions - - - Partners capital distributions (78,000) (78,000) - Net income (loss) (63,003) (630) (62,373) ------------- ------------ ------------- Partners capital December 31, 2004 $ 1,183,172 $ (489,270) $ 1,672,442 Partners capital contributions - - - Partners capital distributions (70,000) (70,000) - Net income (loss) (53,728) (537) (53,191) ------------- ------------ ------------- Partners capital December 31, 2005 $ 1,059,444 $ (559,807) $ 1,619,251 ============= ============ ============= Percentage at December 31, 2005 100% 1% 99% ============= ============ ============= See Notes to Financial Statements. 8 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (53,728) $ (63,003) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 144,947 143,936 Change in assets and liabilities: Decrease (increase) in: Rents receivable - - Prepaid expenses (2,064) 286 Tenants' security deposits (455) (366) Tax and insurance impounds (13,953) 5,896 Increase (decrease) in: Accounts payable (6,347) 5,837 Bank overdraft - - Accrued reporting and administrative fee - - Accrued partnership management fee 5,600 - Accrued interest - - Prepaid rents - - Tenants' security deposits 1,715 (1,425) ------------ ------------ Net cash provided by (used in) operating activities $ 75,715 $ 91,161 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Funding of replacement reserve $ (29,874) $ (28,458) Withdrawals from replacement reserve 40,446 18,150 Acquisition of property and equipment (4,912) (15,542) ------------ ------------ Net cash provided by (used in) investing activities $ 5,660 $ (25,850) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Partner contributions $ - $ - Partner distributions (70,000) (78,000) Principal payments on long-term debt (35,033) (30,987) ------------ ------------ Net cash provided by (used in) financing activities $ (105,033) $ (108,987) ------------ ------------ See Notes to Financial Statements. 9 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2005 AND 2004 2005 2004 ------------ ------------ Increase (decrease) in cash and cash equivalents $ (23,658) $ (43,676) Cash and cash equivalents Beginning 31,707 75,383 ------------ ------------ Ending $ 8,049 $ 31,707 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 136,413 $ 144,390 ============ ============ See Notes to Financial Statements. 10 PIONEER STREET ASSOCIATES (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Partnership's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. Basis of Accounting The financial statements of the partnership are prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America. Capitalization and Depreciation Land, buildings and improvements are recorded at cost. Depreciation of buildings and equipment is computed principally using the Modified Accelerated Cost Recovery System which approximates straight-line for buildings and double-declining balance for equipment over the following estimated useful lives: Years ----- Buildings 27.5 Equipment 7 Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. The resulting gains and losses are reflected in the statement of operations. Cash and cash equivalents For purposes of reporting the statements of cash flows, the Partnership includes all cash accounts which are not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less as cash and cash equivalents on the accompanying balance sheet. Amortization Deferred charges are amortized over the following estimated useful lives using the straight-line method: Years ----- Deferred debt expense 30 Tax credit monitoring fee 15 Income Taxes No provision or benefit for income taxes has been included in these financial statements since taxable income or loss passes through to, and is reportable by, the partners individually. 11 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Estimates THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA REQUIRES MANAGEMENT TO MAKE ESTIMATES AND ASSUMPTIONS. THESE ASSUMPTIONS AFFECT THE REPORTED AMOUNTS OF ASSETS, LIABILITIES AND THE AMOUNT OF ANY 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 THE ESTIMATES MADE. Personal Assets and Liabilities In accordance with the generally accepted method of presenting partnership financial statements, the financial statements do not include the personal assets and liabilities of the partners, including their obligation for income taxes on their distributive shares of the net income of the Partnership, nor any provision for income tax expense. SFAs no. 144 STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 144 REQUIRES THAT LONG-LIVED ASSETS AND CERTAIN IDENTIFIABLE INTANGIBLES HELD AND USED BY A ENTITY BE REVIEWED FOR IMPAIRMENT WHENEVER EVENTS OR CHANGES IN CIRCUMSTANCES THAT THE CARRYING AMOUNT OF AN ASSET MAY NOT BE RECOVERABLE. THE ADOPTION OF SFAS NO. 144 HAS NOT MATERIALLY AFFECTED THE PARTNERSHIP'S REPORTED EARNINGS, FINANCIAL CONDITION OR CASH FLOWS. Reclassifications CERTAIN ACCOUNTS IN THE PRIOR-YEAR FINANCIAL STATEMENTS HAVE BEEN RECLASSIFIED FOR COMPARATIVE PURPOSES TO CONFORM TO THE PRESENTATION IN THE CURRENT-YEAR FINANCIAL STATEMENTS. NOTE 2 - ORGANIZATION Pioneer Street Associates is a California Limited Partnership which was formed in February 1994, to develop, construct, own, maintain and operate a 112-unit multi-family apartment complex known as Foothill Vista Apartments and is located in the city of Bakersfield, California. The major activities of the Partnership are governed by the Partnership Agreement and Loan Agreement with the Pacific Life. Under the Loan Agreement, the Partnership is required to provide low cost housing to moderate or low-income households. The Partnership has three general partners and one investing limited partner. Partnership transactions with the general partners are described in other notes to this financial statement. 12 NOTES TO FINANCIAL STATEMENTS NOTE 3 - DEFERRED CHARGES Deferred charges as of December 31, 2005 and 2004, consists of the following: 2005 2004 ------------ ------------ Deferred debt expense $ 39,200 $ 39,200 Tax credit monitoring fee 26,650 26,650 ------------ ------------ $ 65,850 $ 65,850 Less accumulated amortization 31,907 28,823 ------------ ------------ $ 33,943 $ 37,027 ============ ============ NOTE 4 - RESTRICTED DEPOSITS AND FUNDED RESERVES In accordance with the Partnership and the Pacific Life replacement Reserve Agreements, the Partnership is required to maintain a replacement reserve account. The account is to be funded annually in the amount of $28,000 until the aggregate balance of the account reaches $182,000. NOTE 5 - LONG-TERM DEBT Long-Term debt consisted of a permanent loan with Pacific Life in face amount of $1,960,000. Under the terms of the 30-year Promissory Note with Pacific Life, the loan provides for an initial interest rate of 8.17% and monthly payments of $14,614.74 commencing on November 1, 1995, and continuing through September 2025. The interest rate and monthly payment will be adjusted at year eleven (11) and year Twenty-one (21), at which time the interest rate will be adjusted based on the Current Index plus 2.75% and the payment will be adjusted and determined by the amount of the monthly payment that would be sufficient to repay the note within 360 months of the initial payment date. As of December 31, 2005, the current interest rate and minimum monthly payment due is 6.93% and $13,304.35, respectively. The apartment complex is pledged as collateral for the mortgage and is secured by deeds of trust, assignment of rents, security agreements and fixture filings against the property. Aggregate maturities of Long-term debt for the next five years are as follows: December 31, 2006 $ 42,103 2007 45,116 2008 48,343 2009 51,802 2010 55,508 Thereafter 1,472,416 ------------ TOTAL $ 1,715,288 ============ 13 NOTES TO FINANCIAL STATEMENTS NOTE 6 - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES MANAGEMENT FEE In accordance with the management agreement, the Partnership paid Tetra Property Management Company, affiliates of one of the general partners, a management fee during 2005 and 2004 in the amounts of $48,384 and $46,704, respectively, for services rendered in connection with the leasing and operation of the project. The fee for its services is approximately 8% of the project's rental income. ANNUAL REPORTING FEE An annual reporting fee of $2,000 is payable to the limited partner, WNC California Housing Tax Credit Fund IV, L.P. Series 2, an investor limited partner which holds a 99% interest in the partnership, for services to be rendered for accounting matters relating to preparation of tax returns and other reports required. Annual PARTNERSHIP administrative Fee An annual partnership administrative fee of $2,000 is payable to the general partners, for their services to be rendered in connection with the administration of the day to day business of the Partnership. PARTNERSHIP MANAGEMENT FEE An annual partnership management fee of $5,600 is payable to the Central Valley Coalition for Affordable Housing (A California Nonprofit Corporation) for services rendered for partnership administrative matters relating to day to day operations of the partnership. For the year ended December 31, 2005, $11,200 was accrued (which includes a back charge of $5,600) and charged to operations. NOTE 7 - CONCENTRATION OF CREDIT RISK The Partnership maintains cash and cash equivalents at two financial institutions located in California. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000 per financial institution. At December 31, 2005, the Partnership's uninsured cash balances totaled $18,078. NOTE 8 - COMMITMENT The Partnership entered into a Regulatory Agreement with the Tax Credit Allocation Committee (TCAC), established under Section 50185 of the Health and Safety Code of the State of California. Under this Agreement, the Partnership shall maintain the project as a Qualified Low-income Housing Project for a period of 55 consecutive taxable years beginning with 1995, the first taxable year of the Credit Period. In exchange for this agreement, TCAC has authorized an allocation relating to the low-income housing credit under the provisions of Section 42 of the Internal Revenue Code. NOTE 9 - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS The Partnership's sole asset is Foothill Vista Apartments. The Partnership's operations are concentrated in the multifamily real estate market. 14