UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X*] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-13808
HOUSING PROGRAMS LIMITED
(A California Limited Partnership)
California 95-3906167
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
* While this Form 10-QSB has been filed on the specified due date, it does not
contain the certifications required by the Sarbanes-Oxley Act of 2002 and Rules
13a-14 and 15d-14 promulgated under the Securities and Exchange Act of 1934, as
amended. The Securities and Exchange Commission thus will not consider this Form
10-QSB to be timely filed.
Explanatory Note
The Partnership is in the process of verifying that the equity method of
accounting has been properly applied for its investments in limited
partnerships. Once the Partnership has completed its review, Ernst & Young LLP
will complete its review of the interim financial statements for the period
ended September 30, 2002. As a result, this quarterly report includes financial
statements that have not been reviewed by an independent accountant as required
by Rule 10-01(d) of Regulation S-X. Once the Partnership and Ernst & Young LLP
have completed their review related to this issue, the Partnership expects that
Ernst & Young LLP will complete the quarterly review required by Rule 10-01(d)
of Regulation S-X.
As a result of the fact that Ernst & Young LLP has not completed its review of
the interim financial statements as of and for the three months ended September
30, 2002, this Form 10-QSB is not accompanied by the certifications required by
the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 promulgated under the
Securities Exchange Act of 1934, as amended. The Partnership expects that these
certifications will be filed by amendment to this Form 10-QSB upon completion of
Ernst & Young LLP's review.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet
September 30, 2002 1
Statements of Operations
Three and Nine Months Ended September 30, 2002 and 2001 2
Statement of Partners' Deficiency
Nine Months Ended September 30, 2002 3
Statements of Cash Flows
Nine Months Ended September 30, 2002 and 2001 4
Notes to Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 11
ITEM 3. CONTROLS AND PROCEDURES 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSING PROGRAMS LIMITED
(a California limited partnership)
BALANCE SHEET
SEPTEMBER 30, 2002
(Unaudited)
ASSETS
Investments in limited partnerships (Note 3) $ --
Receivable from limited partnership 3,633
Cash and cash equivalents 975
Total assets $ 4,608
LIABILITIES AND PARTNERS' DEFICIENCY
Liabilities:
Notes payable (Note 1) $ 4,600,000
Accrued fees due to affiliates (Note 4) 1,212,203
Accrued interest payable (Note 1) 7,215,813
Accounts payable 176,514
Advances due to affiliates 45,935
13,250,465
Commitments and Contingencies (Notes 4 and 5)
Partners' deficiency:
General partners (383,207)
Limited partners (12,862,650)
(13,245,857)
Total liabilities and partners' deficiency $ 4,608
The accompanying notes are an integral part of these financial
statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
interest income $ 2,351 $ 1,288 $ 2,452 $ 7,315
operating Expenses:
Management fees - partners (Note 4) 49,797 49,797 149,391 150,396
General and administrative (Note 4) 17,634 27,758 38,163 57,216
Legal and accounting 8,717 18,906 44,659 64,195
Interest 110,149 109,250 326,952 327,750
Total operating expenses 186,297 205,711 559,165 599,557
Loss from Partnership operations (183,946) (204,423) (556,713) (592,242)
Equity in loss of limited partnerships
(Note 3) -- -- (30,462) (96,589)
Gain on sale of limited partnership
interest (Note 3) -- -- -- 65,000
Distributions from limited partnerships
recognized as income (Note 3) -- -- 11,343 11,201
Net loss $(183,946) $(204,423) $(575,832) $(612,630)
Net loss to general partners (1%) $ (1,839) $ (2,044) $ (5,758) $ (6,126)
Net loss to limited partners (99%) (182,107) (202,379) (570,074) (606,504)
$(183,946) $(204,423) $(575,832) $(612,630)
Net loss per limited partnership
interest (Note 2) $ (15) $ (16) $ (46) $ (49)
The accompanying notes are an integral part of these financial
statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENT OF PARTNERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(Unaudited)
General Limited
Partners Partners Total
Partnership interests 12,368
Partners' deficiency,
January 1, 2002 $ (377,449) $(12,292,576) $(12,670,025)
Net loss for the nine months
ended September 30, 2002 (5,758) (570,074) (575,832)
Partners' deficiency,
September 30, 2002 $ (383,207) $(12,862,650) $(13,245,857)
The accompanying notes are an integral part of these financial
statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(575,832) $(612,630)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on sale of limited partnership interest -- (65,000)
Equity in loss of limited partnerships 30,462 96,589
Decrease in due from escrow -- 15,000
Increase (decrease) in:
Accrued interest payable 326,952 327,750
Accounts payable and accrued expenses 35,311 19,974
Accrued fees due to partners 163,632 (80,487)
Net cash used in operating activities (19,475) (298,804)
Cash flows from investing activities:
Proceeds from sale of partnership interests -- 65,000
Advances to properties (3,633) (96,589)
Capital contributions (30,462) --
Net cash used in investing activities (34,095) (31,589)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Operating advances from affiliates 45,935 --
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,635) (330,393)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,610 372,546
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 975 $ 42,153
The accompanying notes are an integral part of these financial
statements.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
NOTE 1 - GOING CONCERN
The accompanying unaudited financial statements have been prepared assuming
Housing Programs Limited (the "Partnership") will continue as a going concern.
The Partnership continues to generate recurring operating losses and suffers
from a lack of cash as well as a partner's deficiency. In addition, the
Partnership is in default on notes payable and related accrued interest payable
that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5 percent. The notes matured in December 1999. These obligations
and the related interest are collaterized by the Partnership's investment in the
local limited partnerships and are payable only out of cash distributions from
the local limited partnerships, as defined in the notes. Unpaid interest was due
at maturity of the notes.
All notes payable and related accrued interest payable, aggregating $11,815,813
as of September 30, 2002, became payable prior to September 30, 2002. The
Partnership has not made any payments and is in default under the terms of the
notes. Management is attempting to negotiate extensions of the maturity dates on
the notes payable.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual audited financial
statements; accordingly, the financial statements included herein should be
reviewed in conjunction with the financial statements and related notes thereto
contained in the Partnership's annual report for the year ended December 31,
2001. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim period presented are not necessarily indicative of the results for the
entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position of the Partnership
at September 30, 2002 and the results of operations and changes in cash flows
for the three and nine months then ended.
Organization
The Partnership was organized under the California Uniform Limited Partnership
Act on May 15, 1984. The Partnership was formed to invest primarily in other
limited partnerships that own or lease and operate federal, state or local
government-assisted housing projects. These other limited partnerships are
referred to as "local limited partnerships". The general partners of the
Partnership are National Partnership Investments Corp. ("NAPICO" or the
"Corporate General Partner"), Coast Housing Investment Associates (CHIA), a
limited partnership, and Housing Programs Corporation II.
The general partners have a one percent interest in profits and losses of the
Partnership. The limited partners have the remaining 99 percent interest which
is allocated in proportion to their respective individual investments. NAPICO is
the corporate general partner of the Partnership.
On December 3, 2001, Casden Properties Inc., entered into a merger agreement and
certain other transaction documents with Apartment Investment and Management
Company, a Maryland corporation ("AIMCO") and certain of its subsidiaries,
pursuant to which, on March 11, 2002, AIMCO acquired Casden Properties Inc. and
its subsidiaries, including 100% of the stock of NAPICO. Prior to March 11,
2002, Casden Properties Inc. owned a 95.25% economic interest in NAPICO, with
the balance owned by Casden Investment Corporation ("CIC"). CIC, which is wholly
owned by Alan I. Casden, owned 95% of the voting common stock of NAPICO prior to
March 11, 2002.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with
United States generally accepted accounting principles.
Method of Accounting for Investment in Limited Partnerships
The investments in local limited partnerships are accounted for on the equity
method. Acquisition, selection fees and other costs related to the acquisition
of the projects have been capitalized to the investment account and amortized on
a straight line basis over the estimated lives of the underlying assets, which
is generally 30 years.
Net Loss Per Limited Partnership Interest
Net loss per limited partnership interest was computed by dividing the limited
partners' share of net loss by the number of limited partnership interests
outstanding during the period. The number of limited partnership interests was
12,368 for the periods presented.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market mutual funds. The
Partnership has its cash and cash equivalents on deposit primarily with one
money market mutual fund. Such cash and cash equivalents are uninsured.
Impairment of Long-Lived Assets
The Partnership reviews long-lived assets to determine if there has been any
permanent impairment whenever events or changes in circumstances indicate that
the carrying value of the asset may not be recoverable. If the sum of the
expected future cash flows is less than the carrying value of the assets, the
Partnership recognizes an impairment loss.
NOTE 3 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of September 30, 2002, the Partnership holds limited partnership interests in
seven local limited partnerships, after selling its interest in one local
limited partnership in January 2001. As of September 30, 2002, the seven local
limited partnerships owned residential low income rental projects consisting of
1,153 apartment units. The mortgage loans of these projects are payable to or
insured by various governmental agencies.
The Partnership, as a limited partner, is entitled to 99 percent of the profits
and losses of the local limited partnerships.
Equity in losses of local limited partnerships is recognized in the financial
statements until the limited partnership investment account is reduced to a zero
balance. Losses incurred after the limited partnership investment account is
reduced to zero are not recognized.
Distributions from the local limited partnerships are recognized as a reduction
of capital until the investment balance has been reduced to zero or to a
negative amount equal to further capital contributions required. Subsequent
distributions are recognized as income.
The Partnership has no carrying value in investment in limited partnerships as
of September 30, 2002.
The following are unaudited combined estimated statements of operations for the
three and nine months ended September 30, 2002 and 2001 for the local limited
partnerships in which the Partnership has investments:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenues
Rental and other $ 1,885,000 $ 1,892,000 $ 5,655,000 $ 5,676,000
Expenses
Depreciation 374,000 362,000 1,122,000 1,086,000
Interest 242,000 242,000 726,000 726,000
Operating 1,402,000 1,339,000 4,206,000 4,017,000
2,018,000 1,943,000 6,054,000 5,829,000
Net loss $ (133,000) $ (51,000) $ (399,000) $ (153,000)
NAPICO, or one of its affiliates, is the general partner and property management
agent for certain of the local limited partnerships included above. During the
nine months ended September 30, 2002 and 2001, affiliates of the Corporate
General Partner were paid approximately $40,000 and $30,000, respectively, for
providing property management services.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the reduction in
the principal amount. MAHRAA also phases out project-based subsidies on selected
properties serving families not located in rental markets with limited supply,
converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
During the nine months ended September 30, 2001, the Partnership sold its
interest in one local limited partnership for net proceeds of $65,000. The
Partnership recognized a gain from the sale equal to the net proceeds received
because it had no investment balance related to this partnership.
NOTE 4 - FEES AND EXPENSES DUE TO GENERAL PARTNERS
Under the terms of the Restated Certificate and Agreement of the Limited
Partnership, the Partnership is obligated to pay to the general partners an
annual management fee equal to 0.5 percent of the original invested assets of
the local limited partnerships. Invested assets is defined as the costs of
acquiring project interests including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of the
respective local limited partnerships. For the nine months ended September 30,
2002 and 2001, $149,391 and $150,396, respectively, has been expensed. The
unpaid balance at September 30, 2002 is $1,197,962.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $14,241 and $15,710 for the nine months ended September 30, 2002 and
2001, respectively, and is included in general and administrative expenses.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. During the nine months ended
September 30, 2002, the Corporate General Partner advanced $45,935 for such
purposes.
As of September 30, 2002, the fees and expenses due the general partners
exceeded the Partnership's cash. The general partners, during the forthcoming
year, are not expected to demand payment of amounts due in excess of such cash
or such that the Partnership would not have sufficient operating cash; however,
the Partnership will remain liable for all such amounts.
NOTE 5 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other affiliated entities. The second action has been
subsumed in the first action, which has been certified as a class action. On
August 21, 2001, plaintiffs filed a supplemental complaint, which added new
claims, including a recission of the transfer of partnership interests and an
accounting. The trial on these claims is in progress. As of November 15, 2002,
the jury returned a special verdict against NAPICO and certain other defendants
for violations of securities laws and breaches of fiduciary duty. However, no
verdicts have been returned against any of the NAPICO managed partnerships and
no judgments have been entered in the case.
The holder of a purchase money promissory note, in the amount of $845,000 plus
accrued interest payable of $1,130,000 as of September 30, 2002, issued by
Cloverleaf limited partnership, one of the Partnership's investments, filed a
foreclosure action against the Cloverleaf limited partnership on September 12,
2001. The Partnership and other defendants have answered the complaint and
intend to vigorously defend this action. The Partnership has no investment
balance related to this local limited partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclose on the Partnership's interest in this local limited
partnership. As of September 30, 2002, the parties had reached a settlement
which requires the local limited partnership to refinance the property by March
31, 2003. The proceeds from the refinancing will be used to settle the
outstanding notes. The suit has been stayed until March 31, 2003, pending
consummation of the settlement. The Partnership has no investment balance
related to this local limited partnership.
NAPICO is a plaintiff in various lawsuits and has also been named as defendant
in other lawsuits arising from transactions in the ordinary course of business.
In the opinion of NAPICO, the claims will not result in any material liability
to the Partnership.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, when it is practicable to estimate that value. The
notes payable are collateralized by the Partnership's investments in investee
limited partnerships, which account for the Partnership's primary source of
revenues, are subject to various government rules, regulations and restrictions
which make it impracticable to estimate the fair value of the notes and related
accrued interest payable. It is impracticable to estimate the fair value of the
amounts due to affiliates due to their related party nature. The carrying amount
of other assets and liabilities reported on the balance sheets that require such
disclosure approximates fair value due to their short-term maturity.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
The Corporate General Partner monitors developments in the area of legal and
regulatory compliance and is studying new federal laws, including the
Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests
additional compliance measures with regard to governance, disclosure, audit and
other areas. In light of these changes, the Partnership expects that it will
incur higher expenses related to compliance, including increased legal and audit
fees.
Liquidity and Capital Resources
The Partnership's primary sources of funds include interest income on money
market accounts and distributions from local limited partnerships in which the
Partnership has invested. It is not expected that any of the local limited
partnerships in which the Partnership has invested will generate cash flow
sufficient to provide for distributions to the Partnership's limited partners in
any material amount.
The accompanying unaudited financial statements have been prepared assuming the
Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses and suffers from a lack of cash as well as a
partner's deficiency. In addition, the Partnership is in default on notes
payable and related accrued interest payable that matured in December 1999.
Two of the Partnership's investments, Evergreen and Plaza Village, involved
purchases of partnership interests from partners who subsequently withdrew from
the operating partnership. The Partnership is obligated for non-recourse notes
payable of $4,600,000 to the sellers of the partnership interests, bearing
interest at 9.5 percent. The notes matured in December 1999. These obligations
and the related interest are collaterized by the Partnership's investment in the
local limited partnerships and are payable only out of cash distributions from
the local limited partnerships, as defined in the notes. Unpaid interest was due
at maturity of the notes.
All notes payable and related accrued interest payable, aggregating $11,815,813
as of September 30, 2002, became payable prior to September 30, 2002. The
Partnership has not made any payments and is in default under the terms of the
notes. Management is attempting to negotiate extensions of the maturity dates on
the notes payable.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects of the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Results of Operations
Partnership revenues consist primarily of interest income earned on investment
of funds. The Partnership also receives distributions from the local limited
partnerships in which it has invested.
Distributions received from the local limited partnerships are recognized as
return of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required. Subsequent
distributions received are recognized as income.
Except for investing cash in money market funds, the Partnership's investments
consist entirely of interests in other local limited partnerships owning
government-assisted housing projects. Available cash not invested in local
limited partnerships is invested in these money market funds to provide interest
income as reflected in the statements of operations. These funds can be
converted to cash to meet obligations as they arise. The Partnership intends to
continue investing available funds in this manner.
An annual management fee is payable to the general partners of the Partnership
and is calculated at 0.5 percent of the Partnership's invested assets. The
management fee is paid to the general partners for their continuing management
of partnership affairs. The fee is payable beginning with the month following
the Partnership's initial investment in a local limited partnership. Management
fees were $149,391 and $150,396 for the nine months ended September 30, 2002 and
2001, respectively.
In accordance with the Partnership Agreement, the Corporate General Partner has
advanced the Partnership funds to assist in paying for normal operating
expenses. These advances do not accrue interest. During the nine months ended
September 30, 2002, the Corporate General Partner advanced $45,935 for such
purposes.
Operating expenses, other than management fees and interest expense, consist of
legal and accounting fees for services rendered to the Partnership and
administrative expenses, which were generally consistent for the periods
presented. Legal and accounting fees were $44,659 and $64,195 for the nine
months ended September 30, 2002 and 2001, respectively. General and
administrative expenses were $38,163 and $57,216 for the periods ended September
30, 2002 and 2001, respectively.
The Partnership accounts for its investments in the local limited partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the local limited partnerships.
Losses incurred after the limited partnership investment account is reduced to
zero are not recognized.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts may not be
in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA") provides for
the restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will be
amortized on a current basis and a low interest second mortgage loan payable to
FHA which will only be payable on maturity of the first mortgage loan. This
restructuring results in a reduction in annual debt service payable by the owner
of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
During the nine months ended September 30, 2001, the Partnership sold its
interest in one local limited partnership for net proceeds of $65,000. The
Partnership recognized a gain from the sale equal to the net proceeds received
because it had no investment balance related to this partnership.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Corporate
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate, except that, as indicated in the
Explanatory Note introducing this quarterly report, the Partnership is in the
process of verifying that the equity method of accounting has been properly
applied to its investments in limited partnerships. There have been no
significant changes in the Partnership's internal controls or in other factors
that could significantly affect the Partnership's internal controls since the
date of evaluation. However, depending on the outcome of the review currently
being undertaken by the Partnership as to the propriety of the application of
the equity method of accounting with respect to the Partnership's investments in
limited partnerships, changes to the Partnership's internal controls may be
warranted.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in the Partnership commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other affiliated entities. The second action has been
subsumed in the first action, which has been certified as a class action. On
August 21, 2001, plaintiffs filed a supplemental complaint, which added new
claims, including a recission of the transfer of partnership interests and an
accounting. The trial on these claims is in progress. As of November 15, 2002,
the jury returned a special verdict against NAPICO and certain other defendants
for violations of securities laws and breaches of fiduciary duty. However, no
verdicts have been returned against any of the NAPICO managed partnerships and
no judgments have been entered in the case.
The holder of a purchase money promissory note, in the amount of $845,000 plus
accrued interest payable of $1,130,000 as of September 30, 2002, issued by
Cloverleaf limited partnership, one of the Partnership's investments, filed a
foreclosure action against the Cloverleaf limited partnership on September 12,
2001. The Partnership and other defendants have answered the complaint and
intend to vigorously defend this action. The Partnership has no investment
balance related to this local limited partnership.
The holders of three cash flow notes, with an aggregate principal balance of
$3,825,000, issued by Oshtemo Limited Dividend Housing Association, one of the
Partnership's investments, filed a suit on June 18, 2002 to reduce the notes to
judgment and foreclose on the Partnership's interest in this local limited
partnership. As of September 30, 2002, the parties had reached a settlement
which requires the local limited partnership to refinance the property by March
31, 2003. The proceeds from the refinancing will be used to settle the
outstanding notes. The suit has been stayed until March 31, 2003, pending
consummation of the settlement. The Partnership has no investment balance
related to this local limited partnership.
As of September 30, 2002, NAPICO was a plaintiff or defendant in various
lawsuits. None of these suits are related to the Partnership. In the opinion of
NAPICO, the claims will not result in any material liability to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3, Restated Certificate and Agreement of Limited
Partnership dated May 15, 1984 filed with the Securities and
Exchange Commission Form S-11 No. 2-92352, which is hereby
incorporated by reference.
b) Reports on Form 8-K:
Current Report on Form 8-K dated August 29, 2002 and filed on
September 6, 2002, disclosing the dismissal of Deloitte &
Touche LLP as the Partnership's certifying auditor and the
appointment of Ernst & Young LLP, as the certifying auditor
for the year ending December 31, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HOUSING PROGRAMS LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
By: /s/David R. Robertson
David R. Robertson
President and Chief Executive Officer
By: /s/Brian H. Shuman
Brian H. Shuman
Senior Vice President and
Chief Financial Officer
Date: November 19, 2002