EXHIBIT 99.1
HOME PROPERTIES
RETIREMENT SAVINGS PLAN
FINANCIAL REPORT
DECEMBER 31, 2005
HOME PROPERTIES
RETIREMENT SAVINGS PLAN
ROCHESTER, NEW YORK
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm 1
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4 - 7
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Schedule of Assets (Held at End of Year) 8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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To the Home Properties, Inc. 401(k)
Administrative Committee and Participants
of the Home Properties Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of Home Properties Retirement Savings Plan as of December 31, 2005 and 2004, and
the related statement of changes in net assets available for benefits for the
year ended December 31, 2005. These financial statements are the responsibility
of the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Home Properties
Retirement Savings Plan as of December 31, 2005 and 2004, and the changes in net
assets available for benefits for the year ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) as of December 31, 2005, is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the United States
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedule
is the responsibility of the Plan's management. The supplemental schedule has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Respectfully Submitted,
/s/ Insero & Company CPAs, P.C.
Insero & Company CPAs, P.C.
Certified Public Accountants
Rochester, New York
May 18, 2006
HOME PROPERTIES
RETIREMENT SAVINGS PLAN
ROCHESTER, NEW YORK
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2005 AND 2004
ASSETS 2005 2004
---- ----
Investments at Fair Value
Money Market Funds $ 183,996 $ 121,608
Common Stock 2,319,358 2,196,913
Mutual Funds 13,802,320 10,986,538
Common/Collective Trust 3,275,623 2,769,882
Participant Notes 705,821 590,805
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Total Investments at Fair Value 20,287,118 16,665,746
Employer Contributions Receivable 25,249 759,731
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Total Assets 20,312,367 17,425,477
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LIABILITIES
Excess Contributions Payable 111,421 22,456
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Net Assets Available for Benefits $20,200,946 $17,403,021
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See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2005
Additions to Net Assets Attributed to:
Investment Income
Interest and Dividends $ 503,526
Net Appreciation in Fair Value of Investments 575,673
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Total Investment Income 1,079,199
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Contributions
Employer 946,094
Participant 2,065,402
Rollover 354,975
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Total Contributions 3,366,471
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Total Additions 4,445,670
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Deductions from Net Assets Attributed to:
Benefits Paid to Participants 1,647,745
-----------
Net Increase 2,797,925
Net Assets Available for Benefits - Beginning 17,403,021
-----------
Net Assets Available for Benefits - Ending $20,200,946
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See Notes to Financial Statements.
HOME PROPERTIES
RETIREMENT SAVINGS PLAN
ROCHESTER, NEW YORK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
Note 1 Description of Plan
The following description of the Home Properties Retirement Savings Plan
(the Plan) is provided for general information purposes only. Participants
should refer to the Plan document, as amended, for a more complete
description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all employees of Home
Properties, Inc. (the Company) who have attained age 21. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
Five Star Bank acts as the Trustee of the Plan. Fidelity Investment serves
as the custodian and Burke Group serves as the third party administrator
for the Plan.
Contributions
Each year, participants may contribute up to 50 percent of pretax annual
compensation and separate elective deferrals out of any bonus, up to 100%
of each bonus, subject to statutory limitations, as defined in the Plan.
Participants may also contribute amounts representing distributions from
other qualified defined benefit or defined contribution plans. Participants
direct the investment of their contributions into various investment
options offered by the Plan. The Company contributes 75% of
salary-reduction contributions up to a maximum of 3% of participant
compensation. Additional profit sharing amounts may be contributed at the
option of the Company's board of directors. Contributions are subject to
certain limitations.
Participant Accounts
A separate account is maintained for each of the participants. Each
participant's account is credited with an allocation of: (1) the
participant's contributions, (2) the Company's contributions, and (3) Plan
earnings. Allocations are based on participant earnings or account
balances, as defined in the Plan document. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Vesting
Participants are immediately vested in their contributions plus actual
earnings thereon. The Plan provides for vesting in the employer
contribution account of 25% after one year, 50% after two years, 75% after
three years, and 100% after four years of service. Prior to September 1,
2005, the Plan provided vesting of 20% after one year, 40% after two years,
60% after three years, 80% after four years, and 100% after five years of
service.
Participant Loans
Participants may borrow from their accounts a minimum of $1,000 to a
maximum equal to the lessor of $50,000 or 50% of their vested account
balance. Loan terms range from one to five years, or longer for the
purchase of a primary residence. The loans are collateralized by the
balance in the participant's account and bear interest at the prime rate
plus one percent (1%) in effect on the first day of the month in which the
loan is made. Interest rates range from 5.00% to 10.50% and will mature
between January 2006 and March 2016 for the current outstanding notes.
Principal and interest is paid ratably through weekly or semi-monthly
payroll deductions.
Note 1 Description of Plan - Continued
Payment of Benefits
The Plan provides for normal retirement benefits upon reaching age 65 and
has provisions for early retirement, disability, death, hardship and
termination benefits for those participants who are eligible to receive
such benefits.
Upon termination of service, a participant may elect to receive a lump sum
amount equal to the value of his or her account.
Forfeitures
In accordance with the Plan document, forfeitures of non-vested employer
contributions are used to reduce future employer contributions then to pay
plan expenses. At December 31, 2005 and 2004, forfeited non-vested accounts
totaled approximately $24,000 and $84,000, respectively.
Administrative Expenses
The Plan allows for payment of administrative expenses by the Company.
Note 2 Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis of accounting.
Plan Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of net assets available for benefits and changes therein. Actual
results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Investment in common stock
is reported at fair value based on quoted market prices. Shares of
registered investment companies are reported at fair value based on the
quoted market price of the fund which represents the net asset value of
shares held by the fund at year-end. Shares held in a common/collective
trust fund are reported at fair value based on the unit prices quoted by
the fund, representing the fair value of the underlying investment.
Participant notes are valued at cost which approximates fair value.
Purchases and sales of securities are recorded on a settlement-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
Note 2 Significant Accounting Policies - Continued
Investment Valuation and Income Recognition - Continued
The Plan provides for investments which, in general, are exposed to various
risks, such as interest rate, credit and market volatility. Due to the
level of risk associated with certain investment securities, it is
reasonably possible that changes in the values of investment securities
will occur in the near term and such changes could materially affect the
amounts reported in the statements of net assets available for benefits and
the statement of changes in net assets available for benefits.
Payment of Benefits
Benefits are recorded when paid.
Note 3 Investments
The following presents investments that represent 5 percent or more of the
Plan's net assets:
December 31,
----------------------------
2005 2004
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Vanguard Lifestrategy Moderate Growth $ 3,428,110 N/A
Federated Capital Preservation Fund $ 3,275,623 $ 2,769,882
Vanguard Index Trust S&P 500 Portfolio $ 2,997,891 $ 2,548,620
Vanguard Lifestrategy Growth Portfolio $ 2,923,628 N/A
Home Properties, Inc. $ 2,319,358 $ 2,196,913
Vanguard Small Capital Index Fund $ 1,881,132 $ 1,466,656
Vanguard Lifestrategy Conservative Growth $ 1,877,661 N/A
Exeter Pro-Blend Moderate Term N/A $ 1,535,149
Exeter Pro-Blend Extended Term N/A $ 2,730,818
Exeter Pro-Blend Maximum Term N/A $ 2,344,069
During 2005, the Plan's investments (including investments bought and sold, as
well as held during the year) appreciated (depreciated) in value as follows:
Common Stock $(120,618)
Mutual Funds 696,291
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$ 575,673
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Note 4 Party-In-Interest Transactions
Certain Plan investments are shares of common stock of Home Properties,
Inc., the Plan Sponsor. Therefore, this investment qualifies as a
party-in-interest. Certain Plan investments are shares of mutual funds and
are managed by Fidelity. Fidelity is the custodian of the Plan and,
therefore, these transactions qualify as party-in-interest transactions.
Participant loans are also party-in-interest transactions.
Note 5 Plan Termination
Although the Company has not expressed any intent to do so, the Company has
the right under the Plan to discontinue contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100% vested in their accounts and all
of the Plan assets would be distributed to participants.
Note 6 Tax Status
The Plan adopted a prototype plan document sponsored by Harter, Secrest &
Emery, LLP. The prototype plan has received an opinion letter from the
Internal Revenue Service, dated November 19, 2001, as to the prototype
plan's qualified status. The Plan has been amended since receiving the
determination letter. However, the plan administrator believes that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Management believes
that the Plan is qualified and the related trust is tax-exempt as of the
financial statement date.
HOME PROPERTIES
RETIREMENT SAVINGS PLAN
ROCHESTER, NEW YORK
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2005
Identity of Issue/ Current
Description of Investment Value
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Money Market Funds
*Fidelity Cash Reserve Fund $ 147,351
*Spartan Money Market Fund 36,645
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Total Interest in Money Market Funds 183,996
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Common Stock
*Home Properties, Inc. 2,319,358
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Mutual Funds
Vanguard Lifestrategy Moderate Growth 3,428,110
Vanguard Index Trust S&P 500 Portfolio 2,997,891
Vanguard Lifestrategy Growth Portfolio 2,923,628
Vanguard Small Capital Index Fund 1,881,132
Vanguard Lifestrategy Conservative Growth 1,877,661
Vanguard Bond Index Total Market Fund 556,721
Vanguard Total International Stock Index Fund 48,194
Dreyfus-Midcap Index Fund 36,095
Dimensional Advisor US Small Capital Value Portfolio 24,932
Vanguard Index Trust Small Capital Growth 20,081
Dimensional Advisor US Large Capital Value Portfolio 4,252
Vanguard Growth Index 2,920
Vanguard Lifestrategy Income Portfolio 703
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Total Interest in Mutual Funds 13,802,320
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Common/Collective Trust
Federated Capital Preservation Fund 3,275,623
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Participant Loans
*Participant Notes 705,821
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$20,287,118
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*Denotes Party-in-Interest
