June 29, 2000 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Boston Financial Qualified Housing Tax Credits L.P. V Annual Report on Form 10-K for the Year Ended March 31, 2000 File Number 0-19706 Dear Sir / Madam: Pursuant to the requirements of section 15(d) of the Securities Exchange Act of 1934, filed herewith is one copy of subject report. Very truly yours, /s/Stephen Guilmette Stephen Guilmette Assistant Controller QH510K-K UNITED STATES 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 March 31, 2000 ------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-19706 Boston Financial Qualified Housing Tax Credits L.P. V (Exact name of registrant as specified in its charter) Massachusetts 04-3054464 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Arch Street, Boston, MA 02110-1106 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 439-3911 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST (Title of Class) 100,000 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 (Subsection 229.405 of this chapter) 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 ] State the aggregate sales price of partnership units held by non-affiliates of the registrant. $60,904,650 as of March 31, 2000 DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS: (2) ANY PROXY OR INFORMATION STATEMENT: AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR (c) UNDER THE SECURITIES ACT OF 1933. Part of Report on Form 10-K into Which the Document Documents incorporated by reference is Incorporated Post-effective amendments No. 1 - 5 to the Form S-11 Registration Statement, File # 33-29935 Part I, Item 1 Acquisition Reports Part I, Item 1 Post-effective amendment No. 6 to the Registration Statement on Form S-11, File # 33-29935 Part III, Item 12 Prospectus - Sections Entitled: "Investment objectives and Policies - Principal Investment Policies" Part I, Item 1 "Estimated Use of Proceeds" Part III, Item 13 "Management Compensations and Fees" Part III, Item 13 "Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions" Part III, Item 13 BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000 TABLE OF CONTENTS Page No. PART I Item 1 Business K-3 Item 2 Properties K-6 Item 3 Legal Proceedings K-12 Item 4 Submission of Matters to a Vote of Security Holders K-12 PART II Item 5 Market for the Registrant's Units and Related Security Holder Matters K-13 Item 6 Selected Financial Data K-14 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations K-14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk K-17 Item 8 Financial Statements and Supplementary Data K-17 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure K-17 PART III Item 10 Directors and Executive Officers of the Registrant K-17 Item 11 Management Remuneration K-19 Item 12 Security Ownership of Certain Beneficial Owners and Management K-19 Item 13 Certain Relationships and Related Transactions K-19 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K K-22 SIGNATURES K-23 PART I Item 1. Business Boston Financial Qualified Housing Tax Credits L.P. V (the "Partnership") is a Massachusetts limited partnership formed on June 16, 1989 under the laws of the State of Massachusetts. The Partnership's partnership agreement ("Partnership Agreement") authorized the sale of up to 100,000 units of Limited Partnership Interest ("Units") at $1,000 per Unit, adjusted for certain discounts. The Partnership raised $68,928,650 ("Gross Proceeds"), net of discounts of $350, through the sale of 68,929 Units. Such amounts exclude five unregistered Units previously acquired for $5,000 by the Initial Limited Partner, which is also one of the General Partners. The offering of Units terminated on August 31, 1991. No further sale of Units is expected. The Partnership is engaged solely in the business of real estate investment. Accordingly, a presentation of information about industry segments is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. The Partnership has invested as a limited partner in other limited partnerships ("Local Limited Partnerships") which own and operate residential apartment complexes ("Properties") some of which benefit from some form of federal, state or local assistance programs and all of which qualify for the low-income housing tax credits ("Tax Credits") added to the Internal Revenue Code (the "Code") by the Tax Reform Act of 1986. The investment objectives of the Partnership include the following: (i) to provide current tax benefits in the form of Tax Credits which qualified limited partners may use to offset their federal income tax liability; (ii) to preserve and protect the Partnership's capital; (iii) to provide limited cash distributions from property operations which are not expected to constitute taxable income during the expected duration of the Partnership's operations; and (iv) to provide cash distributions from sale or refinancing transactions. There cannot be any assurance that the Partnership will attain any or all of these investment objectives. A more detailed discussion of these investment objectives, along with the risks in achieving them, is contained in the section of the prospectus entitled "Investment Objectives and Policies - Principal Investment Policies" which is herein incorporated by this reference. Table A on the following page lists the Properties originally acquired by the Local Limited Partnerships in which the Partnership has invested. Item 7 of this Report contains other significant information with respect to the Local Limited Partnerships. As required by applicable rules, the terms of the acquisition of each Local Limited Partnership interest have been described in supplements to the Prospectus and collected in the post-effective amendments to the Registration Statement listed in Part IV of this Report (collectively, the "Acquisition Reports"); such descriptions are incorporated herein by this reference. TABLE A SELECTED LOCAL LIMITED PARTNERSHIP DATA Date Properties Owned by Local Interest Limited Partnerships Location Acquired - -------------------------------- ---------------------- -------------- Strathern Park/Lorne Park (1)* Los Angeles, CA 07/05/90 Park Caton Catonsville, MD 08/17/90 Cedar Lane I London, KY 09/10/90 Silver Creek II Berea, KY 08/15/90 Rosecliff Sanford, FL 09/18/90 Brookwood Ypsilanti, MI 10/01/90 Oaks of Dunlop Colonial Heights, VA 01/01/91 Water Oak Orange City, FL 01/01/91 Yester Oaks Lafayette, GA 01/01/91 Ocean View Fernandina Beach, FL 01/01/91 Wheeler House (2) Nashua, NH 01/01/91 Archer Village Archer, FL 01/01/91 Timothy House Towson, MD 03/05/91 Westover Station Newport News, VA 03/30/91 Carib III St. Croix, VI 03/21/91 Carib II St. Croix, VI 03/01/91 Whispering Trace Woodstock, GA 05/01/91 New Center Detroit, MI 06/27/91 Huguenot Park* New Paltz, NY 06/26/91 Hillwood Pointe Jacksonville, FL 07/19/91 Pinewood Pointe Jacksonville, FL 07/31/91 Westgate* Bismark, ND 07/25/91 Woodlake Hills Pontiac, MI 08/01/91 Bixel House Los Angeles, CA 07/31/91 Magnolia Villas North Hollywood, CA 07/31/91 Schumaker Place Salisbury, MD 09/20/91 Circle Terrace Lansdowne, MD 12/06/91 * The Partnership's interest in profits and losses of each Local Limited Partnership arising from normal operations is 99%, except for a 95% interest in Strathern Park/Lorne Park Apartments, an 88.55% interest in Huguenot Park, and a 49.5% interest in Westgate. Profits and losses arising from sale or refinancing transactions are allocated in accordance with the respective Local Limited Partnership Agreements. (1) On January 1, 1994, Lorne Park merged into Strathern Park in a business combination accounted for as a pooling of interests. Lorne Park's total assets, liabilities and partners' equity were combined with Strathern Park at their existing book value, and neither partnership recognized a gain or loss on the merger. (2) In January 2000, the lender for Wheeler House foreclosed on the property and the Partnership transferred its interest. Although the Partnership's investments in Local Limited Partnerships are not subject to seasonal fluctuations, the Partnership's equity in losses of Local Limited Partnerships, to the extent it reflects the operations of individual Properties, may vary from quarter to quarter based upon changes in occupancy and operating expenses as a result of seasonal factors. Each Local Limited Partnership has, as its general partners ("Local General Partners"), one or more individuals or entities not affiliated with the Partnership or its General Partners. In accordance with the partnership agreements under which such entities are organized ("Local Limited Partnership Agreements"), the Partnership depends on the Local General Partners for the management of each Local Limited Partnership. As of March 31, 2000, the following Local Limited Partnerships have a common Local General Partner or affiliated group of Local General Partners accounting for the specified percentage of the capital contributions to Local Limited Partnerships: (i) Timothy House and Maidens Choice, representing 10.07%, have Shelter Development Corp. as Local General Partner; (ii) Hillwood Pointe, Pinewood Pointe and Whispering Trace, representing 11.92%, have Flournoy Development Co. as Local General Partner; (iii) Silver Creek and Cedar Lane, representing .87%, have Robinson A. Williams as Local General Partner; (iv) Water Oak, Yester Oaks and Ocean View, representing 1.71%, have Seals & Associates, Inc. & E. Lamar Seals as Local General Partners; (v) Bixel House and Harmony Apartments, representing 7.07%, have Julian Weinstock Construction Co., Inc. as Local General Partner; and (vi) Carib Villas II and Carib Villas III, representing 1.21%, have First Centrum Corp. as Local General Partner. The Local General Partners of the remaining Local Limited Partnerships are identified in the Acquisition Reports, which are incorporated herein by this reference. The Properties owned by the Local Limited Partnerships in which the Partnership has invested are, and will continue to be, subject to competition from existing and future apartment complexes in the same areas. The continued success of the Partnership will depend on many outside factors, most of which are beyond the control of the Partnership and cannot be predicted at this time. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Properties are located, the availability and cost of borrowed funds, real estate tax rates, operating expenses, energy costs and government regulations. In addition, other risks inherent in real estate investment may influence the ultimate success of the Partnership, including: (i) possible reduction in rental income due to an inability to maintain high occupancy levels or adequate rental levels; (ii) possible adverse changes in general economic conditions and local conditions, such as competitive over-building, or a decrease in employment or adverse changes in real estate laws, including building codes; and (iii) the possible future adoption of rent control legislation which would not permit increased costs to be passed on to the tenants in the form of rent increases, or which suppress the ability of the Local Limited Partnerships to generate operating cash flow. Since most of the Properties benefit from some form of government assistance, the Partnership is subject to the risks inherent in that area including decreased subsidies, difficulties in finding suitable tenants and obtaining permission for rent increases. In addition, any Tax Credits allocated to investors with respect to a Property are subject to recapture to the extent that the Property or any portion thereof ceases to qualify for the Tax Credits. Other future changes in federal and state income tax laws affecting real estate ownership or limited partnerships could have a material and adverse affect on the business of the Partnership. The Partnership is managed by Arch Street V, Inc., the Managing General Partner of the Partnership. The other General Partner of the Partnership is Arch Street V Limited Partnership. The Partnership, which does not have any employees, reimburses Lend Lease Real Estate Investments, Inc., ("Lend Lease"), an affiliate of the General Partner for certain expenses and overhead costs. A complete discussion of the management of the Partnership is set forth in Item 10 of this Report. Item 2. Properties The Partnership owns limited partnership interests in twenty-six Local Limited Partnerships which own and operate Properties, some of which benefit from some form of federal, state or local assistance programs and all of which qualify for the Tax Credits added to the Code by the Tax Reform Act of 1986. The Partnership's ownership interest in each Local Limited Partnership is generally 99%, except for Strathern Park/Lorne Park, Westgate and Huguenot Park, where the Partnership's ownership interests are 95%, 49.5% and 88.55%, respectively. Each of the Local Limited Partnerships has received an allocation of Tax Credits from its relevant state tax credit agency. In general, the Tax Credit runs for ten years from the date the Property is placed in service. The required holding period (the "Compliance Period") of the properties is fifteen years. During these fifteen years, the properties must satisfy rent restrictions, tenant income limitations and other requirements, as promulgated by the Internal Revenue Service, in order to maintain eligibility for the Tax Credit at all times during the Compliance Period. Once a Local Limited Partnership has become eligible for the Tax Credits, it may lose such eligibility and suffer an event of recapture if its property fails to remain in compliance with the requirements. To date, none of the Local Limited Partnerships have suffered an event of recapture of Tax Credits. In addition, some of the Local Limited Partnerships have obtained one or a combination of different types of loans such as: i) below market rate interest loans; ii) loans provided by a redevelopment agency of the town or city in which the property is located at favorable terms; and iii) loans that have repayment terms that are based on a percentage of cash flow. The schedules on the following pages provide certain key information on the Local Limited Partnership interests acquired by the Partnership. Capital Contributions Total Paid Mortgage loans Occupancy Local Limited Partnership Number Committed at through payable at Type at Property Name of March 31, March 31, December 31, of March 31, Property Location Apt. Units 2000 2000 1999 Subsidy* 2000 - ------------------------------- -------------- ----------------- ------------- ---------------- ------------- ------------- Strathern Park/Lorne Park, a California Limited Partnership (1) Strathern Park/Lorne Park Los Angeles, CA 241 $8,418,667 $8,418,667 $17,356,140 None 100% Maiden Choice Limited Partnership Park Caton Catonsville, MD 101 2,513,300 2,513,300 4,005,020 None 100% Cedar Lane I, Ltd. Cedar Lane I London, KY 36 288,587 288,587 1,100,004 None 100% Silver Creek II, Ltd. Silver Creek II Berea, KY 24 193,278 193,278 766,558 None 100% Tompkins/Rosecliff, Ltd. Rosecliff Sanford, FL 168 3,604,720 3,604,720 5,531,104 None 98% Brookwood L.D.H.A. Brookwood Ypsilanti, MI 81 2,373,295 2,373,295 2,996,929 None 91% Water Oak Apartment, L.P. Water Oak Orange City, FL 40 293,519 293,519 1,252,979 None 100% Capital Contributions Total Paid Mortgage loans Occupancy Local Limited Partnership Number Committed at through payable at Type at Property Name of March 31, March 31, December 31, of March 31, Property Location Apt. Units 2000 2000 1999 Subsidy* 2000 - ------------------------------ ----------- ----------------- ----------------- -------------------- ------------- ------------- Yester Oaks, L.P. Yester Oaks Lafayette, GA 44 319,254 319,254 1,283,141 FmHA 97% Ocean View Apartments, L.P. Ocean View Fernandina Beach, FL 42 334,177 334,177 1,363,339 None 95% Burbank Limited Partnership I (2) Wheeler House Nashua, NH Archer Village, Ltd. Archer Village Archer, FL 24 171,380 171,380 706,791 FmHA 100% The Oaks of Dunlop Farms, L.P. Oaks of Dunlop Colonial Heights, VA 144 2,791,280 2,791,280 4,413,492 None 100% Timothy House Limited Partnership Timothy House Towson, MD 112 3,064,250 3,064,250 2,039,244 None 91% Westover Station Associates, L.P. Westover Station Newport News, VA 108 1,972,947 1,972,947 2,653,568 None 100% Capital Contributions Total Paid Mortgage loans Occupancy Local Limited Partnership Number Committed at through payable at Type at Property Name of March 31, March 31, December 31, of March 31, Property Location Apt. Units 2000 2000 1999 Subsidy* 2000 - --------------------------------- -------------- ------------ --------------- ------------------- ------------ ------------- Christiansted Limited Dividend Housing Association Carib III St. Croix, VI 24 322,260 322,260 1,478,494 FmHA 75% St. Croix II Limited Partnership Carib II St. Croix, VI 20 347,680 347,680 1,399,088 FmHA 90% Whispering Trace Apartments, A Limited Partnership Whispering Trace Woodstock, GA 40 1,093,330 1,093,330 1,358,987 None 91% Historic New Center Apartments Limited Partnership New Center Detroit, MI 104 3,077,187 3,077,187 2,913,936 Section 8 87% Huguenot Park Associates, L.P. Huguenot Park New Paltz, NY 24 982,358 982,358 1,400,000 None 100% Cobblestone Place Townhomes, A Limited Partnership Hillwood Pointe Jacksonville, FL 100 2,356,133 2,356,133 2,888,685 None 95% Kensington Place Townhomes, A Limited Partnership Pinewood Pointe Jacksonville, FL 136 3,153,173 3,153,173 3,911,198 None 96% Capital Contributions Total Paid Mortgage loans Occupancy Local Limited Partnership Number Committed at through payable at Type at Property Name of March 31, March 31, December 31, of March 31, Property Location Apt. Units 2000 2000 1999 Subsidy* 2000 - --------------------------------- -------------- ----------------- ------------ ---------------- ------------- ------------ Westgate Apartments Limited Partnership Westgate Bismark, ND 60 935,893 935,893 1,351,284 None 96% Woodlake Hills Limited Partnership Woodlake Hills Pontiac, MI 144 4,154,667 4,154,667 3,774,677 None 91% Bixel House, a California Limited Partnership Bixel House Los Angeles, CA 76 710,677 710,677 1,162,940 Section 8 92% Harmony Apartments, a California Limited Partnership Magnolia Villas North Hollywood, CA 65 3,203,996 3,203,996 2,206,214 None 100% Schumaker Place Associates, L.P. Schumaker Place Salisbury, MD 96 2,910,453 2,910,453 2,896,834 None 97% Circle Terrace Associates Limited Partnership Circle Terrace Lansdowne, MD 303 5,811,237 5,811,237 8,573,318 Section 8 97% ------- ------------ ------------ ------------- 2,357 $ 55,397,698 $ 55,397,698 $ 80,783,964 ======= ============ ============ ============= * FmHA This subsidy, which is authorized under Section 515 of the Housing Act of 1949, can be one or a combination of different types of financing. For instance, FmHA may provide: 1) direct below-market-rate mortgage loans for rural rental housing; 2) mortgage interest subsidies which effectively lower the interest rate of the loan to 1%; 3) a rental assistance subsidy to tenants which allows them to pay no more than 30% of their monthly income as rent with the balance paid by the federal government; or 4) a combination of any of the above. Section 8 This subsidy, which is authorized under Section 8 of Title II of the Housing and Community Development Act of 1974, allows qualified low-income tenants to pay 30% of their monthly income as rent with the balance paid by the federal government. (1) On January 1, 1994, Lorne Park merged into Strathern Park in a business combination accounted for as a pooling of interests. Lorne Park's total assets, liabilities and partners' equity were combined with Strathern Park at their existing book value, and neither partnership recognized a gain or loss on the merger. The combined Partnerships constructed a 241 Unit apartment project (Lorne Park: 72 Units, Strathern Park: 169 Units) for tenants whose income is very low to moderate. (2) In January 2000, the lender of Wheeler House foreclosed on the property. This Partnership had total capital contributions and mortgage payable amounts of $300,531 and $674,021, respectively as of the foreclosure date. Two Local Limited Partnerships invested in by the Partnership each represent more than 10% of the total capital contributions to be made to Local Limited Partnerships by the Partnership. The first is Strathern Park/Lorne Park, a California Limited Partnership. Strathern Park/Lorne Park, representing 15.20% of the total capital contributions to Local Limited Partnerships, is a 241-unit apartment complex located in Los Angeles, California. Strathern Park/Lorne Park is financed by a combination of private and public sources, including a first mortgage at 9.41% interest and 30 year term with California Community Reinvestment Corporation, a consortium of private lenders. Secondary financing has a term of 40 years and is provided by the Community Redevelopment Agency of the City of Los Angeles and a U.S. Housing and Urban Development Action Grant, with payments made from the residual receipts of the project. The other Local Limited Partnership which represents more than 10% of the total capital contributions made to Local Limited Partnerships is Circle Terrace Associates Limited Partnership. Circle Terrace, representing 10.49% of the total capital contributions to Local Limited Partnerships, is a substantially renovated 303-unit apartment complex located in Lansdowne, Maryland with 23 garden-style buildings and a newly-constructed community building. All of the units at Circle Terrace benefit from Section 8 Loan Management Set Aside Program. Additionally, Circle Terrace assumed a HUD Section 236 mortgage and financing by Crestar of Richmond Virginia, Inc. and by Maryland's Department of Housing and Community Rental Housing Program. The Property also has a loan financed by Baltimore County's Community Development Block Grant program, and it received weatherization funds from the U.S. Department of Energy. Duration of leases for occupancy in the Properties described above is six to twelve months. The Managing General Partner believes the described herein are adequately covered by insurance. Additional information required under this Item, as it pertains to the Partnership, is contained in Items 1, 7 and 8 of this Report. Item 3. Legal Proceedings The Partnership is not a party to any pending legal or administrative proceeding. However, Tompkins/Rosecliff, Ltd. which owns a property in Sanford, Florida, had been involved in certain litigation with an entity formerly affiliated with this Partnership and its previous local general partner. A settlement agreement was agreed upon in July 1999 totaling $200,000, of which the Partnership's share was $100,000. In the opinion of Management, this was an appropriate settlement, which it believes will eliminate the risk of foreclosure and recapture posed by this litigation. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrant's Units and Related Security Holder Matters There is no public market for the Units, and it is not expected that a public market will develop. If a Limited Partner desires to sell Units, the buyer of those Units will be required to comply with the minimum purchase and retention requirements and investor suitability standards imposed by applicable federal or state securities laws and the minimum purchase and retention requirements imposed by the Partnership. The price to be paid for the Units, as well as the commissions to be received by any participating broker-dealers, will be subject to negotiation by the Limited Partner seeking to sell his Units. Units will not be redeemed or repurchased by the Partnership. The Partnership Agreement does not impose on the Partnership or its General Partners any obligation to obtain periodic appraisals of assets or to provide Limited Partners with any estimates of the current value of Units. As of June 15, 2000, there were 3,241 record holders of Units of the Partnership. Cash distributions, when made, are paid annually. No cash distributions were paid for the years ended March 31, 2000, 1999 and 1998. Item 6. Selected Financial Data The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements and Notes thereto, which are included in Items 7 and 8 of this Report. Certain amounts have been restated to conform with current year presentation. March 31, March 31, March 31, March 31, March 31, 2000 1999 1998 1997 1996 Revenue $ 235,508 $ 281,041 $ 222,072 $ 204,683 $ 224,012 Equity in losses of Local Limited Partnerships (2,576,356) (2,932,545) (4,921,903) (4,044,413) (4,695,617) Net loss (3,006,310) (3,371,589) (5,794,498) (4,337,761) (4,952,448) Per Limited Partnership Unit (A) (43.18) (48.42) (83.22) (62.30) (71.13) Cash and cash equivalents 523,352 449,931 239,708 449,567 243,644 Marketable securities 2,332,268 2,666,281 3,064,717 2,840,127 3,099,255 Investment in Local Limited Partnerships 18,818,290 21,538,791 24,748,484 30,531,768 34,878,562 Total assets (B) 21,702,984 24,862,400 28,092,950 33,871,495 38,246,869 Total liabilities 295,987 405,479 286,362 298,276 318,728 Other data: Passive loss (C) (4,835,075) (5,120,476) (5,324,956) (5,154,301) (5,187,774) Per Limited Partnership Unit (A,C) (69.44) (73.54) (76.48) (74.03) (74.51) Portfolio income (C) 325,210 340,850 361,519 281,707 350,417 Per Limited Partnership Unit (A,C) 4.67 4.90 5.19 4.05 5.03 Low-Income Housing Tax Credit (C) 10,510,853 10,405,744 10,512,076 10,512,996 10,506,229 Per Limited Partnership Unit (A,C) 150.96 150.97 150.98 150.99 150.90 Local Limited Partnership interests owned at end of period (D, E) 26 27 27 27 27 (A) Per Limited Partnership Unit data is based upon 68,929 outstanding Units. (B) Total assets include the net investment in Local Limited Partnerships. (C) Income tax information is as of December 31, the year end of the Partnership for income tax purposes. (D) On January 1, 1994, Strathern Park and Lorne Park merged. (E) In January 2000, the Partnership wrote off the foreclosed Wheeler House property. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain matters discussed herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Partnership intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements, and are including this statement for purposes of complying with these safe harbor provisions. Although the Partnership believes the forward-looking statements are based on reasonable assumptions, the Partnership can give no assurance that their expectations will be attained. Actual results and timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including, without limitation, general economic and real estate conditions, and interest rates. Liquidity and Capital Resources At March 31, 2000, the Partnership had cash and cash equivalents of $523,352, compared with $449,931 at March 31, 1999. The increase is attributable to proceeds from sales and maturities of marketable securities and cash distributions received from Local Limited Partnerships, partially offset by net cash used for operations, investments in Local Limited Partnerships, and purchases of marketable securities. Approximately $2,231,000 of marketable securities has been designated as Reserves by the Managing General Partner. The Reserves were established to be used for working capital of the Partnership and contingencies related to the ownership of Local Limited Partnership interests. Management believes that the investment income earned on the Reserves, along with cash distributions received from Local Limited Partnerships, to the extent available, will be sufficient to fund the Partnership's ongoing operations and any contingencies that may arise. Reserves may be used to fund Partnership operating deficits, if the Managing General Partner deems funding appropriate. In the event a Local Limited Partnership encounters operating difficulties requiring additional funds, the Partnership might deem it in its best interests to provide such funds, voluntarily, in order to protect its investment. To date, the Partnership has advanced approximately $303,000 to Local Limited Partnerships to fund operating deficits. Since the Partnership invests as a limited partner, the Partnership has no contractual duty to provide additional funds to Local Limited Partnerships beyond its specified investment. Thus, at March 31, 2000, the Partnership had no contractual or other obligation to any Local Limited Partnership, which had not been paid or provided for. Cash Distributions No cash distributions were made during the years ended March 31, 2000, 1999 or 1998. It is not expected that cash available for distribution, if any, will be significant during the 2000 calendar year. Based on the results of 1999 operations, the Local Limited Partnerships are not expected to distribute significant amounts of cash to the Partnership because such amounts will be needed to fund Property operating costs. In addition, many of the Properties benefit from some type of federal or state subsidy and, as a consequence, are subject to restrictions on cash distributions. Results of Operations 2000 versus 1999 The Partnership's results of operations for the year ended March 31, 2000 resulted in a net loss of $3,006,310 as compared to a net loss of $3,371,589 for the same period in 1999. The decrease in net loss is primarily attributable to decreases in equity in losses of Local Limited Partnerships and general and administrative expenses. These effects were partially offset by provisions for valuation of investments in Local Limited Partnerships related to advances to two Local Limited Partnerships recorded in 2000, as well as a decrease in other revenue. Equity in losses of Local Limited Partnerships decreased primarily due to an increase in unrecognized losses for Local Limited Partnerships whose carrying values have been reduced to zero. 1999 versus 1998 The Partnership's results of operations for the year ended March 31, 1999 resulted in a net loss of $3,371,589 as compared to a net loss of $5,794,498 for the same period in 1998. The decrease in net loss is primarily attributable to a decrease in equity in losses of Local Limited Partnerships and a provision for valuation of Investment in Local Limited Partnership in 1998 not required in 1999. The decrease was partially offset by an increase in general and administrative expenses. Equity in losses of Local Limited Partnerships decreased primarily due to an increase in unrecognized losses for Local Limited Partnerships whose carrying values have been reduced to zero. Low-Income Housing Tax Credits The 2000, 1999, and 1998 Tax Credits per Unit were $150.96, $150.97 and $150.98, respectively. The Tax Credit per Limited Partnership Unit stabilized in 1993 at approximately $151.00 per Unit. The credits are expected to remain stable through the year 2000 and then they are expected to decrease as certain properties reach the end of the ten year credit period. However, because the compliance periods extend significantly beyond the tax credit periods, the Partnership is expected to retain most of its interests in the Local Limited Partnerships for the foreseeable future, which is well beyond 2000. Property Discussions Historic New Center in Detroit, Michigan has been generating operating deficits due to low occupancy and collection problems. However, as previously reported, the Managing General Partner was successful in finalizing the negotiations with the lenders for a loan modification. This loan modification should allow the property to meet debt service coverage and provide capital for the physical improvements. In addition, a new property manager was hired in October 1998. The new property manager is focusing on implementing a new marketing strategy and improving rent collections. As of March 31, 2000, occupancy for Historic New Center remained at 87%, the same as last quarter. However, bad debt expense continues to be high as a result of poor collections. The Managing General Partner continues to meet with property management on a monthly basis to monitor this issue. Westgate, located in North Dakota, had been experiencing operating deficits due to occupancy issues. Occupancy as of March 31, 2000 was 96%. Affiliates of the Managing General Partner have been working with the Local General Partner, who has raised some concerns over the long-term financial health of the property. In response to these concerns and to reduce possible future risk, the Managing General Partner consummated the transfer of 50% of the Partnership's capital and profits in the properties to an affiliate of the Local General Partner in November 1997. Subsequently, the Local General Partner transferred both its general partner interest and 48.5% of its partnership interest in Westgate to a non profit general partner effective June 17, 1999. The Managing General Partner has the right to transfer the Partnership's remaining interest to the new Local General Partner any time after one year from June 17, 1999. Further, the new Local General Partner has the right to call the remaining interest after the tax credit period has expired. As previously reported, in 1997, the Local General Partner, of Wheeler House, located in Nashua, New Hampshire was removed due to financial insolvency and an affiliate of the Managing General Partner stepped in as temporary Local General Partner. As the new Local General Partner, the affiliate of the Managing General Partner negotiated with the lender on temporary debt restructuring to reduce interest rates and extend the due date of the loan to 1998. However, in December 1999, the Lender began foreclosure proceedings. The foreclosure was completed in early January, 2000. The foreclosure will result in recapture of credits of approximately $3.70 per unit, which will be on the 2000 Schedule K-1 that will be filed in April of 2001. In addition, the foreclosure will result in the allocation of taxable income to the Partnership and loss of future benefits associated with this property. Since the property's carrying value was zero, the transaction had no financial statement impact. The Partnership has implemented policies and practices for assessing potential impairment of its investments in Local Limited Partnerships. The investments are analyzed by real estate experts to determine if impairment indicators exist. If so, the carrying value is compared to the undiscounted future cash flows expected to be derived from the asset. If there is a significant impairment in carrying value, a provision to write down the asset to fair value will be recorded in the Partnership's financial statements. Inflation and Other Economic Factors Inflation had no material impact on the operations or financial condition of the Partnership for the years ended March 31, 2000, 1999 and 1998. Since some of the properties benefit from some form of government assistance, the Partnership is subject to the risks inherent in that area including decreased subsidies, difficulties in finding suitable tenants and obtaining permission for rent increases. In addition, any Tax Credits allocated to investors with respect to a property are subject to recapture to the extent that the property or any portion thereof ceases to qualify for the Tax Credits. Certain of the Properties in which the Partnership invests may be located in areas suffering from poor economic conditions. Such conditions could have an adverse effect on rent or occupancy levels at such properties. Nevertheless, management believes that the generally high demand for below market rate housing will tend to negate such factors. However, no assurance can be given in this regard. Other Development Lend Lease Real Estate Investments, Inc. ("Lend Lease"), the U.S. subsidiary of Lend Lease Corporation and the leading U.S. institutional real estate advisor, as ranked by assets under management, acquired The Boston Financial Group Limited Partnership ("Boston Financial") on November 3, 1999. Headquartered in New York and Atlanta, Lend Lease Corporation has regional offices in 12 cities nationwide. The company ranks as the leading U.S. manager of tax-exempt assets invested in real estate. Lend Lease is a subsidiary of Lend Lease Corporation, an international real estate and financial services group listed on the Australian Stock Exchange. Worldwide, Lend Lease Corporation operates from more than 30 cities on five continents: North America, Europe, Asia, Australia and South America. In addition to real estate investments, the Lend Lease Group operates in the areas of property development, project management and construction, and capital services (infrastructure). Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Partnership has invested in marketable securities with a fair value of $2,332,268 at March 31, 2000; these securities, with rates ranging from 4.88% to 8.50%, do not subject the Partnership to significant market risk because of their short term maturities and high liquidity. The Partnership has no other exposure to market risk associated with activities in derivative financial instruments, derivative commodity instruments, or other financial instruments. Item 8. Financial Statements and Supplementary Data Information required under this Item is submitted as a separate section of this Report. See Index on page F-1 hereof. 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 Managing General Partner of the Partnership is Arch Street V, Inc., a Massachusetts corporation (the "Managing General Partner"), an affiliate of Lend Lease Real Estate Investments, Inc. ("Lend Lease"). The Managing General Partner was incorporated in June 1989. Randolph G. Hawthorne is the Chief Operating Officer of the Managing General Partner and had the primary responsibility for evaluating, selecting and negotiating investments for the Partnership. The Investment Committee of the Managing General Partner approved all investments. The names and positions of the principal officers and the directors of the Managing General Partner are set forth below. Name Position Jenny Netzer President, Managing Director Michael H. Gladstone Vice President, Managing Director Randolph G. Hawthorne Vice President, Managing Director Paul F. Coughlan Vice President William E. Haynsworth Vice President The other General Partner of the Partnership is Arch Street V Limited Partnership, a Massachusetts limited partnership ("Arch Street L.P.") that was organized in June 1989. Arch Street, Inc. is the managing general partner of Arch Street L.P. The Managing General Partner provides day-to-day management of the Partnership. Compensation is discussed in Item 11 of this report. Such day-to-day management does not include the management of the Properties. The business experience of each of the persons listed above is described below. There is no family relationship between any of the persons listed in this section. Jenny Netzer, age 44, Principal, Head of Housing and Community Investing. - Responsible for tax credit investment programs to institutional clients. Joined Lend Lease through its 1999 acquisition of Boston Financial, started with Boston Financial in 1987. Previously, led Boston Financial's new business initiatives and managed firm's Asset Management division, responsible for performance of 750 properties and providing service to 35,000 investors. Prior to joining Boston Financial, served as Deputy Budget Director for Commonwealth of Massachusetts, responsible for Commonwealth's health care and public pension program's budgets, served as Assistant Controller at Yale University and former member of Watertown Zoning Board of Appeals Officer of Affordable Housing Tax Credit Coalition and frequent speaker on affordable housing and tax credit industry issues, BA Harvard University; Master's in Public Policy Harvard's Kennedy School of Government. Michael H. Gladstone, age 43, Principal, Legal - Responsible for legal work in the areas of affordable and conventional housing and investment products and services. Joined Lend Lease through its 1999 acquisition of Boston Financial, started with Boston Financial in 1985; served as firm's General Counsel. Prior to joining Boston Financial, associated with law firm of Herrick & Smith, served on advisory board of Housing and Development Reporter. Lectured at Harvard University on affordable housing matters, Member, The National Realty Committee, Cornell Real Estate Council, National Association of Real Estate Investment Managers and Massachusetts Bar, BA Emory University; JD & MBA Cornell University. Randolph G. Hawthorne, age 50, Principal, Housing and Community Investing - Responsible for structuring and acquiring real estate investments. Joined Lend Lease through its 1999 acquisition of Boston Financial, started with Boston Financial in 1973. Previously, served as Boston Financial's Treasurer, Past Chairman of the Board of the National Multi Housing Council, having served on the board since 1989, Past President of the National Housing and Rehabilitation Association, Member, Multifamily Council of the Urban Land Institute, Frequent speaker at industry conferences. Serves on the Editorial Advisory Boards of the Tax Credit Advisor and Multi-Housing News, BS Massachusetts Institute of Technology; MBA Harvard Graduate School of Business. Board of Directors National Housing Conference. Graduated MIT 1971, HBS 1973. Paul F. Coughlan, age 56, Principal, Housing and Community Investing - Responsible for marketing and sales of institutional tax credit investments. Joined Lend Lease through its 1999 acquisition of Boston Financial, started with Boston Financial in 1975. Previously, served as sales manager for Boston Financial's retail tax credit fund, AB Brown University. William E. Haynsworth, age 60, Principal, Housing and Community Investing - Responsible for the structuring of real estate investments and the acquisition of property interests. Joined Lend Lease through its 1999 acquisition of Boston Financial, started with Boston Financial in 1977. Prior to joining Boston Financial, Acting Executive Director and General Counsel of the Massachusetts Housing Finance Agency. Served as Director of Non-Residential Development of the Boston Redevelopment Authority and Associate of Goodwin, Proctor & Hoar, Past President and current Chairman of the Board of Directors of Affordable Housing Tax Credit Coalition, BA Dartmouth College; LLB and LLM Harvard Law School. Item 11. Management Remuneration Neither the directors nor officers of Arch Street, Inc., the partners of Arch Street L.P. nor any other individual with significant involvement in the business of the Partnership receives any current or proposed remuneration from the Partnership. Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 31, 2000, the following is the only entity known to the Partnership to be the beneficial owner of more than 5% of the total number of Units outstanding: Amount Title of Name and Address Beneficially Percent of Class of Beneficial Owner Owned Class Limited Oldham Institutional Tax Credits LLC 8,024 Units 11.64% Partner 101 Arch Street Boston, MA Oldham Institutional Tax Credits LLC is an affiliate of Arch Street V, Inc., the Managing General Partner. The equity securities registered by the Partnership under Section 12(g) of the Act consist of 100,000 Units, 68,929 of which had been sold to the public as of March 31, 2000. The remaining Units were deregistered in Post-Effective Amendment No. 6, dated January 21, 1992, herein incorporated by this reference. Holders of Units are permitted to vote on matters affecting the Partnership only in certain unusual circumstances and do not generally have the right to vote on the operation or management of the Partnership. Arch Street L.P. owns five (unregistered) Units not included in the 68,929 Units sold to the public. Additionally, five registered Units were sold to an employee of an affiliate of the Managing General Partner of the Registrant. Such Units were sold at a discount of 7% of the Unit price for a total discount of $350 and a total purchase price of $4,650. Except as described in the preceding paragraphs, neither Arch Street, Inc., Arch Street L.P., Lend Lease nor any of their executive officers, directors, partners or affiliates is the beneficial owner of any Units. None of the foregoing persons possesses a right to acquire beneficial ownership of Units. The Partnership does not know of any existing arrangement that might at a later date result in a change in control of the Partnership. Item 13. Certain Relationships and Related Transactions The Partnership paid certain fees to and reimbursed certain expenses of the Managing General Partner or its affiliates in connection with the organization of the Partnership and the offering of Units. The Partnership was also required to pay certain fees to and reimburse certain expenses of the Managing General Partner or its affiliates in connection with the administration of the Partnership and its acquisition and disposition of investments in Local Limited Partnerships. In addition, the General Partners are entitled to certain Partnership distributions under the terms of the Partnership Agreement. Also, an affiliate of the General Partners will receive up to $10,000 from the sale or refinancing proceeds of each Local Limited Partnership if it is still a limited partner at the time of such a transaction. All such fees, expenses and distributions are more fully described in the sections of the Prospectus entitled "Estimated Use of Proceeds", "Management Compensation and Fees" and "Profits and Losses for Tax Purposes, Tax Credits and Cash Distributions". Such sections are incorporated herein by reference. In addition, affiliates of the Managing General Partner serve as property management agents for New Center, Carib II, Carib III and Woodlake Hills. The Partnership is permitted to enter into transactions involving affiliates of the Managing General Partner, subject to certain limitations established in the Partnership Agreement. Information regarding the fees paid and expense reimbursements made in the three ended March 31, 2000 is presented below. Organizational fees and expenses In accordance with the Partnership Agreement, the Partnership was required to pay certain fees to and reimburse expenses of the General Partners and others in connection with the organization of the Partnership and the offering of its Limited Partnership Units. Selling commissions, fees and accountable expenses related to the sale of the Units totaling $9,499,984 have been charged directly to Limited Partners' equity. In connection therewith, $5,858,935 of selling expenses and $3,641,049 of offering expenses incurred on behalf of the Partnership have been paid to an affiliate of the General Partners. The Partnership was required to pay a non-accountable expense allowance for marketing expenses equal to a maximum of 1% of Gross Proceeds; this is included in total offering expenses. The Partnership has capitalized an additional $50,000 which was reimbursed to an affiliate of the General Partners. Total organization and offering expenses, exclusive of selling commissions, did not exceed 5.5% of the Gross Proceeds and organizational and offering expenses, inclusive of selling commissions did not exceed 14.0% of the Gross Proceeds. No organizational fees and expenses and selling expenses were paid during the three years ended March 31, 2000. Acquisition fees and expenses In accordance with the Partnership Agreement, the Partnership was required to pay acquisition fees to and reimburse acquisition expenses of the Managing General Partner or its affiliates for selecting, evaluating, structuring, negotiating and closing the Partnership's investments in Local Limited Partnerships. Acquisition fees totaled 7% of the gross offering proceeds. Acquisition expenses, which include such expenses as legal fees and expenses, travel and communications expenses, costs of appraisals, accounting fees and expenses, were expected to total 1.5% of the gross offering proceeds. As of March 31, 2000, acquisition fees totaling $4,825,005 for the closing of the Partnership's Local Limited Partnership Investments have been paid to an affiliate of the Managing General Partner. Acquisition expenses totaling $899,430 at March 31, 2000 were incurred and have been reimbursed to an affiliate of the Managing General Partner. No acquisition fees or expenses were paid during the three years ended March 31, 2000. Asset Management Fees In accordance with the Partnership Agreement, an affiliate of the Managing General Partner is paid an Asset Management Fee for services in connection with the administration of the affairs of the Partnership. The affiliate currently receives the base amount of .365% (as adjusted by the CPI factor) of Gross Proceeds annually as the Asset Management Fee. Asset Management Fees incurred in each of the three years ended March 31, 2000 are as follows: 2000 1999 1998 ---------- ---------- ---------- Asset Management Fees $ 247,331 $ 243,169 $ 238,087 Salaries and benefits expense reimbursements An affiliate of the Managing General Partner is reimbursed for the cost of the Partnership's salaries and benefits expenses. The reimbursements are based upon the size and complexity of the Partnership's operations. Reimbursements paid or payable in each of the three years ended March 31, 2000 are as follows: 2000 1999 1998 ----------- ----------- -------- Salaries and benefits expense reimbursements $ 139,757 $ 109,845 $ 127,926 Property Management Fees Affiliates of the Managing General Partner are management agents for four Local Limited Partnerships. Fees charged in each of the two years ended December 31, 1999 are as follows: 1999 1998 1997 ----------- ----------- -------- Property Management Fees $ 84,640 $ 80,455 $ 77,858 Cash distributions paid to the General Partners In accordance with the Partnership Agreement, the General Partners of the Partnership, Arch Street V, Inc. and Arch Street V Limited Partnership, receive 1% of cash distributions paid to partners. No cash distributions were paid to the General Partners in the three years ended March 31, 2000. Additional information concerning cash distributions and other fees paid or payable to the Managing General Partner and its affiliates and the reimbursement of expenses paid or payable to Lend Lease and its affiliates for the three years ended March 31, 2000 is presented in Note 5 to the Financial Statements. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) and (a)(2) Documents filed as a part of this Report In response to this portion of Item 14, the financial statements, financial statement schedule and the auditors' report relating thereto are submitted as a separate section of this Report. See Index to the Financial Statements on page F-1 hereof. The reports of auditors of the Local Limited Partnerships relating to the audits of the financial statements of such Local Limited Partnerships appear in Exhibit 28.1 of this Report. All other financial statement schedules and exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under related instructions or are inapplicable and therefore have been omitted. (a)(3) See Exhibit Index contained herein. (a)(3)(b) Reports on Form 8-K: No reports on Form 8-K were filed during the year ended March 31, 2000. (a)(3)(c) Exhibits Number and Description in Accordance with Item 601 of Regulation S-K 18. Letter on Change in Accounting Principle 27. Financial Data Schedule 28. Additional Exhibits (a) 28.1 Reports of Other Independent Auditors (b) Audited financial statements of Local Limited Partnerships Strathern Park/Lorne Park Circle Terrace (a)(3)(d) None. 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. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V By: Arch Street V, Inc. its Managing General Partner By: /s/Randolph G. Hawthorne Date: June 29, 2000 ------------------------ ------------- Randolph G. Hawthorne, Managing Director, Vice President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Managing General Partner of the Partnership and in the capacities and on the dates indicated: By: /s/Randolph G. Hawthorne Date: June 29, 2000 ------------------------------ ------------- Randolph G. . Hawthorne, Managing Director, Vice President and Chief Operating Officer By: /s/Michael H. Gladstone Date: June 29, 2000 ----------------------- ------------- Michael H. Gladstone, Managing Director, Vice President Item 8. Financial Statements and Supplementary Data BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) Annual Report on Form 10-K For The Year Ended March 31, 2000 Index Page No. Report of Independent Accountants For the years ended March 31, 2000, 1999 and 1998 F-2 Financial Statements Balance Sheets - March 31, 2000 and 1999 F-3 Statements of Operations - Years Ended March 31, 2000, 1999 and 1998 F-4 Statements of Changes in Partners' Equity (Deficiency) - Years Ended March 31, 2000, 1999 and 1998 F-5 Statements of Cash Flows - Years Ended March 31, 2000, 1999 and 1998 F-6 Notes to the Financial Statements F-7 Financial Statement Schedule Schedule III - Real Estate and Accumulated Depreciation F-16 See also Index to Exhibits on Page K-22 for the financial statements of the Local Limited Partnerships included as a separate exhibit in this Annual Report on Form 10-K. Other schedules have been omitted as they are either not required or the information required to be presented therein is available elsewhere in the financial statements and the accompanying notes and schedules. REPORT OF INDEPENDENT ACCOUNTANTS To the Partners Boston Financial Qualified Housing Tax Credits L.P. V: In our opinion, based on our audits and the reports of other auditors, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Boston Financial Qualified Housing Tax Credits L.P. V (the "Fund") at March 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain local limited partnerships for which $35,175,229 and $32,930,842 of cumulative equity in losses are included in the balance sheet as of March 31, 2000 and 1999, respectively, and for which net losses of $2,576,356, $2,932,545, and $4,921,903 are included in the accompanying financial statements for the years ended March 31, 2000, 1999, 1998, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for the Local Limited Partnerships, is based solely on the reports of the other auditors. We conducted our audits of these financial statements in accordance with auditing standard generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinions expressed above. As discussed in Note 2 to the financial statements, in 2000 the Partnership changed the basis of presentation of its financial statements from a combined basis to a stand-alone basis. The 1999 financial statements have been restated to show the effects of this change in reporting entity. /S/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP June 22, 2000 Boston, Massachusetts BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) BALANCE SHEETS March 31, 2000 and 1999 1999 2000 (Restated) Assets Cash and cash equivalents $ 523,352 $ 449,931 Accounts receivable from affiliates - 174,739 Investments in Local Limited Partnerships, net (Note 4) 18,818,290 21,538,791 Marketable securities, at fair value (Note 3) 2,332,268 2,666,281 Other assets 29,074 32,658 ------------- ------------- Total Assets $ 21,702,984 $ 24,862,400 ============= ============= Liabilities and Partners' Equity Accounts payable to affiliates (Note 5) $ 121,184 $ 143,443 Accounts payable and accrued expenses 43,605 115,218 Deferred revenue (Note 6) 131,198 146,818 ------------- ------------- Total Liabilities 295,987 405,479 ------------- ------------- General, Initial and Investor Limited Partners' Equity 21,443,142 24,449,452 Net unrealized gains (losses) on marketable securities (36,145) 7,469 ---------------- ------------- Total Partners' Equity 21,406,997 24,456,921 ------------- ------------- Total Liabilities and Partners' Equity $ 21,702,984 $ 24,862,400 ============= ============= The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) STATEMENTS OF OPERATIONS For the Years Ended March 31, 2000, 1999 and 1998 1999 1998 2000 (Restated) (Restated) Revenue: Investment $ 156,312 $ 158,954 $ 179,908 Other 79,196 122,087 42,164 ------------- ------------- -------------- Total Revenue 235,508 281,041 222,072 ------------- ------------- -------------- Expenses: General and administrative (includes reimbursements to an affiliate in the amounts of $139,757, $109,845 and $127,926 in 2000, 1999 and 1998, respectively) (Note 5) 219,794 453,057 237,092 Asset management fees, related party (Note 5) 247,331 243,169 238,087 Provision for valuation of investment in Local Limited Partnership 174,739 - 590,197 Amortization 23,598 23,859 29,291 ------------- ------------- -------------- Total Expenses 665,462 720,085 1,094,667 ------------- ------------- -------------- Loss before equity in losses of Local Limited Partnerships (429,954) (439,044) (872,595) Equity in losses of Local Limited Partnerships (Note 4) (2,576,356) (2,932,545) (4,921,903) ------------- ------------- -------------- Net Loss $ (3,006,310) $ (3,371,589) $ (5,794,498) ============= ============= ============== Net Loss allocated: General Partners $ (30,063) $ (33,716) $ (57,945) Limited Partners (2,976,247) (3,337,873) (5,736,553) ------------- ------------- -------------- $ (3,006,310) $ (3,371,589) $ (5,794,498) ============= ============= ============== Net Loss per Limited Partnership Unit (68,929 Units) $ (43.18) $ (48.42) $ (83.22) ============= ============= ============== The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY) For the Years Ended March 31, 2000, 1999 and 1998 Net Initial Investor Unrealized General Limited Limited Gains Partners Partner Partners (Losses) Total Balance at March 31, 1997 $ (255,951) $ 5,000 $ 33,866,490 $ (42,320) $ 33,573,219 ------------ ------------ ------------ ------------ ------------ Comprehensive Income (Loss): Change in net unrealized losses on marketable securities available for sale - - - 27,867 27,867 Net Loss (57,945) - (5,736,553) - (5,794,498) ------------ ------------ ------------ ------------ ------------ Comprehensive Income (Loss) (57,945) - (5,736,553) 27,867 (5,766,631) ------------ ------------ ------------ ------------ ------------ Balance at March 31, 1998 (restated) (313,896) 5,000 28,129,937 (14,453) 27,806,588 ------------ ------------ ------------ ------------ ------------ Comprehensive Income (Loss): Change in net unrealized losses on marketable securities available for sale - - - 21,922 21,922 Net Loss (33,716) - (3,337,873) - (3,371,589) ------------ ------------ ------------ ------------ ------------ Comprehensive Income (Loss) (33,716) - (3,337,873) 21,922 (3,349,667) ------------ ------------ ------------ ------------ ------------ Balance at March 31, 1999 (restated) (347,612) 5,000 24,792,064 7,469 24,456,921 ------------ ------------ ------------ ------------ ------------ Comprehensive Loss: Change in net unrealized gains on marketable securities available for sale - - - (43,614) (43,614) Net Loss (30,063) - (2,976,247) - (3,006,310) ------------ ------------ ------------ ------------ ------------ Comprehensive Loss (30,063) - (2,976,247) (43,614) (3,049,924) ------------ ------------ ------------ ------------ ------------ Balance at March 31, 2000 $ (377,675) $ 5,000 $ 21,815,817 $ (36,145) $21,406,997 ============ ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) STATEMENTS OF CASH FLOWS For the Years Ended March 31, 2000, 1999 and 1998 1999 1998 2000 (Restated) (Restated) Cash flows from operating activities: Net loss $ (3,006,310) $ (3,371,589) $ (5,794,498) Adjustments to reconcile net loss to net cash used for operating activities: Equity in losses of Local Limited Partnerships 2,576,356 2,932,545 4,921,903 Provision for valuation of Investment in Local Limited Partnership 174,739 - 590,197 Amortization 23,598 23,859 29,291 (Gain) Loss on sales and maturities of marketable securities (2,498) 14,790 (1,154) Cash distribution income included in cash Distributions received from Local Limited Partnerships (5,132) (65,089) - Increase (decrease) in cash arising from changes in operating assets and liabilities: Other assets 3,584 6,383 10,992 Accounts payable to affiliate (22,259) 64,233 (9,017) Accounts payable and accrued expenses (71,613) 47,527 31,999 Deferred revenue (15,620) 7,357 (34,896) ------------- ------------- ------------- Net cash used for operating activities (345,155) (339,984) (255,183) ------------- ------------- ------------- Cash flows from investing activities: Investments in Local Limited Partnerships (127,767) (50,420) - Purchases of marketable securities (1,067,998) (2,523,829) (2,889,608) Proceeds from sales and maturities of marketable securities 1,360,895 2,929,397 2,694,039 Cash distributions received from Local Limited Partnerships 253,446 368,798 241,893 Advances to Local Limited Partnerships (188,700) (173,739) (1,000) Repayment of advances to Local Limited Partnerships 188,700 - - ------------- ------------- ------------- Net cash provided by investing activities 418,576 550,207 45,324 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents 73,421 210,223 (209,859) Cash and cash equivalents, beginning 449,931 239,708 449,567 ------------- ------------- ------------- Cash and cash equivalents, ending $ 523,352 $ 449,931 $ 239,708 ============= ============= ============= The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) Notes to the Financial Statements 1. Organization Boston Financial Qualified Housing Tax Credits L.P. V ("the Partnership") was formed on June 16, 1989 under the laws of the State of Massachusetts for the primary purpose of investing, as a limited partner, in other limited partnerships ("Local Limited Partnerships"), some of which own and operate apartment complexes benefiting from some form of federal, state or local assistance, and each of which qualifies for low-income housing tax credits. The Partnership's objectives are to: (i) provide current tax benefits in the form of tax credits which qualified investors may use to offset their federal income tax liability; (ii) preserve and protect the Partnership's capital; (iii) provide limited cash distributions from property operations which are not expected to constitute taxable income during Partnership operations; and (iv) provide cash distributions from sale or refinancing transactions. The General Partners of the Partnership are Arch Street V, Inc., a Massachusetts corporation, which serves as the Managing General Partner, and Arch Street V Limited Partnership, a Massachusetts Limited Partnership whose general partner consists of Arch Street V, Inc., which also serves as the Initial Limited Partner. Both of the General Partners are affiliates of Lend Lease Real Estate Investments, Inc. ("Lend Lease"). The fiscal year of the Partnership ends on March 31. The Partnership's partnership agreement (the "Partnership Agreement") authorized the sale of up to 100,000 units of limited partnership interest ("Units") at $1,000 per Unit, adjusted for certain discounts. On August 31, 1991, the Partnership held its final investor closing. In total, the Partnership received $68,928,650 of capital contributions, net of discounts, from investors admitted as Limited Partners for 68,929 Units. Generally, profits, losses, tax credits and cash flows from operations are allocated 99% to the Limited Partners and 1% to the General Partners. Net proceeds from a sale or refinancing will be allocated 95% to the Limited Partners and 5% to the General Partners after certain priority payments. Under the terms of the Partnership Agreement, the Partnership initially designated 4% of the Gross Proceeds from the sale of Units as a reserve for working capital of the Partnership and contingencies related to ownership of Local Limited Partnership interests. The Managing General Partner may increase or decrease such Reserves from time to time, as it deems appropriate. At March 31, 2000, the Managing General Partner has designated approximately $2,231,000 of marketable securities as such Reserves. 2. Significant Accounting Policies Basis of Presentation The Partnership accounts for its investments in Local Limited Partnerships using the equity method of accounting because the Partnership does not have control over the major operating and financial policies of the Local Limited Partnerships in which it invests. Under the equity method, the investment is carried at cost, adjusted for the Partnership's share of income or loss of the Local Limited Partnerships, additional investments in and cash distributions from the Local Limited Partnerships. Equity in income or loss of the Local Limited Partnerships is included in the Partnership's operations. The Partnership has no obligation to fund liabilities of the Local Limited Partnerships beyond its investment and therefore a Local Limited Partnership's investment will not be carried below zero. To the extent that equity losses are incurred when a Local Limited Partnership's respective investment balance has been reduced to zero, the losses will be suspended to be used against future income. Distributions received from Local Limited Partnerships whose respective investment balance has been reduced to zero are included in income. Excess investment costs over the underlying net assets acquired have arisen from acquisition fees paid and expenses reimbursed to an affiliate of the Partnership. These fees and expenses are included in the Partnership's Investments in Local Limited Partnerships and are being amortized on a straight-line basis over 35 years. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies (continued) Basis of Presentation (continued) The General Partners have decided to report the results of the Local Limited Partnerships on a 90-day lag basis because the Local Limited Partnerships report their results on a calendar year basis. Accordingly, the financial information of the Local Limited Partnerships that is included in the accompanying financial statements is as of December 31, 1999, 1998 and 1997. The general partner of Wheeler House Apartments, Ltd. ("Wheeler House") Local Limited Partnership and the General Partner of the Partnership are affiliated entities. In prior periods, the Partnership combined its financial statements with those of Wheeler House. During 2000, the General Partner concluded that the presentation of the financial position and results of operations of the Partnership, with Wheeler House accounted for using the equity method, resulted in a more meaningful presentation. All prior period financial data has been restated to reflect the change in reporting entity. The Partnership recognizes a decline in the carrying value of its investments in Local Limited Partnerships when there is evidence of a non-temporary decline in the recoverable amount of the investment. There is a possibility that the estimates relating to reserves for non-temporary declines in carrying value of investments in Local Limited Partnerships may be subject to material near term adjustments. The Partnership, as a limited partner in the Local Limited Partnerships, is subject to risks inherent in the ownership of property which are beyond its control, such as fluctuations in occupancy rates and operating expenses, variations in rental schedules, proper maintenance and continued eligibility for tax credits. If the cost of operating a property exceeds the rental income earned thereon, the Partnership may deem it in its best interest to voluntarily provide funds in order to protect its investment. Cash Equivalents Cash equivalents consist of short-term money market instruments with original maturities of ninety days or less at acquisition and approximate fair value. Marketable Securities Marketable securities consists primarily of U.S. Treasury instruments and various asset-backed investment vehicles. The Partnership's marketable securities are classified as "Available for Sale" securities and are reported at fair value as reported by the brokerage firm at which the securities are held. Realized gains and losses from the sales of securities are based on the specific identification method. Unrealized gains and losses are excluded from earnings and reported as a separate component of partners' equity. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. Income Taxes No provision for income taxes has been made as the liability for such taxes is an obligation of the partners of the Partnership. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 2. Significant Accounting Policies (continued) Fair Value of Financial Instruments Statements of Financial Accounting Standards No. 107 ("SFAS No. 107"), Disclosures About Fair Value of Financial Instruments, requires disclosure for the fair value of most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. The scope of SFAS No. 107 excludes certain financial instruments, such as trade receivables and payables when the carrying value approximates the fair value, investments accounted for under the equity method, and all nonfinancial assets such as real property. Unless otherwise described, the fair values of the Partnership's assets and liabilities which qualify as financial instruments under SFAS No. 107 approximate their carrying amounts in the accompanying balance sheets. Reclassifications Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. 3. Marketable Securities A summary of marketable securities is as follows: Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value Debt securities issued by the US Treasury and other US government corporations and agencies $ 2,046,494 $ 1,407 $ (26,680) $ 2,021,221 Mortgage backed securities 321,919 95 (10,967) 311,047 ------------ ----------- ---------- ------------ Marketable securities at March 31, 2000 $ 2,368,413 $ 1,502 $ (37,647) $ 2,332,268 ============ =========== ========== ============ A summary of marketable securities is as follows: Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value Debt securities issued by the US Treasury and other US government corporations and agencies $ 2,347,480 $ 11,715 $ (4,787) $ 2,354,408 Mortgage backed securities 311,332 1,865 (1,324) 311,873 ------------ ----------- ---------- ------------ Marketable securities at March 31, 1999 $ 2,658,812 $ 13,580 $ (6,111) $ 2,666,281 ============ =========== ========== ============ The contractual maturities at March 31, 2000 are as follows: Fair Cost Value Due in less than one year $ 998,056 $ 994,143 Due in one year to five years 1,048,438 1,027,078 Mortgage backed securities 321,919 311,047 ----------- ----------- $ 2,368,413 $ 2,332,268 =========== =========== BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 3. Marketable Securities (continued) Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay obligations. Proceeds from the sales and maturities of marketable securities were approximately $493,000, $451,000 and $1,792,000 during the years ended March 31, 2000, 1999 and 1998, respectively. Proceeds from the maturities of marketable securities were approximately $868,000, $2,479,000 and $902,000 during the years ended March 31, 2000, 1999 and 1998, respectively. Included in investment income are gross gains of $2,617, $4,895 and $7,205 and gross losses of $119, $19,685 and $6,051 that were realized on the sales during the years ended March 31, 2000, 1999 and 1998, respectively. 4. Investments in Local Limited Partnerships The Partnership uses the equity method to account for its limited partner interest in twenty-six Local Limited Partnerships. Each of these Local Limited Partnerships owns and operates multi-family housing complexes, most of which are government-assisted. The Partnership, as Investor Limited Partner pursuant to the various Local Limited Partnership Agreements which contain certain operating and distribution restrictions, has generally acquired a 99% interest in the profits, losses, tax credits and cash flows from operations of each of the Local Limited Partnerships, with the exception of Strathern Park/Lorne Park Apartments, Westgate and Huguenot Park, which are 95%, 49.5% and 88.55%, respectively. Upon dissolution, proceeds will be distributed according to each respective partnership agreement. The following is a summary of Investments in Local Limited Partnerships at March 31: 1999 1998 2000 (Restated) (Restated) Capital contributions and advances paid to Local Limited Partnerships and purchase price paid to withdrawing partners of Local Limited Partnerships $ 55,571,437 $ 55,570,462 $ 55,520,042 Cumulative equity in losses of Local Limited Partnerships (excluding cumulative unrecognized losses of $2,566,642, $1,290,733 and $177,371 in 2000, 1999 and 1998, respectively) (35,175,229) (32,930,842) (30,063,386) Cumulative cash distributions received from Local Limited Partnerships (1,594,323) (1,341,854) (973,056) ------------- ------------- ------------- Investments in Local Limited Partnerships before adjustment 18,801,885 21,297,766 24,483,600 Excess of investment cost over the underlying net assets acquired: Acquisition fees and expenses 1,006,357 1,039,751 1,039,751 Accumulated amortization of acquisition fees and expenses (226,016) (208,529) (184,670) ------------- ------------- ------------- Investments in Local Limited Partnerships 19,582,226 22,128,988 25,338,681 Reserve for valuation of Investment in Local Limited Partnership (763,936) (590,197) (590,197) ------------- ------------- ------------- $ 18,818,290 $ 21,538,791 $ 24,748,484 ============= ============= ============= BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 4. Investments in Local Limited Partnerships (continued) The Partnership has provided a reserve for valuation for one of its investments in Local Limited Partnerships, Westgate Apartments, because there is evidence of a non-temporary decline in the recoverable amount of the investment. The lender for Wheeler House foreclosed on the property in January 2000. The Partnership does not anticipate any further obligations, receipts or operations relative to this property. As no material gain or loss is expected, and the Partnership's net investment is zero, all capital accounts have been written off and excluded from the above investment amounts as of March 31, 2000. Summarized financial information as of December 31, 1999, 1998 and 1997 (due to the Partnership's policy of reporting the financial information of its Local Limited Partnership interests on a 90 day lag basis) of all Local Limited Partnerships in which the Partnership has invested as of that date is as follows: Summarized Balance Sheets - as of December 31, 1998 1997 1999 (Restated) (Restated) Assets: Investment property, net $ 105,177,955 $ 109,435,843 $ 113,801,556 Current assets 3,101,609 3,057,635 3,323,600 Other assets 5,902,390 5,871,685 5,952,402 -------------- -------------- -------------- Total Assets $ 114,181,954 $ 118,365,163 $ 123,077,558 ============= ============== ============== Liabilities and Partners' Equity: Long-term debt, net of current portion $ 81,383,935 $ 82,067,318 $ 84,748,636 Current liabilities (including current portion of long-term debt) 2,803,716 9,399,982 8,071,988 Other liabilities 9,502,115 2,206,860 1,480,334 -------------- -------------- -------------- Total Liabilities 93,689,766 93,674,160 94,300,958 Partnership's Equity 15,351,058 19,610,331 23,844,561 Other Partners' Equity 5,141,130 5,080,672 4,932,039 -------------- -------------- -------------- Total Liabilities and Partners' Equity $ 114,181,954 $ 118,365,163 $ 123,077,558 ============== ============== ============== Summarized Income Statements - for the years ended December 31, Rental and other income: $ 15,034,859 $ 14,644,117 $ 14,408,684 -------------- -------------- -------------- Expenses: Operating 8,504,043 7,852,719 7,812,411 Interest 5,762,221 5,916,749 5,983,954 Depreciation and amortization 4,760,003 4,940,971 5,822,201 -------------- -------------- -------------- Total Expenses 19,026,267 18,710,439 19,618,566 -------------- -------------- -------------- Net Loss $ (3,991,408) $ (4,066,322) $ (5,209,882) ============== ============== ============== Partnership's share of Net Loss (1999 and 1998 include adjustments from prior years of $(25,790) and $(12,175), respectively) $ (3,927,947) $ (3,980,818) $ (5,097,131) ============== ============== ============== Other partners' share of Net Loss $ (89,251) $ (97,679) $ (112,751) ============== ============== ============== BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 4. Investments in Local Limited Partnerships (continued) For the years ended March 31, 2000, 1999 and 1998, the Partnership has not recognized $1,351,591, $1,048,273 and $175,228, respectively, of equity in losses of Local Limited Partnerships relating to several Local Limited Partnerships where cumulative equity in losses exceeded its total investments in these Local Limited Partnerships. The Partnership's equity as reflected by the Local Limited Partnerships of $15,351,058 differs from the Partnership's Investments in Local Limited Partnerships before adjustment of $18,801,885 principally because: a) the Partnership has not recognized $2,566,642 of equity in losses of eight Local Limited Partnerships whose equity in losses exceeded its total investment; b) distributions made by Local Limited Partnerships during the quarter ended March 31, 2000 are not reflected in the December 31, 1999 balance sheets of the Local Limited Partnerships; and c) syndication costs charged to equity by a Local Limited Partnership are not reflected in the Partnership's investment in the Local Limited Partnership. 5. Transactions with Affiliates An affiliate of the Managing General Partner currently receives the base amount of 0.365 (as adjusted by the CPI factor) of Gross Proceeds annually as the Asset Management Fee for administering the affairs of the Partnership. Asset Management Fees for the years ended March 31, 2000, 1999 and 1998 are $247,331, $243,169 and $238,087, respectively. Included in accounts payable to affiliate at March 31, 2000 and 1999 are $62,841 and $122,057, respectively, of Asset Management Fees due to an affiliate of the Managing General Partner. An affiliate of the Managing General Partner is reimbursed for the actual cost of the Partnership's operating expenses. Included in general and administrative expenses for the years ended March 31, 2000, 1999 and 1998 are $139,757, $109,845 and $127,926, respectively, that the Partnership has paid or is payable as reimbursement for salaries and benefits expenses. The amounts payable for salaries and benefits at March 31, 2000 and 1999 are $58,343 and $21,386, respectively. Affiliates of the Managing General Partner are the management agents for four Local Limited Partnerships in which the Partnership has invested. The management fee charged to each property is equal to 4% of property gross revenues. Included in operating expenses in the summarized income statements in Note 4 to the financial statements are $84,640, $80,455 and $77,858 of fees paid to the affiliates for the years ended December 31, 1999, 1998 and 1997, respectively. 6. Deferred Revenue Under the terms of a Local Limited Partnership Agreement, the Partnership was required to fund a Supplemental Reserve in the amount of $196,000. The original purpose of the contribution was to fund the development expenses of the Local Limited Partnership. In lieu of transferring the Supplemental Reserve to the Local Limited Partnership, the Partnership designated $196,000 of its cash and cash equivalents for this purpose. Since the funds were not needed, the Local Limited Partnership Agreement allows that the established Supplemental Reserve, along with the interest earned, are available to pay the Partnership its annual priority distribution. As of March 31, 2000, $121,000 has been released to the Partnership. The balance of the Supplemental Reserve is included in cash and cash equivalents. This balance, along with the accrued interest thereon, has also been accounted for as deferred revenue, as it represents the future annual priority distributions to be released to the Partnership from this Reserve. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 7. Litigation The Partnership is not a party to any pending legal or administrative proceeding. However, Tompkins/Rosecliff, Ltd. which owns a property in Sanford, Florida, had been involved in certain litigation with an entity formerly affiliated with this partnership and its previous local general partner. A settlement agreement was agreed upon in July 1999 totaling $200,000 of which the Partnership's share was $100,000. In the opinion of Management, this was an appropriate settlement, which it believes will eliminate the risk of foreclosure and recapture posed by this litigation. 8. Transfer of Interest in Local Limited Partnership On November 10, 1997, the Managing General Partner transferred 50% of its interest in capital and profits of Westgate to the local general partner. Included in this transfer is a put option. The put option grants the Managing General Partner the right to put the Partnership's remaining interest to the local general partner any time after one year has elapsed. For financial reporting purposes, the Partnership has written down the remaining carrying value of this investment in Local Limited Partnership to zero, because it is unknown as to whether the Partnership will be able to recover its remaining invested balance. The Partnership will retain its full share of tax credits until such time as the remaining interest is put to the local general partner. 9. Federal Income Taxes The following schedule reconciles the reported financial statement loss for the fiscal years ended March 31, 2000, 1999 and 1998 to the loss reported on Form 1065, U.S. Partnership Return of Income for the years ended December 31, 1999, 1998 and 1997: 1999 1998 2000 (Restated) (Restated) Net Loss per financial statements $ (3,006,310) $ (3,371,589) $ (5,794,498) Adjustment for equity in losses of Local Limited Partnerships for tax purposes in excess of equity in losses for financial reporting purposes (76,548) (341,051) (1,419,314) Equity in losses of Local Limited Partnerships not recognized for financial reporting purposes (1,356,723) (1,113,362) (175,228) Adjustment to reflect March 31 fiscal year end to December 31 tax year end (137,842) 31,950 31,986 Related party expenses not currently deductible for tax purposes - 60,556 - Related party expenses paid in current year but expensed for financial reporting purposes in prior year (60,556) - (114,572) Amortization of acquisition fees and expenses for tax purposes in excess of amortization for financial reporting purposes (13,964) (13,703) (8,383) Provision for valuation of investment in Local Limited Partnership not deductible for tax purposes 174,739 - 590,197 Cash distribution included in loss for financial reporting purposes (32,662) (32,427) - ------------- ------------- ------------- Net Loss per tax return $ (4,509,866) $ (4,779,626) $ (6,889,812) ============== ============= ============= BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. V (A Limited Partnership) NOTES TO THE FINANCIAL STATEMENTS (continued) 9. Federal Income Taxes (continued) The differences in the assets and liabilities of the Partnership for financial reporting purposes and tax reporting purposes for the year ended March 31, 2000 are as follows: Financial Tax Reporting Reporting Purposes Purposes Differences Investments in Local Limited Partnerships $ 18,818,290 $ 14,081,467 $ 4,736,823 ============== ============== ============ Other assets $ 2,884,694 $ 12,765,769 $ (9,881,075) ============== ============== ============= Liabilities $ 295,987 $ 201,859 $ 94,128 ============== ============== ============ The differences in assets and liabilities of the Partnership for financial reporting and tax purposes are primarily attributable to: (i) the cumulative equity in loss from Local Limited Partnerships for tax reporting purposes is approximately $5,508,000 greater than for financial reporting purposes, including approximately $2,567,000 of losses the Partnership has not recognized relating to eight Local Limited Partnerships whose cumulative equity in losses exceeded its total investment; (ii) the cumulative amortization of acquisition fees for tax reporting purposes exceeds financial reporting purposes by approximately $85,000; (iii) approximately $60,000 of cash distributions received from Local Limited Partnerships during the quarter ended March 31, 2000 are not included in the Partnership's Investments in Local Limited Partnerships for tax reporting purposes at December 31, 1999; and (iv) organizational and offering costs of approximately $9,500,000 that have been capitalized for tax reporting purposes, are charged to Limited Partners' equity for financial reporting purposes. The differences in the assets and liabilities of the Partnership for financial reporting purposes and tax reporting purposes for the year ended March 31, 1999 are as follows: Financial Tax Reporting Reporting Purposes Purposes Differences Investments in Local Limited Partnerships $ 21,538,791 $ 18,320,798 $ 3,217,993 ============= ============== ============ Other assets $ 3,323,609 $ 13,039,165 $ (9,715,556) ============= ============= ============ Liabilities $ 405,479 $ 204,721 $ 200,758 ============= ============= ============ The differences in assets and liabilities of the Partnership for financial reporting purposes are primarily attributable to: (i) the cumulative equity in loss from Local Limited Partnerships for tax reporting purposes is approximately $3,743,000 greater than for financial reporting purposes, including approximately $1,291,000 of losses the Partnership has not recognized relating to five Local Limited Partnerships whose cumulative equity in losses exceeded its total investment; (ii) the cumulative amortization of acquisition fees for tax reporting purposes exceeds financial reporting purposes by approximately $64,000; (iii) approximately $50,000 of cash distributions received from Local Limited Partnerships during the quarter ended March 31, 1999 are not included in the Partnership's Investments in Local Limited Partnerships for tax reporting purposes at December 31, 1998; and (iv) organizational and offering costs of approximately $9,500,000 that have been capitalized for tax reporting purposes, are charged to Limited Partners' equity for financial reporting purposes. June 29, 2000 Boston Financial Qualified Housing Tax Credits L.P. V 101 Arch Street Boston, MA 02110-1106 To the Partners of Boston Financial Qualified Housing Tax Credits L.P. V: We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K. We have audited the financial statements included in Boston Financial Qualified Housing Tax Credits L.P. V's (the "Partnership") Annual Report on Form 10-K for the year ended March 31, 2000 and issued our report thereon dated June 22, 2000. Note 2 to the financial statements describes a change in reporting entity from a combined basis presentation to a stand-alone basis presentation. It should be understood that the preferability of one acceptable method of presenting entities under common control over another has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in reporting entity is preferable. Based on our reading of management's stated reasons and justification for this change in reporting entity in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning and legal factors relating to the change, we concur with management that such change represents, in the Partnership's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20. Very truly yours, /S/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston Financial Qualified Housing Tax Credits L. P. V Schedule III - Real Estate and Accumulated Depreciation of Property Owned by Local Limited Partnerships in which Registrant has invested at March 31, 2000 COST OF INTEREST AT ACQUISITION DATE ----------------------------------- NET IMPROVEMENTS NUMBER TOTAL CAPITALIZED OF ENCUM- BUILDING AND SUBSEQUENT TO DESCRIPTION UNITS BRANCES * LAND IMPROVEMENTS ACQUISITION Low and Moderate Income Apartment Complexes Strathern Park/Lorne 241 $17,356,140 $4,369,500 $10,513,639 $10,997,952 Park Los Angeles, CA Maidens Choice 101 4,005,020 807,791 2,013,769 3,459,429 Baltimore, MD Cedar Lane 36 1,100,004 40,000 1,375,512 11,854 London, KY Silver Creek 24 766,558 20,000 946,812 0 Berea, KY Rosecliff 168 5,531,104 1,200,000 3,304,950 4,578,797 Orlando, FL Brookwood 81 2,996,929 91,470 344,580 4,578,953 Ypsilanti Township, MI Water Oak 40 1,252,979 98,058 1,467,944 5,638 Orange City, FL Yester Oaks 44 1,283,141 47,105 1,574,145 2,489 Lafayette, GA Ocean View 42 1,363,339 112,620 1,600,421 28,592 Ferandina Beach, FL Wheeler House 17 674,021 42,000 1,139,412 (133,840) Nashua, NH Archer Village 24 706,791 40,000 861,288 38,869 Archer, FL Oaks of Dunlop 144 4,413,492 631,959 6,492,444 156,533 Colonial Heights, VA Timothy House 112 2,039,244 11,638 6,344,664 457,230 Towson, MD Westover Station 108 2,653,568 305,645 4,299,613 7,924 Newport News, VA Carib Villas III 24 1,478,494 107,582 1,802,466 5,614 St. Croix, VI Carib Villas II 20 1,399,088 57,720 1,787,528 5,614 St. Croix, VI Whispering Trace 40 1,358,987 218,000 2,413,145 (447,564) Woodstock, GA New Center 104 2,913,936 79,652 3,534,776 2,934,509 Detroit, MI Huguenot Park 24 1,400,000 83,000 2,088,664 0 New Paltz, NY Hillwood Pointe 100 2,888,685 454,185 5,103,711 130,945 Jacksonville, FL Pinewood Pointe 136 3,911,198 555,093 6,809,808 663,311 Jacksonville, FL Westgate 60 1,351,284 215,168 2,152,519 24,702 Bismark, ND Woodlake Hills 144 3,774,677 233,690 6,481,250 2,392,831 Pontiac, MI Bixel House 76 1,162,940 190,746 2,294,879 51,935 Los Angeles, CA Harmony 65 2,206,214 0 7,020,696 117,827 North Hollywood, CA Schumaker Place 96 2,896,834 531,776 1,627,716 3,609,531 Salisbury, MD Circle Terrace 303 8,573,318 0 7,884,733 8,635,332 Lansdown, MD ------------------------------------------------------------------------------------ TOTAL 2,374 $81,457,985 $10,544,398 $93,281,084 $42,315,007 ==================================================================================== GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, 1999 ----------------------------------------------------------- LIFE ON WHICH DEPRECIATION BUILDING AND ACCUMULATED DATE IS COMPUTED DATE DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION BUILT (YEARS) ACQUIRED ----------- ---- ------------ ----- ------------ ----- ------- -------- Low and Moderate Income Apartment Complexes Strathern Park/Lorne $5,889,320 $19,991,771 $25,881,091 $6,666,393 1991 various 07/05/90 Park Los Angeles, CA Maidens Choice 807,791 5,473,198 6,280,989 1,896,164 1991 various 08/17/90 Baltimore, MD Cedar Lane 40,000 1,387,366 1,427,366 368,886 1991 various 09/10/90 London, KY Silver Creek 20,000 946,812 966,812 257,716 1990 various 08/15/90 Berea, KY Rosecliff 1,120,000 7,963,747 9,083,747 2,728,299 1991 various 09/18/90 Orlando, FL Brookwood 522,673 4,492,330 5,015,003 1,277,101 1992 various 10/01/90 Ypsilanti Township, MI Water Oak 98,058 1,473,582 1,571,640 470,013 1991 various 01/01/91 Orange City, FL Yester Oaks 47,105 1,576,634 1,623,739 518,600 1991 various 01/01/91 Lafayette, GA Ocean View 112,620 1,629,013 1,741,633 544,244 1991 various 01/01/91 Ferandina Beach, FL Wheeler House 42,000 1,005,572 1,047,572 322,159 1991 various 01/01/91 Nashua, NH Archer Village 40,000 900,157 940,157 302,483 1991 various 01/01/91 Archer, FL Oaks of Dunlop 631,958 6,648,978 7,280,936 2,496,547 1991 various 01/01/91 Colonial Heights, VA Timothy House 11,638 6,801,894 6,813,532 1,548,601 1992 various 03/05/91 Towson, MD Westover Station 305,645 4,307,537 4,613,182 1,113,634 1991 various 03/30/91 Newport News, VA Carib Villas III 239,009 1,676,653 1,915,662 612,095 1992 various 03/21/91 St. Croix, VI Carib Villas II 197,195 1,653,667 1,850,862 594,608 1991 various 03/01/91 St. Croix, VI Whispering Trace 218,000 1,965,581 2,183,581 794,669 1990 various 05/01/91 Woodstock, GA New Center 96,116 6,452,821 6,548,937 1,870,814 1992 various 06/27/91 Detroit, MI Huguenot Park 83,000 2,088,664 2,171,664 662,875 1991 various 06/26/91 New Paltz, NY Hillwood Pointe 454,185 5,234,656 5,688,841 1,750,566 1991 various 07/19/91 Jacksonville, FL Pinewood Pointe 555,093 7,473,119 8,028,212 2,473,232 1991 various 07/31/91 Jacksonville, FL Westgate 238,920 2,153,469 2,392,389 664,844 1991 various 07/25/91 Bismark, ND Woodlake Hills 187,588 8,920,183 9,107,771 2,389,145 1992 various 08/01/91 Pontiac, MI Bixel House 190,746 2,346,814 2,537,560 1,015,434 1991 various 07/31/91 Los Angeles, CA Harmony 0 7,138,523 7,138,523 2,303,749 1991 various 07/31/91 North Hollywood, CA Schumaker Place 1,029,027 4,739,996 5,769,023 1,245,007 1992 various 09/20/91 Salisbury, MD Circle Terrace 1,104,269 15,415,796 16,520,065 4,074,656 1993 various 12/06/91 Lansdown, MD ----------------------------------------------------------- TOTAL $14,281,956 $131,858,533 $146,140,489 $40,962,534 =========================================================== (1) The aggregate cost for Federal Income Tax purposes is approximately $127,178,000. * Mortgage notes payable generally represent non-recourse financing of low-income housing projects payable with terms of up to 40 years with interest payable at rates ranging from 8.00% to 11%. The Partnership has not guaranteed any of these mortgage notes payable. Summary of property owned and accumulated depreciation: Property Owned December 31, 1999 Accumulated Depreciation December 31, 1999 - ------------------------------------------------------------------ --------------------------------------- Balance at beginning of period $145,851,429 Balance at beginning of 36,683,600 period Additions during period: Additions during period: Other acquisitions 46,195 Improvements etc. 242,865 Depreciation 4,278,934 ---------------- ------------ 289,060 Balance at close of period $40,962,534 ============ Deductions during period: Cost of real estate sold 0 Impairment of Assets 0 ---------------- 0 ---------------- Balance at close of period $146,140,489 ================ Property Owned December 31, 1998 Accumulated Depreciation December 31, 1998 - ------------------------------------------------------------------ --------------------------------------- Balance at beginning of period $145,480,348 Balance at beginning of 31,678,791 period Additions during period: Additions during period: Other acquisitions 95,346 Depreciation 5,004,809 ------------ Improvements etc. 275,735 Balance at close of period $36,683,600 ---------------- ============ 371,081 Deductions during period: Cost of real estate sold 0 Impairment of Assets 0 ---------------- 0 ---------------- Balance at close of period $145,851,429 ================ Property Owned December 31, 1997 Accumulated Depreciation December 31, 1997 - ------------------------------------------------------------------ --------------------------------------- Balance at beginning of period $145,480,438 Balance at beginning of 26,076,146 period Additions during period: Additions during period: Other acquisitions 125,851 Depreciation 5,602,645 ------------ Improvements etc. 34,059 Balance at close of period $31,678,791 ---------------- ============ 159,910 Deductions during period: Cost of real estate sold 0 Impairment of Assets (1) (160,000) ---------------- (160,000) ---------------- Balance at close of period $145,480,348 ================ (1) During the year ended December 31, 1997, Wheeler House recognized an impairment loss on its rental property in the net amount of $160,000 as a result of applying FASB 121, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of. BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS V (A Limited Partnership) Annual Report on form 10-K For The Year Ended March 31, 2000 Reports of Independent Auditors Woodlake Hills [Letterhead] [LOGO] JOHN J. LEHOTAN, C.P.A. 4385 W. Main Street Brown City, MI 48416 To The Partners of Woodlake Hills Limited Partnership Dearborn, Michigan 48124 Independent Auditor's Report I have audited the accompanying balance sheet of Woodlake Hills Limited Partnership, a Michigan limited partnership as of December 31, 1999 and the related statements of profit and loss, partners' equity and cash flow for the year 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 audit. I conducted our audit in accordance with generally accepted auditing standards. Those standards require that I 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. 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 positions of Woodlake Hills Limited Partnership as of December 31, 1999 and the results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/John J. Lehotan Certified Public Accountant February 1, 2000 Woodlake Hills [Letterhead] [LOGO] JOHN J. LEHOTAN, C.P.A. 4385 W. Main Street Brown City, MI 48416 To The Partners of Woodlake Hills Limited Partnership Dearborn, Michigan 48124 Independent Auditor's Report I have audited the accompanying balance sheet of Woodlake Hills Limited Partnership, a Michigan limited partnership as of December 31, 1998 and the related statements of profit and loss, partners' equity and cash flow for the year 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 audit. I conducted our audit in accordance with generally accepted auditing standards. Those standards require that I 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. 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 positions of Woodlake Hills Limited Partnership as of December 31, 1998 and the results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/John J. Lehotan Certified Public Accountant February 10, 1999 Woodlake Hills [Letterhead] [LOGO] JOHN J. LEHOTAN, C.P.A. 4385 W. Main Street Brown City, MI 48416 To The Partners of Woodlake Hills Limited Partnership Detroit, Michigan Independent Auditor's Report I have audited the accompanying balance sheet of Woodlake Hills Limited Partnership, a Michigan limited partnership as of December 31, 1997 and the related statements of profit and loss, partners' equity and cash flow for the year 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 audit. I conducted our audit in accordance with generally accepted auditing standards. Those standards require that I 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. 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 positions of Woodlake Hills Limited Partnership as of December 31, 1997 and the results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/John J. Lehotan Certified Public Accountant, C.P.A. February 5, 1998 Strathern Park [Letterhead] [LOGO] NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP 9454 Wilshire Boulevard, Suite 405 Beverly Hills, California 90212-2907 Independent Auditors' Report The Partners Strathern Park Los Angeles, California We have audited the accompanying balance sheet of Strathern Park (a California limited partnership), as of December 31, 1999 and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Strathern Park as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on Schedules I, II and III is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/Nanas, Stern, Biers, Neinstein and Co., LLP NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP January 26, 2000 Strathern Park [Letterhead] [LOGO] NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP 9454 Wilshire Boulevard, Suite 405 Beverly Hills, California 90212-2907 Independent Auditors' Report The Partners Strathern Park Los Angeles, California We have audited the accompanying balance sheet of Strathern Park (a California limited partnership), as of December 31, 1998 and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Strathern Park as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on Schedules I, II and III is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/Nanas, Stern, Biers, Neinstein and Co., LLP NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP February 3, 1999 Strathern Park [LOGO] NANAS, STERN, BIERS, NEINSTEIN AND CO.LLP 9454 Wilshire Boulevard Beverly Hills, California 90212-2907 Independent Auditors' Report The Partners Strathern Park Los Angeles, California We have audited the accompanying balance sheet of Strathern Park (a California limited partnership), as of December 31, 1997 and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Strathern Park as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on Schedules I, II and III is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/Nanas, Stern, Biers, Neinstein and Co., LLP NANAS, STERN, BIERS, NEINSTEIN AND CO. January 28, 1998 Maiden Choice Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Maiden Choice Limited Partnership We have audited the accompanying balance sheet of Maiden Choice Limited Partnership as of December 31, 1999, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Maiden Choice Limited Partnership as of December 31, 1999, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 30 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 8, 2000, on our consideration of Maiden Choice Limited Partnership's internal control and on its compliance with specific requirements applicable to DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. January 8, 2000 Maiden Choice Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Maiden Choice Limited Partnership We have audited the accompanying balance sheet of Maiden Choice Limited Partnership as of December 31, 1998, and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Maiden Choice Limited Partnership as of December 31, 1998, and the results of its operations, the changes in partners' equity and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 22 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 6, 1999, on our consideration of Maiden Choice Limited Partnership's internal control and on its compliance with specific requirements applicable to DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. January 6, 1999 Maiden Choice Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Maiden Choice Limited Partnership We have audited the accompanying balance sheet of Maiden Choice Limited Partnership as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Maiden Choice Limited Partnership as of December 31, 1997, and the results of its operations, changes in partners' equity and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 33 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited," on which we express no opinion, 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. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 6, 1998, on our consideration of Maiden Choice Limited Partnership's internal control and on its compliance with specific requirements applicable to CDA programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. January 6, 1998 Cedar Lane I, Ltd. [Letterhead] [LOGO] Miller, Mayer, Sullivan & Stevens LLP INDEPENDENT AUDITORS' REPORT To the Partners Rural Development Cedar Lane I, Ltd. London, Kentucky We have audited the accompanying balance sheets of Cedar Lane I, Ltd., (a limited partnership) Case No. 20-063-621358072, as of December 31, 1999 and 1998 and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership'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 and the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we 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. 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 Cedar Lane I, Ltd. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated January 27, 2000 on our consideration of Cedar Lane I, Lts.'s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data included in this report is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, is presented fairly, in all material respects, in relation to the basic financial statements taken as a whole. /s/Miller, Mayerm Sullivan & Stevens, LLP Lexington, Kentucky January 27, 2000 Cedar Lane I, Ltd. [Letterhead] [LOGO] Miller, Mayer, Sullivan & Stevens LLP INDEPENDENT AUDITORS' REPORT To the Partners Rural Development Cedar Lane I, Ltd. London, Kentucky We have audited the accompanying balance sheets of Cedar Lane I, Ltd., (a limited partnership) Case No. 20-063-621358072, as of December 31, 1998 and 1997 and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership'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 and the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we 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. 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 Cedar Lane I, Ltd. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued our report dated February 11, 1999 on our consideration of Cedar Lane I, Lts.'s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data included in this report is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, is presented fairly, in all material respects, in relation to the basic financial statements taken as a whole. /s/Miller, Mayerm Sullivan & Stevens, LLP Lexington, Kentucky February 11, 1999 Silver Creek II, Ltd. [Letterhead] [LOGO] Miller, Mayer, Sullivan & Stevens LLP INDEPENDENT AUDITORS' REPORT To the Partners Silver Creek II, Ltd. We have audited the accompanying balance sheets of Silver Creek II, Ltd., (a limited partnership), as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership'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 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. 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 Silver Creek II, Ltd. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data included in this report is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, is presented fairly in all material respects, in relation to the basic financial statements taken as a whole. /s/Miller, Mayerm Sullivan & Stevens, LLP Lexington, Kentucky January 27, 2000 Silver Creek II, Ltd. [Letterhead] [LOGO] Miller, Mayer, Sullivan & Stevens LLP INDEPENDENT AUDITORS' REPORT To the Partners Silver Creek II, Ltd. We have audited the accompanying balance sheets of Silver Creek II, Ltd., (a limited partnership), as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership'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 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. 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 Silver Creek II, Ltd. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data included in this report is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, is presented fairly in all material respects, in relation to the basic financial statements taken as a whole. /s/Miller, Mayerm Sullivan & Stevens, LLP Lexington, Kentucky January 2, 1999 Tomkins/Rosecliff, Ltd.: [Letterhead] [LOGO] Deloitte & Touche LLP Suite 1800 200 South Orange Avenue Orlando, Florida 32801 INDEPENDENT AUDITORS' REPORT To the General Partner and Limited Partners of Tomkins/Rosecliff, Ltd.: We have audited the accompanying balance sheet of Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1999, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP January 21, 2000 Tomkins/Rosecliff, Ltd.: [Letterhead] [LOGO] Deloitte & Touche LLP Suite 1800 200 South Orange Avenue Orlando, Florida 32801 INDEPENDENT AUDITORS' REPORT To the General Partner and Limited Partners of Tomkins/Rosecliff, Ltd.: We have audited the accompanying balance sheet of Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1998, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP January 29, 1999 Tomkins/Rosecliff, Ltd.: [Letterhead] [LOGO] Deloitte & Touche LLP Suite 1800 200 South Orange Avenue Orlando, Florida 32801 INDEPENDENT AUDITORS' REPORT To the General Partner and Limited Partners of Tomkins/Rosecliff, Ltd.: We have audited the accompanying balance sheet of Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1997, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Tomkins/Rosecliff, Ltd. (a Florida Limited Partnership) as of December 31, 1997, and the results of its operations and its cash flow for the year then ended in conformity with generally accepted accounting principles. /s/Deloitte & Touche LLP January 24, 1998 Brookwood L.D.H.A [Letterhead] [LOGO] Follmer, Rudzewicz & Co., P.C. INDEPENDENT AUDITORS' REPORT To the Partners of: Brookwood L.D.H.A. Limited Partnership 28388 Franklin Road Southfield, Michigan 48034 We have audited the accompanying balance sheet of Brookwood L.D.H.A. Limited Partnership (a Michigan limited partnership), MSHDA Development No. 832 as of December 31, 1999 and the related statement of profit and loss, changes in accumulated earnings and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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, such financial statements present fairly, in all material respects, the financial position of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 as of December 31, 1999, and the results of its operations, the changes in its cumulative income and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 on pages 13 through 18 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the partnership's management. 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. In accordance with Government Auditing Standards, we have also issued a report dated January 24, 2000 on our consideration of the partnership's internal control structure and on its compliance with laws and regulations. /s/Follmer, Rudzewicz & Co., P.C. Follmer,Rudzewicz & Co. P.C. Certified Public Accountants Southfield, Michigan 38-1910111 Brookwood L.D.H.A [Letterhead] [LOGO] Follmer, Rudzewicz & Co., P.C. INDEPENDENT AUDITORS' REPORT To the Partners of: Brookwood L.D.H.A. Limited Partnership 28388 Franklin Road Southfield, Michigan 48034 We have audited the accompanying balance sheet of Brookwood L.D.H.A. Limited Partnership (a Michigan limited partnership), MSHDA Development No. 832 as of December 31, 1998 and the related statement of profit and loss, changes in accumulated earnings and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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, such financial statements present fairly, in all material respects, the financial position of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 as of December 31, 1998, and the results of its operations, the changes in its cumulative income and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 on pages 11 through 14 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the partnership's management. 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. In accordance with Government Auditing Standards, we have also issued a report dated January 22, 1999 on our consideration of the partnership's internal control structure and on its compliance with laws and regulations. /s/Follmer, Rudzewicz & Co., P.C. Follmer,Rudzewicz & Co. P.C. Certified Public Accountants Southfield, Michigan 38-1910111 Brookwood L.D.H.A. [Letterhead] [LOGO] Follmer, Rudzewicz & Co., P.C. INDEPENDENT AUDITORS' REPORT To the Partners of: Brookwood L.D.H.A. Limited Partnership 28388 Franklin Road Southfield, Michigan 48034 We have audited the accompanying Balance sheet of Brookwood L.D.H.A. Limited Partnership (a Michigan limited partnership), MSHDA Development No. 832 as of December 31, 1997 and the related Statement of Profit and Loss, changes in in accumulated earnings and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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, such financial statements present fairly, in all material respects, the financial position of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 as of December 31, 1997, and the results of its operations, the changes in its cumulative income and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information of Brookwood L.D.H.A. Limited Partnership, MSHDA No. 832 on pages 11 through 14 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This additional information is the responsibility of the partnership's management. 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. In accordance with Government Auditing Standards, we have also issued a report dated January 22, 1998 on our consideration of the partnership's internal control structure and a report dated January 22, 1998 on its compliance with laws and regulations. /s/Follmer, Rudzewicz & Co., P.C. Follmer,Rudzewicz & Co. P.C. Certified Public Accountants Southfield, Michigan 38-1910111 Burbank Limited Partnership I [Letterhead] Otis, Atwell & Timberlake Professional Association The Partners Burbank Limited Partnership I We have audited the accompanying balance sheet of Burbank Limited Partnership I as of December 31, 1999 and 1998, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the partnership'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 statements 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 Burbank Limited Partnership I as of December 31, 1999 and 1998, and the results of its operations, changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 2 to the financial statements, the Partnership's first mortgage note has matured and has not yet been refinanced, which raises substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Otis, Atwell & Timberlake, P.A. Certified Public Accountants January 19, 2000 Portland, Maine Burbank Limited Partnership I [Letterhead] BILLIE J. BURNETT,CPA 5 Benton Drive Nashua, NH 03060 (603) 883-4230 To The Partners Burbank Limited Partnership I I have audited the accompanying balance sheets of Burbank Limited Partnership I as of December 31, 1997, and the related statements of income, partners' equity and cash flows for the year then ended. The financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 statements 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 Burbank Limited Partnership I as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Billie J. Burnett Billie J. Burnett January 8, 1998 Virginia Housing Development Authority [Letterhead] [LOGO] Wall Einhorn & Chernitzer., P.C. Certified Public Accountants First Virginia Bank Tower 555 Main Street Suite 1500 Post Office Box 3610 Norfolk, Virginia 23514 Alvin A. Wall, CPA Telephone (757)625-4700 Martin A. Einhorn, CPA, CVA Telephone (757)625-0527 Jeffrey S. Chernitzer, CPA INDEPENDENT AUDITORS' REPORT To the Partners Virginia Housing Development Authority The Oaks of Dunlop Farms, L. P. 601 South Belvidere Street (A Limited Partnership) Richmond, Virginia 23220 Norfolk, Virginia We have audited the accompanying balance sheets of The Oaks of Dunlop Farms, L.P. (A Limited Partnership), VHDA Project Number 90-0300-C, as of December 31, 1999 and 1998, and the related statements of operations , partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the project'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 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. 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 VHDA Project Number 90-0300-C as of December 31, 1999 and 1998, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying supplementary information (shown on pages 10 to 17) is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. /s/Wall, Einhorn & Chernitzer, P.C. Norfolk, Virginia January 26, 2000 Virginia Housing Development Authority [Letterhead] [LOGO] Wall Einhorn & Chernitzer., P.C. Certified Public Accountants First Virginia Bank Tower 555 Main Street Suite 1500 Post Office Box 3610 Norfolk, Virginia 23514 Alvin A. Wall, CPA Telephone (757)625-4700 Martin A. Einhorn, CPA, CVA Telephone (757)625-0527 Jeffrey S. Chernitzer, CPA INDEPENDENT AUDITORS' REPORT To the Partners Virginia Housing Development Authority The Oaks of Dunlop Farms, L. P. 601 South Belvidere Street (A Limited Partnership) Richmond, Virginia 23220 Norfolk, Virginia We have audited the accompanying balance sheets of The Oaks of Dunlop Farms, L.P. (A Limited Partnership), VHDA Project Number 90-0300-C, as of December 31, 1998 and 1997, and the related statements of operations , partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the project'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 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. 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 VHDA Project Number 90-0300-C as of December 31, 1998 and 1997, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying supplementary information (shown on pages 10 to 17) is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. /s/Wall, Einhorn & Chernitzer, P.C. Norfolk, Virginia February 1, 1999 Timothy House Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Timothy House Limited Partnership We have audited the accompanying balance sheet of Timothy House Limited Partnership as of December 31, 1999 and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Timothy House Limited Partnership as of December 31, 1999, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 30 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited," on which we express no opinion, 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 18, 2000, on our consideration of Timothy House Limited Partnership's internal control structure and on its compliance with requirements applicable to DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer January 18, 2000 Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. Timothy House Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Timothy House Limited Partnership We have audited the accompanying balance sheet of Timothy House Limited Partnership as of December 31, 1998 and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Timothy House Limited Partnership as of December 31, 1998, and the results of its operations, the changes in partners' equity and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 22 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited," on which we express no opinion, 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 13, 1999, on our consideration of Timothy House Limited Partnership's internal control structure and on its compliance with requirements applicable to DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer January 13, 1999 Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. Timothy House Limited Partnership [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Timothy House Limited Partnership We have audited the accompanying balance sheet of Timothy House Limited Partnership as of December 31, 1997 and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Timothy House Limited Partnership as of December 31, 1997, and the results of its operations, changes in partners' equity and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 33 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited," on which we express no opinion, 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. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs, we have also issued reports dated January 10, 1998, on our consideration of Timothy House Limited Partnership's internal control structure and on its compliance with requirements applicable to CDA programs, fair housing, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer January 10, 1998 Identification Number: 52-1088612 Audit Principal: William T. Riley, Jr. Westover Station Associates, L.P. [Letterhead] Wilfore & Wynn A Professional Corporation Certified Public Accountants INDEPENDENT AUDITORS' REPORT The Partners Virginia Housing Development Westover Station Associates, L.P. Authority (A Limited Partnership) 601 South Belvidere Street Newport News, Virginia Richmond, Virginia 23220 We have audited the accompanying balance sheets of Westover Station Associates, L.P., VHDA Project Number 90-0303-C, as of December 31, 1999 and 1998 and the related statements of operations, partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 and the Virginia Housing Development Authority's Mortgagor/Grantee's Audit Guide. 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 Westover Station Associates, L.P. at December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules included in the report are presented for purposes of additional analysis and are not a required part of the basic financial statements of Westover Station Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basis financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/Wilfore & Wynn Wilfore & Wynn Virginia Beach, Virginia February 9, 2000 4530 Professional Circle Virginia Beach, Virginia 23455-6498 Telephone (757)456-0111 Fax (757)473-1095 Westover Station Associates, L.P. [Letterhead] Wilfore & Wynn A Professional Corporation Certified Public Accountants INDEPENDENT AUDITORS' REPORT The Partners Virginia Housing Development Westover Station Associates, L.P. Authority (A Limited Partnership) 601 South Belvidere Street Newport News, Virginia Richmond, Virginia 23220 We have audited the accompanying balance sheets of Westover Station Associates, L.P., VHDA Project Number 90-0303-C, as of December 31, 1998 and 1997 and the related statements of operations, partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 and the Virginia Housing Development Authority's Mortgagor/Grantee's Audit Guide. 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 Westover Station Associates, L.P. at December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules included in the report are presented for purposes of additional analysis and are not a required part of the basic financial statements of Westover Station Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basis financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/Wilfore & Wynn Wilfore & Wynn Virginia Beach, Virginia February 3, 1999 4530 Professional Circle Virginia Beach, Virginia 23455-6498 Telephone (757)456-0111 Fax (757)473-1095 Christiansted Limited Dividend Housing [Letterhead] Kirschner Hutton Perlin, P.C. Certified Public Accountants 26913 Northwestern Hwy. Suite 510 Southfield, Michigan 48034-8444 Telephone: (248) 356-3880 Facsimile: (248) 356-3885 Independent Auditors' Report January 18, 2000 Partners Christiansted Limited Dividend Housing Association Limited Partnership We have audited the accompanying balance sheet of Christiansted Limited Dividend Housing Association Limited Partnership as of December 31, 1999 and 1998, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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 Christiansted Limited Dividend Housing Association Limited Partnership as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Kirshner Huton Perlin, P.C. Christiansted Limited Dividend Housing [Letterhead] Kirschner Hutton Perlin, P.C. Certified Public Accountants 26913 Northwestern Hwy. Suite 510 Southfield, Michigan 48034-8444 Telephone: (248) 356-3880 Facsimile: (248) 356-3885 Independent Auditors' Report January 23, 1999 Partners Christiansted Limited Dividend Housing Association Limited Partnership We have audited the accompanying balance sheet of Christiansted Limited Dividend Housing Association Limited Partnership as of December 31, 1998 and 1997, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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 Christiansted Limited Dividend Housing Association Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Kirshner Huton Perlin, P.C. St. Croix II. Limited Partnership [Letterhead] Kirschner Hutton Perlin, P.C. Certified Public Accountants 26913 Northwestern Hwy. Suite 510 Southfield, Michigan 48034-8444 Telephone: (248) 356-3880 Facsimile: (248) 356-3885 Independent Auditors' Report January 17, 2000 Partners St. Croix II. Limited Partnership We have audited the accompanying balance sheet of St. Croix II, Limited Partnership as of December 31, 1999 and 1998, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 St. Croix II, Limited Partnership as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Kirshner Huton Perlin, P.C. St. Croix II. Limited Partnership [Letterhead] Kirschner Hutton Perlin, P.C. Certified Public Accountants 26913 Northwestern Hwy. Suite 510 Southfield, Michigan 48034-8444 Telephone: (248) 356-3880 Facsimile: (248) 356-3885 Independent Auditors' Report January 20, 1999 Partners St. Croix II. Limited Partnership We have audited the accompanying balance sheet of St. Croix II, Limited Partnership as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 St. Croix II, Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Kirshner Huton Perlin, P.C. Kensignton Place Townhomes, Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Kensignton Place Townhomes, A Limited Partnership: We have audited the accompanying balance sheets of Kensignton Place Townhomes, A Limited Partnership as of December 31, 1999 and 1998, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 Kensignton Place Townhomes, A Limited Partnership as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 25, 2000 Kensignton Place Townhomes, Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Kensignton Place Townhomes, A Limited Partnership: We have audited the accompanying balance sheets of Kensignton Place Townhomes, A Limited Partnership as of December 31, 1998 and 1997, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 Kensignton Place Townhomes, A Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 26, 1999 Cobblestone Place Townhomes, [Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Cobblestone Place Townhomes, A Limited Partnership: We have audited the accompanying balance sheets of Cobblestone Place Townhomes, A Limited Partnership as of December 31, 1999 and 1998, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 Cobblestone Place Townhomes, A Limited Partnership as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 25, 2000 Cobblestone Place Townhomes, [Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Cobblestone Place Townhomes, A Limited Partnership: We have audited the accompanying balance sheets of Cobblestone Place Townhomes, A Limited Partnership as of December 31, 1998 and 1997, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 Cobblestone Place Townhomes, A Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 26, 1999 Whispering Trace Apartments [Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Whispering Trace Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Whispering Trace Apartments, A Limited Partnership as of December 31, 1999 and 1998, and the related statements of loss, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 statements 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 Whispering Trace Apartments, A Limited Partnership as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 25, 2000 Whispering Trace Apartments [Letterhead] [LOGO] KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 Independent Auditors' Report The Partners Whispering Trace Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Whispering Trace Apartments, A Limited Partnership as of December 31, 1998 and 1997, and the related statements of loss, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 statements 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 Whispering Trace Apartments, A Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP February 26, 1999 Huguenot Park Associates, L.P. [letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS REPORT To the Partners Huguenot Park Associates, L.P. We have audited the accompanying balance sheet of Huguenot Park Associates, L.P. as of December 31, 1999 and 1998, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 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 Huguenot Park Associates, L.P. as of December 31, 1999 and 1998, and the results of its operations, the changes in partners' capital and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Reznick Fedder & Silverman Bethesda, Maryland February 7, 2000 Huguenot Park Associates, L.P. [letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS REPORT To the Partners Huguenot Park Associates, L.P. We have audited the accompanying balance sheet of Huguenot Park Associates, L.P. as of December 31, 1999 and 1998, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 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 Huguenot Park Associates, L.P. as of December 31, 1999 and 1998, and the results of its operations, the changes in partners' capital and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Reznick Fedder & Silverman Bethesda, Maryland January 20, 2000 Huguenot Park Associates, L.P. [letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS REPORT To the Partners Huguenot Park Associates, L.P. We have audited the accompanying balance sheet of Huguenot Park Associates, L.P. as of December 31, 1998 and 1997, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 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 Huguenot Park Associates, L.P. as of December 31, 1998 and 1997, and the results of its operations, the changes in partners' capital and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Reznick Fedder & Silverman Bethesda, Maryland January 20, 1999 Westgate Apartments Limited Partnesrhip [Letterhead] [LOGO] EideBailly LLP Consultants, Certified Public Accountants INDEPENDENT AUDITOR'S REPORT The Partners Westgate Apartments Limited Partnesrhip Wahpeton, North Dakota We have audited the accompanying balance sheets of Westgate Apartments Limited Partnership as of December 31, 1999 and 1998, and the related statements of operations, partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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 Westgate Apartments Limited Partnership as of December 31, 1999 and 1998, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/EideBailly LLP Fargo, North Dakota January 21, 2000 Westgate Apartments Limited Partnesrhip [Letterhead] [LOGO] EideBailly LLP Consultants, Certified Public Accountants INDEPENDENT AUDITOR'S REPORT The Partners Westgate Apartments Limited Partnesrhip Wahpeton, North Dakota We have audited the accompanying balance sheets of Westgate Apartments Limited Partnership as of December 31, 1998 and 1997, and the related statements of operations, partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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 Westgate Apartments Limited Partnership as of December 31, 1998 and 1997, and the results of its operations, and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/EideBailly LLP Fargo, North Dakota January 22, 1999, except for Note 10, as to which the date is January 25, 1999 Bixel House [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 90731 Richard Suarez, Jr., CPA Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Bixel House Los Angeles, California I have audited the accompanying balance sheet of Bixel House as of December 31, 1999, and the related statements of operations, changes in partners' capital, and cash flows for the year 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. 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 Bixel House at December 31, 1999, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California February 8, 2000 Bixel House [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 90731 Richard Suarez, Jr., CPA Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Bixel House Los Angeles, California I have audited the accompanying balance sheet of Bixel House as of December 31, 1998, and the related statements of operations, changes in partners' capital, and cash flows for the year 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. 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 Bixel House at December 31, 1998, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California February 28, 1999 Bixel House [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 90731 Richard Suarez, Jr., CPA Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Bixel House Los Angeles, California I have audited the accompanying balance sheet of Bixel House as of December 31, 1997, and the related statements of operations, changes in partners' capital, and cash flows for the year 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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 statements 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 Bixel House at December 31, 1997, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California January 15, 1998 Harmony Apartments [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 900731 Richard Suarez Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Harmony Apartments Los Angeles, California I have audited the accompanying balance sheet of Harmony Apartments as of December 31, 1999, and the related statements of operations, changes in partners' capital, and cash flows for the year ended December 31, 1999. 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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 statements presentation. I believe that my audit provide 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 Harmony Apartments at December 31, 1999, and the results of its operations and cash flows for the year ended December 31, 1999 in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California February 8, 2000 Harmony Apartments [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 900731 Richard Suarez Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Harmony Apartments Los Angeles, California I have audited the accompanying balance sheet of Harmony Apartments as of December 31, 1998, and the related statements of operations, changes in partners' capital, and cash flows for the year ended December 31, 1998. 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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 statements presentation. I believe that my audit provide 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 Harmony Apartments at December 31, 1998, and the results of its operations and cash flows for the year ended December 31, 1998 in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California February 28, 1999 Harmony Apartments [Letterhead] SUAREZ ACCOUNTANCY CORPORATION 150 W. Seventh Street Suite 100 San Pedro, CA 900731 Richard Suarez Telephone (310) 832-7887 Fax (310) 832-6563 Independent Auditor's Report To The Partners of Harmony Apartments Los Angeles, California I have audited the accompanying balance sheet of Harmony Apartments as of December 31, 1997, and the related statements of operations, changes in partners' capital, and cash flows for the year ended December 31, 1997. 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 audit. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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 statements presentation. I believe that my audit provide 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 Harmony Apartments at December 31, 1997, and the results of its operations and cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. /s/Suarez Accountancy Corporation San Pedro, California February 11, 1998 Schumaker Place Associates, L.P. [Letterhead] [LOGO] Halbert, Katz & Co., P.C. 121 South Broad Street Philadelphia, Pennsylvania 19107 INDEPENDENT AUDITORS' REPORT To the Partners Schumaker Place Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheets of Schumaker Place Associates, L.P., as of December 31, 1999 and December 31, 1998, and the related statements of loss, partners' capital (capital deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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. 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 Schumaker Place Associates, L.P., as of December 31, 1999 and December 31, 1998, and the results of its operations, changes in partners' capital (capital deficiency) and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audit were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supporting information included in the report (shown on page 12) is presented for the purpose of additional analysis and is not a required part of the basic financial statements of Schumaker Place Associates, L.P. Such information 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. /s/Halbert Katz & Co., P.C. January 31, 2000 Schumaker Place Associates, L.P. [Letterhead] [LOGO] Halbert, Katz & Co., P.C. 121 South Broad Street Philadelphia, Pennsylvania 19107 INDEPENDENT AUDITORS' REPORT To the Partners Schumaker Place Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheets of Schumaker Place Associates, L.P., as of December 31, 1998 and December 31, 1997, and the related statements of loss, partners' capital (capital deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 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. 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 Schumaker Place Associates, L.P., as of December 31, 1998 and December 31, 1997, and the results of its operations, changes in partners' capital (capital deficiency) and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audit were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supporting information included in the report (shown on page 12) is presented for the purpose of additional analysis and is not a required part of the basic financial statements of Schumaker Place Associates, L.P. Such information 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. /s/Halbert Katz & Co., P.C. January 29, 1999 Circle Terrace Associates [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1999, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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 Circle Terrace Associates Limited Partnership as of December 31, 1999, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 27 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated March 24, 2000 on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to Major HUD and fair housing and non-discrimination. /s/Reznick Fedder & Silverman Bethesda, Maryland Federal Employer March 24, 2000 Identification Number: 52-1088612 Lead Auditor: Robert J. Denmark Circle Terrace Associates [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1998, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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 Circle Terrace Associates Limited Partnership as of December 31, 1998, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. The Housing Assistance Payment contracts covering all 303 units expired on November 30, 1998 and November 30, 1997. It is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operations of the project (see note G). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 28 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 20, 1999 on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to Major HUD and DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Bethesda, Maryland Federal Employer January 20, 1999 Identification Number: 52-1088612 Audit Principal: Lester Kanis Circle Terrace Associates [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 Circle TerraceAssociates Limited Partnership as of December 31, 1997, and the results of its operations, the changes in partners' equity and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 25 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited," on which we express no opinion, 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs", we have also issued reports dated January 21, 1998, on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to Major HUD and CDA programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Baltimore, Maryland Federal Employer January 21, 1998 Identification Number: 52-1088612 Audit Principal: Lester A. Kanis Water Oaks [Letterhead] [LOGO] Habif, Arogeti& Wynne, LLP INDEPENDENT AUDITORS REPORT To the Partners Water Oaks Apartments, L.P. We have audited the accompanying balance sheet of WATER OAKS APARTMENTS, L.P., RHS Project No. 09-64-581801555 as of December 31, 1999 and the related statements of operations, partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of WATER OAK APARTMENTS, L.P. as of December 31, 1998 were audited by other auditors whose report dated January 28, 1999 expressed and unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration's Audit Program. Those standards require that we 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. We believe that our audits provide a reasonable basis for our opinion. In accordance with Government Auditing Standards, we have also issued reports dated January 21, 2000 on our consideration of WATER OAK APARTMENTS, L.P.'s internal control and on its compliance with laws and regulations applicable to the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WATER OAKS APARTMENTS, L.P., as of December 31, 1999, and the results of its operations and its cash flows for the year then ended, in conformity with 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 information on pages 13 through 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. /s/Habif, Arogeti&Wynne, LLP Atlanta, Georgia January 21, 2000 Water Oaks [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS REPORT To the Partners Water Oaks Apartments, L.P. We have audited the accompanying balance sheets of Water Oaks Apartments, L.P., RHS Project No. 09-64-581801555 as of December 31, 1998 and 1997 and the related statements of operations, partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we 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. 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 Water Oaks Apartments, L.P., RHS Project No. 09-64-581801555 as of December 31, 1998 and 1997, and the results of its operations, the changes in partners' equity (deficit), and its cash flows for the years then ended in conformity with 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 information on pages 16 through 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. In accordance with Government Auditing Standards, we have also issued reports dated January 28, 1999, on our consideration of Water Oak Apartments, L.P.'s internal control and on its compliance with laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Atlanta, Georgia January 28, 1999 Archer Village [Letterhead] [LOGO] Habif, Arogeti&Wynne, LLP INDEPENDENT AUDITORS' REPORT To the Partners Archer Village, Ltd. We have audited the accompanying balance sheet of ARCHER VILLAGE, LTD., RHS Project No.: 09-001-267869575, as of December 31, 1999, and the related statements of operations, changes in partners' accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of ARCHER VILLAGE , LTD., as of December 31, 1998 were audited by other auditors whose report dated January 28, 1999 expressed and unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration's Audit Program. Those standards require that we 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. 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 ARCHER VILLAGE, LTD. as of December 31, 1999 and the results of its operations, its changes in partners' accumulated deficit and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated January 21, 2000 on our consideration of ARHCER VILLAGE, LTD. internal control and on its compliance with laws and regulations applicable to the financial statements. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 13 through 18 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. /s/Habif Arogeti&Wynne, LLP Atlanta, Georgia January 21, 2000 Archer Village [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Archer Village, Ltd. We have audited the accompanying balance sheets of Archer Village, Ltd., RHS Project No.: 09-001-267869575, as of December 31, 1998 and 1997, and the related statements of operations, partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we 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. 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 Archer Village, Ltd., RHS Project No.: 09-001-267869575 as of December 31, 1998 and 1997, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with 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 information on pages 16 through 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. In accordance with Government Auditing Standards, we have also issued reports dated January 28, 1999, on our consideration of Archer Village, Ltd.'s internal control and its compliance with laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Atlanta, Georgia January 28, 1999 Ocean View Apartments [Letterhead] [LOGO] Habif Aroget&Wynne, LLP INDEPENDENT AUDITORS' REPORT To the Partners Ocean View Apartments, L.P. We have audited the accompanying balance sheet of OCEAN VIEW APARTMENTS, L.P., RHS Project No.: 09-45-581801553, as of December 31, 1999 and the related statements of operations, changes in partners' accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of OCEAN VIEW APARTMENTS, L.P. as of December 31, 1998 were audited by other auditors whose report dated January 28, 1999 expressed and unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration's Audit Program. Those standards require that we 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. We believe that our audits provide a reasonable basis for our opinion. In accordance with Government Auditing Standards, we have also issued reports dated January 21, 2000 on our consideration of OCEAN VIEW APARTMENTS, L.P's internal control and on its compliance with laws and regulations applicable to the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OCEAN VIEW APARTMENTS, L.P., as of December 31, 1999 and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with 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 information on pages 11 through 15 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/Habif Arogeti&Wynne, LLP Atlanta, Georgia January 21, 2000 Ocean View Apartments [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Ocean View Apartments, L.P. We have audited the accompanying balance sheets of Ocean View Apartments, L.P., RHS Project No.: 09-45-581801553, as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we 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. 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 Ocean View Apartments, L.P., RHS Project No.: 09-45-581801553, as of December 31, 1998 and 1997, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the years then ended, in conformity with 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 information on pages 16 through 22 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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. In accordance with Government Auditing Standards we have also issued reports dated January 28, 1999 on our consideration of Ocean View Apartments, L.P.'s internal control structure and on its compliance with laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Atlanta, Georgia January 9, 1999 Yester Oaks [Letterhead] [LOGO] Habif Arogeti&Wynne, LLP INDEPENDENT AUDITORS' REPORT To the Partners Yester Oaks, L.P. We have audited the accompanying balance sheet of YESTER OAKS, L.P. RHS Project No.: 11-046-581814319, as of December 31, 1999 and the related statements of operations, changes in partners' accumulated deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of YESTER OAKS, L.P. as of December 31, 1998 were audited by other auditors whose report dated January 28, 1999 expressed and unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration's Audit Program. Those standards require that we 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. 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 YESTER OAKS, L.P., as of December 31, 1999 and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued reports dated January 21, 2000 on our consideration of YESTER OAKS, L.P.'s internal control and on its compliance with laws and regulations applicable to the financial statements. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 12 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/Habif Arogeti&Wynne, LLP Atlanta, Georgia January 28, 2000 Yester Oaks [Letterhead] [LOGO] Reznick Fedder & Silverman INDEPENDENT AUDITORS' REPORT To the Partners Yester Oaks, L.P. We have audited the accompanying balance sheets of Yester Oaks, L.P.,RHS Project No.: 11-046-0581814319, as of December 31, 1998 and 1997, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we 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. 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 Yester Oaks, L.P., RHS Project No.: 11-046-0581814319 as of December 31, 1998 and 1997, and the results of its operations, the changes in partners' equity (deficit), and its cash flows for the years then ended, in conformity with 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 information on pages 16 through 17 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information 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. In accordance with Government Auditing Standards, we have also issued reports dated January 28, 1999, on our consideration of Yester Oaks L.P.'s internal control and on its compliance with laws and regulations applicable to the financial statements. /s/Reznick Fedder & Silverman Atlanta, Georgia January 28, 1999 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSH [letterhead] Haran & Associates Ltd. INDEPENDENT AUDITOR'S REPORT To the Partners HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP Detroit, Michigan We have audited the accompanying balance sheet of HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP (a Limited Partnership) as of December 31, 1999, and the related statements of profit and loss, changes in partners' equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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. 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 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP as of December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Haran & Associates Ltd. Certified Public Accountants Wilmette, Illinois Illnois Certificate No. 060-3097692 January 25, 2000 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSH [letterhead] Haran & Associates Ltd. INDEPENDENT AUDITOR'S REPORT To the Partners HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP Detroit, Michigan We have audited the accompanying balance sheet of HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP (a Limited Partnership) as of December 31, 1998, and the related statements of profit and loss, changes in partners' equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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. 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 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Haran & Associates Ltd. Certified Public Accountants Wilmette, Illinois Illnois Certificate No. 060-3097692 February 3, 1999 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP [letterhead] Haran & Associates Ltd. INDEPENDENT AUDITOR'S REPORT To the Partners HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP Detroit, Michigan We have audited the accompanying balance sheet of HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP as of December 31, 1997, and the related statements of profit and loss, changes in partners' equity and statement of cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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. 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 HISTORIC NEW CENTER APARTMENTS LIMITED PARTNERSHIP as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/Haran & Associates Ltd. Certified Public Accountants Wilmette, Illnois Illnois Certificate No. 060-3097692 January 29, 1998 STRATHERN PARK DECEMBER 31, 1998 INDEPENDENT AUDITORS' REPORT The Partners Strathern Park Los Angeles, California We have audited the accompanying balance sheet of Strathern Park (a California limited partnership), as of December 31, 1998 and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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. 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 Strathern Park as of December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information on Schedules I, II and III is presented for the purposes of additional analysis and is not a required part of the basic financial statements. 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/ NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP NANAS, STERN, BIERS, NEINSTEIN AND CO. LLP February 3, 1999 STRATHERN PARK BALANCE SHEET DECEMBER 31, 1998 ASSETS Cash and cash equivalents (Note 5) $ 89,129 Receivables 24,068 Reserve for replacements (Note 5) 187,249 Tenant security deposits (Note 5) 113,365 Rental property - at cost (Note 2) Land $ 5,889,320 Buildings 19,042,548 Equipment and furnishings 949,223 ------------------- 25,881,091 Less: accumulated depreciation (5,972,453) 19,908,638 ------------------- Other assets Syndication fee (Net of accumulated amortization of $130,186) 588,481 ------------------- TOTAL ASSETS $ 20,910,930 =================== Accounts payable and accrued expenses $ 66,386 Tenant security deposits 112,707 Accrued interest payable (Note 2) 4,609,113 Long term debt (Notes 2 and 5) 17,428,457 ------------------- TOTAL LIABILITIES 22,216,663 15,419 (1,321,152) ------------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 20,910,930 =================== See Accompanying auditors' report. The notes are an integral part of these financial statements. STRATHERN PARK STATEMENT OF PARTNERS' EQUITY YEAR ENDED DECEMBER 31, 1998 Profit Balance Net Distri- Balance and Loss January Loss butions December Percentage 1, 1998 for the year Paid 31, 1998 -------------- -------------- -------------- -------------- -------------- GENERAL PARTNER Safran Associates Investment Partnership II, A California Limited Partnership 1% $ (72,184) $ (13,008) $ (334) $ (85,526) CLASS A LIMITED PARTNER Safran Associates Investment Partnership II, A California Limited Partnership 4% (296,841) (52,032) (1,336) (350,209) INVESTOR LIMITED PARTNER Boston Financial Qualified Housing Tax Credits L.P.V., A Massachusetts Limited Partnership 95% 382,071 (1,235,763) (31,725) (885,417) SPECIAL LIMITED PARTNER S L P 90, Inc. --- --- --- --- --- -------------- -------------- -------------- -------------- $ 13,046 $ (1,300,803) $ (33,395) $ (1,321,152) ============== ============== ============== ============== See Accompanying auditors' report. The notes are an integral part of these financial statements. STRATHERN PARK STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 INCOME Gross potential - rents $ 1,574,908 (Vacancies) (28,013) Interest 8,845 Miscellaneous 45,666 -------------- TOTAL INCOME $ 1,601,406 EXPENSES (Note 4) Administrative expense 187,108 Management fees 124,605 Utilities 154,049 Operating and maintenance expense 223,717 Taxes and insurance 183,784 Interest expense - Mortgage note payable 567,918 Interest expense - Notes payable 684,115 Depreciation and amortization 776,913 -------------- TOTAL EXPENSES 2,902,209 -------------- NET LOSS $ (1,300,803) ============== See Accompanying auditors' report. The notes are an integral part of these financial statements. STRATHERN PARK STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (1,300,803) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization $ 776,913 (Increase)/Decrease in - Receivables 3,935 Tenant security deposits 6,977 (Decrease)/Increase in - Accounts payable and accrued expenses (6,435) Accrued interest payable 668,898 Security deposits 6,098 Deferred income (5,185) ---------------- Total Adjustments 1,451,201 ---------------- Net Cash Provided by Operating Activities 150,398 CASH FLOWS FROM INVESTING ACTIVITIES Deposits to reserve for replacements (86,489) Releases from reserve for replacements 38,067 ---------------- Net Cash Used in Investing Activities (48,422) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgage (54,502) Distributions paid (33,395) ---------------- Net Cash Used in Financing Activities (87,897) ---------------- Net Increase in Cash and Cash Equivalents 14,079 Cash and cash equivalents at January 1, 1998 75,050 ---------------- Cash and cash equivalents at December 31, 1998 $ 89,129 ================ SUPPLEMENTAL DISCLOSURE OF CASH FROM INFORMATION: Cash paid during the year for interest $ 590,181 ================ See Accompanying auditors' report. The notes are an integral part of these financial statements. STRATHERN PARK NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 Note 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Strathern Park (the partnership) was organized pursuant to a limited partnership agreement dated March 28, 1989 as amended. Effective June 1, 1990, the partnership agreement was amended with the admission of a new limited partner who purchased a 95% limited partnership interest for a total capital contribution of $5,963,067. On January 1, 1994 Lorne Park was merged into Strathern Park. The combined partnerships constructed a 241 unit apartment project (Lorne Park 72 units, Strathern Park 169 units) located in Sun Valley, California for tenants whose income is very low to moderate. The project is regulated under the terms of certain of its loan agreements. Such agreements contain certain restrictions concerning rental charges, the number of units rented to tenants in the very low, low and moderate income levels and other matters. Those restrictions of rent and income shall remain in effect for a minimum of 30 years. Use of Estimates in the Preparation of Financial Statements - 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 disclosures 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. Significant Accounting Policies - Method of Accounting - The partnership books are maintained and its financial statements and tax returns are prepared on the accrual basis. Cash Equivalents - For purposes of the statement of cash flows, the partnership considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. Rental Property - The partnership records property, equipment and improvements at the cost of acquisition or construction. The cost of maintenance and repairs is charged to operations as incurred; significant renewals and betterments are capitalized. Depreciation is computed using the straight line method for financial statement purposes and accelerated methods for tax purposes. Estimated useful lives for financial statement purposes are as follows: Classification Life --------------------- --------------- Buildings 27.5 Years Equipment and furnishings 5-7 Years Amortization - amortization of syndication costs is computed using the straight line method over a period of 10 years. Strathern Park Notes to Financial Statements December 31, 1998 Note 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.) Income Taxes - The project receives low-income tax credits provided under Section 42 of the Internal Revenue Code. Also, no provision for income taxes has been included since the income or loss of the partnership as well as the tax credits are required to be reported by the respective partners on their separate income tax returns. Note 2 LONG TERM DEBT Mortgage note payable, secured by First Deed of Trust, requiring monthly payments of $51,913, including interest at 9.41% per annum, maturing February, 2022. $ 5,804,177 Note payable secured by Second Deed of Trust, payable to the Community Redevelopment Agency of the City of Los Angeles with interest at 7% per annum. Interest accrues from the date of issuance of the first certificate of occupancy which is December 26, 1991. Unpaid principal together with all accrued and unpaid interest are due and payable in full upon the maturity of the primary permanent loan, but not later than 40 years from date of issuance. Principal and interest payments may be made in annual installments from the residual receipts of the project, as the term residual receipts is defined in the loan agreement. The note was funded by a Housing Development Grant from the United States Department of Housing and Urban Development. The terms of the Grant agreement impose certain restrictions on the use of the Grant proceeds and operating policies of the partnership. Accrued interest on this note at December 31, 1998 amounted to $2,456,728. 5,179,105 Note payable secured by Third Deed of Trust, payable to the Community Redevelopment Agency of the City of Los Angeles, with interest at 5% per annum. Interest accrues from the date of issuance of the first certificate of occupancy which is December 26, 1991. Unpaid principal together with all accrued and unpaid interest are due and payable in full upon the maturity of the primary permanent loan, but not later than 40 years from date of issuance. Principal and interest payments may be made in annual installments from the residual receipts of the project, as the term residual receipts is defined in the loan agreement. Accrued interest on this note at December 31, 1998 amounted to $2,152,385. 6,445,175 --------------- $ 17,428,457 =============== Strathern Park Notes to Financial Statements December 31, 1998 Note 2 LONG TERM DEBT (Cont.) Maturities of long term debt as of December 31, 1998 for the succeeding five years are as follows: Years ended December 31, 1999 72,337 2000 77,942 2001 87,318 2002 96,023 2003 105,596 Thereafter 16,989,241 --------------- $ 17,428,457 =============== Note 3 DISTRIBUTION TO PARTNERS Pursuant to the terms of the partnership agreement, as amended, and the loan agreement with the Community Redevelopment Agency of the City of Los Angeles, distributions are payable only from residual receipts, as defined in the agreements. Distributions are apportioned as follows: 1) 40% to the Community Redevelopment Agency of the City of Los Angeles(CRA) 2) The remaining 60% is allocated as follows: a) The Investor Limited Partner (Boston) is to receive any cumulative return ($60,000 annually) in arrears; b) The next $63,158 is distributed 95% to Boston, 4% to the Class A Limited Partner (SAIP II) and 1% to the General Partner (SAIP II); c) Any additional cash is used to repay any partner advances to the partnership; d) The next $63,158 is distributed 5% to Boston, 94% to SAIP II (Limited Partner) and 1% to SAIP II (General Partner); e) Thereafter, cash is distributed 50% to Boston, 49% to SAIP II (Limited Partner) and 1% to SAIP II (General Partner). Strathern Park Notes to Financial Statements December 31, 1998 Note 4 RELATED PARTY TRANSACTIONS There were no direct compensation payments to the partners during the year. However, there were related party transactions which occurred which are set forth below: (Income) Receivable Expense (Payable) Account for the At December Name Description No. Year 31, 1998 --------------------------------- -------------------- --------------- --------------- --------------- Thomas Safran and Associates, Inc.(TS&A) Management fee 6320 $ 95,685 $ (1,648) Apartment Investment and Managemet Company (AIMCO)/Insignia Residential Group, Inc. (IRG) Management fee 6320 28,920 --- --------------- --------------- $ 124,605 $ (1,648) =============== =============== The general partner has a direct ownership interest in TS&A listed above. Thomas Safran & Associates, Inc. (TS&A) has subcontracted certain accounting and supervisory functions to Insignia Residential Group (IRG) for a period of two years commencing August 1, 1997. On October 1, 1998, IRG merged with Apartment Investment and Management Company (AIMCO) which took over IRG's management function. TS&A will continue to be the managing agent and AIMCO will report to them on a monthly basis. The agreement among TS&A, AIMCO and the Project provides a portion of the approved management fees to be paid to AIMCO for their services. Note 5 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and Short Term Investments - The carrying amount approximates fair value because of the short maturity of those investments. Long Term Debt (First Deed of Trust) - The project does not have the right to prepay this debt during the first ten years of the term of this note. Accordingly, the carrying amount approximates its fair value. Long Term Debt (Second & Third Deed of Trust) - The carrying amount approximates fair value because there is no ready market for such debt, repayment/refinancing is severely restricted by the CRA and HUD. Strathern Park Notes to Financial Statements December 31, 1998 Note 5 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.) December 31, 1998 ----------------------------------- Carrying Fair Amount Value Cash and Short Term Investments $ 389,743 $ 389,743 Long Term Debt (First Deed of Trust) (5,804,177) (5,804,177) Long Term Debt (Second & Third Deed of Trust) (11,624,280) (11,624,280) Note 6 YEAR 2000 ISSUE The General Partner has assessed the Partnership's exposure to date sensitive computer software programs that may not be operative subsequent to 1999 and has implemented a requisite course of action to minimize Year 2000 risk and ensure that neither significant costs nor disruption of normal business operations are encountered. However, because there is no guarantee that all systems of outside vendors or other entities affecting the partnership's operations will be 2000 compliant, the Partnership remains susceptible to consequences of the Year 2000 issue. - ---------------------------------------------------------------------------------------------------------------------------- STRATHERN PARK - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- BOSTON FINANCIAL QUALIFIED HOUSING - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET FORMAT - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1998 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1110 Petty cash $ 800 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1120 Cash in bank 88,329 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1130 Tenant accounts receivable 23,200 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1140 Other accounts receivable 868 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1191 Tenant security deposits 113,365 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Current Assets $ 226,562 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- RESERVES AND DEPOSITS - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1320 Reserve for replacements 187,249 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- FIXED ASSETS - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1410 Land 5,889,320 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1420 Buildings 19,042,548 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1450 Furniture 949,223 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 25,881,091 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 4100 Less: accumulated depreciation (5,972,453) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Fixed Assets 19,908,638 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1820 Syndication fee (Net of accumulated amortization - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- of $130,186) 588,481 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 20,910,930 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- See Accompanying auditors' report. - ---------------------------------------------------------------------------------------------------------------------------- STRATHERN PARK - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- BOSTON FINANCIAL QUALIFIED HOUSING - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET FORMAT - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1998 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND PARTNERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2110 Accounts payable $ 19,354 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1st mortgage accrued interest payable 47,032 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2191 Tenant security deposits 112,707 $ 179,093 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- MORTGAGE NOTE PAYABLE CURRENT PORTION - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 1st mortgage note payable current portion 72,337 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 251,430 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- LONG TERM LIABILITIES - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Accrued interest payable - notes - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2nd mortgage note payable 2,456,728 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 3rd mortgage note payable 2,152,385 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Mortgage notes payable - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2321 1st mortgage note payable 5,731,840 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2322 2nd mortgage note payable 5,179,105 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2323 3rd mortgage note payable 6,445,175 17,356,120 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- OTHER LONG TERM LIABILITIES - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 2210 Deferred income 15,419 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Long Term Liabilities 21,980,652 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- PARTNERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 3130 Limited partners' equity (1,235,626) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- 3131 General partners' equity (85,526) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Partners' Equity (1,321,152) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 20,910,930 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- See Accompanying auditors' report. STRATHERN PARK BOSTON FINANCIAL QUALIFIED HOUSING - STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 REVENUE Rent revenue 5120 Apartments $ 1,500,682 5121 Tenant assistance payments 61,056 5130 Furniture and equipment - 5140 Stores and commercial 13,170 5170 Garage and parking - 5180 Flexible subsidy income - 5190 Miscellaneous - ---------------- Total rent revenue $ 1,574,908 Vacancies 5220 Apartments (28,013) 5240 Stores and commercial - 5270 Garage and parking - 5290 Miscellaneous - ---------------- Total Vacancies (28,013) ---------------- Net Rental Revenue 1,546,895 Financial Revenue 5410 Interest Income - operations 2,589 5430 Interest Income - residual receipts - 5440 Interest income - replacement reserve 4,403 5490 Interest income - miscellaneous 1,853 ---------------- Total Financial Revenue 8,845 Other Revenue 5910 Laundry and vending 31,897 5920 NSF and late charges 7,667 5930 Damages and cleaning fees 3,522 5940 Forfeited tenant security deposit 406 5990 Other revenue 2,174 5991 Non-cash revenue - ---------------- Total Other Revenue 45,666 ---------------- NET REVENUE $ 1,601,406 ================ See Accompanying auditors' report. STRATHERN PARK BOSTON FINANCIAL QUALIFIED HOUSING - STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 EXPENSES Administrative Expenses 6210 Advertising $ 4,739 6250 Other renting expense 6,368 6310 Office salaries 20,650 6311 Office supplies 47,953 6320 Management fee 124,605 6330 Manager or superintendent salary 55,737 6331 Manager's rent free unit - 6340 Legal expenses (project) 9,498 6350 Auditing expenses (project) 9,500 6351 Bookkeeping fees/accounting services - 6360 Telephone and answering service 11,496 6370 Bad debts 21,167 6390 Miscellaneous administrative expenses - ---------------- Total Administrative Expenses $ 311,713 Utilities Expenses 6420 Fuel oil/coal - 6450 Electricity 44,769 6451 Water 69,736 6452 Gas 7,411 6453 Sewer 32,133 ---------------- Total Utilities Expenses 154,049 Operating & Maintenance 6510 Janitor and cleaning payroll - 6515 Janitor and cleaning supplies 7,998 6517 Janitor and cleaning contract - 6519 Exterminating payroll/contract 1,106 6520 Exterminating supplies - 6525 Garbage and trash removal 16,500 6530 Security payroll/contract 19,673 See Accompanying auditors' report. STRATHERN PARK BOSTON FINANCIAL QUALIFIED HOUSING - STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 EXPENSES (Cont.) Operating & Maintenance (Cont.) 6535 Grounds payroll $ - 6536 Grounds supplies 5,015 6537 Grounds contract 30,839 6540 Repairs payroll 66,955 6541 Repairs material 23,209 6542 Repairs contract 23,117 6545 Elevator maintenance/contract - 6546 Heating/cooling repairs and maintenance 3,321 6547 Swimming pool maintenance/contract - 6548 Snow removal - 6560 Decorating payroll/contract 18,677 6561 Decorating supplies 7,307 6570 Other, gasoline - 6590 Miscellaneous operating and maintenance - ---------------- Total Operating and Maintenance $ 223,717 Taxes and Insurance 6710 Real estate taxes 122,658 6711 Payroll taxes (FICA) 11,399 6719 Miscellaneous taxes, licenses 3,872 6720 Property and liability insurance 27,431 6721 Fidelity bond insurance - 6722 Workmen's compensation 5,686 6723 Health insurance and other benefits 12,238 6729 Other insurance - 6790 Miscellaneous taxes and insurance - ---------------- Total Taxes and Insurance 183,284 Interest on Mortgage Notes 6821 Interest on 1st mortgage 567,918 See Accompanying auditors' report. STRATHERN PARK BOSTON FINANCIAL QUALIFIED HOUSING - STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 EXPENSES (Cont.) Other Financial Expenses 6690 Amortization $ 17,967 6830 Interest on notes payable (long term) 684,115 6850 Mortgage insurance premium - 6890 Miscellaneous financial expenses 500 6895 Non-cash expense - ---------------- Total Financial Expenses $ 702,582 --------------- TOTAL EXPENSES BEFORE DEPRECIATION 2,143,263 --------------- PROFIT (LOSS) BEFORE DEPRECIATION (541,857) 6600 Depreciation 758,946 --------------- OPERATING PROFIT (LOSS) (1,300,803) Other Expenses Prior Period (Entity) --- --------------- NET PROFIT (LOSS) $ (1,300,803) =============== 1st mortgage principal payment $ 54,502 2nd mortgage principal payment --- 3rd mortgage principal payment --- --------------- Total mortgage principal payments $ 54,502 =============== Actual replacement reserve deposits $ 86,489 Replacement or painting reserve releases $ (38,067) Cash subsidies --- Capital improvements not expensed --- Capital contribution or disbursement $ 33,395 See Accompanying auditors' report. STRATHERN PARK COMPUTATION OF RESIDUAL RECEIPTS DECEMBER 31, 1998 Net income (loss) as of December 31, 1998 $ (1,300,803) ADD: Depreciation $ 758,946 Amortization 17,967 Community Redevelopment Agency loan interest 322,258 Housing Development Grant loan interest 361,857 Approved releases from reserve for replacements --- Releases from reserve for replacements 38,067 1,499,095 -------------- --------------- 198,292 LESS: Principal payments on mortgage (54,502) Deposits to reserve for replacements (86,489) Payments for capital expenditures --- (140,991) -------------- --------------- RESIDUAL RECEIPTS, as defined in the partnership agreement at December 31, 1998 $ 57,301 =============== See Accompanying auditors' report. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CIRCLE TERRACE ASSOCIATES LIMITED PARTNERSHIP HUD PROJECT NO.: 052-44056-LDP CDA PROJECT NO.: 28.04.0010 DECEMBER 31, 1997 TABLE OF CONTENTS - CONTINUED Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 PAGE MORTGAGOR'S CERTIFICATION 4 MANAGING AGENT'S CERTIFICATION 5 INDEPENDENT AUDITORS' REPORT 6 FINANCIAL STATEMENTS BALANCE SHEET 8 STATEMENT OF PROFIT AND LOSS 10 STATEMENT OF PARTNERS' EQUITY 12 STATEMENT OF CASH FLOWS 13 NOTES TO FINANCIAL STATEMENTS 15 SUPPLEMENTAL INFORMATION ACCOUNTS AND NOTES RECEIVABLE 25 CONTRIBUTIONS DUE 25 MORTGAGE ESCROW DEPOSITS 25 TENANT SECURITY DEPOSITS 26 RESERVE FOR REPLACEMENTS 26 RESIDUAL RECEIPTS 26 PAINTING RESERVE 26 ACCOUNTS PAYABLE 27 ACCRUED TAXES 27 LETTERS OF CREDIT 27 LOANS AND NOTES PAYABLE 27 MORTGAGES PAYABLE 28 MORTGAGES PAYABLE FROM SURPLUS CASH 28 COMPENSATION OF PARTNERS 28 UNAUTHORIZED DISTRIBUTIONS OF PROJECT INCOME TO PARTNERS 28 IDENTITY OF INTEREST COMPANIES AND ACTIVITIES 29 NON-REVENUE PRODUCING UNITS 29 DECLARATION OF OWNERSHIP - UNAUDITED 29 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS 30 CHANGES IN FIXED ASSET ACCOUNTS 31 COMPARISON OF BUDGET TO ACTUAL INCOME AND EXPENSES 32 MONTHLY INCOME AND EXPENSE STATEMENT - CASH BASIS 35 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL 38 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD AND CDA PROGRAMS 40 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION 42 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL STATEMENTS 43 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 45 ANNUAL AUDIT QUESTIONNAIRE 46 December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 - 24 - MORTGAGOR'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same is complete and accurate. GENERAL PARTNER --------------------------------------- Judith Siegel Date Partnership Employer Identification Number: 05-0461953 MANAGING AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same is complete and accurate. MANAGING AGENT Rental Housing Management Partnership --------------------------------------- Eric Richelson Date David Staley Managing Agent Employer Property Manager Identification Number: 13-3580730 INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1997, and the related statements of profit and loss (on HUD Form No. 92410), partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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 Circle Terrace Associates Limited Partnership as of December 31, 1997, and the results of its operations, the changes in partners' equity and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 25 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information, except for that portion marked "unaudited", on which we express no opinion, 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 21, 1998 on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD and CDA programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. Bethesda, Maryland Federal Employer January 21, 1998 Identification Number: 52-1088612 Audit Principal: Lester A. Kanis BALANCE SHEET DECEMBER 31, 1997 ASSETS CURRENT ASSETS 1110 Petty cash $ 1,400 1120 Cash in bank 143,737 1121 Cash - partnership 247,311 1130 Tenant accounts receivable 11,720 1131 Accounts receivable - HUD 178,313 1240 Prepaid property insurance 37,733 1250 Prepaid mortgage insurance 16,332 1270 Prepaid real estate taxes 34,169 ----------------- Total current assets 670,715 DEPOSITS HELD IN TRUST - FUNDED 1191 Tenant security deposits 40,834 RESTRICITAD DEPOSITS AND FUNDED RESERVES 1310 Mortgage escrow deposits $ 108,992 1320 Reserve for replacements 486,850 1330 Painting reserve 123,993 --------------- 719,835 RENTAL PROPERTY 1410 Land 1,104,269 1420 Buildings and improvements 15,214,660 1440 Building equipment - fixed 34,325 1440 Building equipment - portable 18,164 1450 Personal property 18,440 1460 Furnishings 8,378 -------------- 16,398,236 1495 Less accumulated depreciation 2,929,726 ----------- 13,468,510 OTHERASSETS 1901 Mortgage costs, less accumulated amortization of $85,191 221,729 ======= $ 15,121,623 NOTES TO FINANCIAL STATEMENTS December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 BALANCE SHEET-Continued DECEMBER 31, 1997 LIABILITIES AND PARTNERS' EQUITY CURRENT LIABILITIES 2110 Accounts payable $ 23,487 2130 Accrued interest payable 34,763 2150 Accrued P.I.L.O.T. 91,140 2190 Accrued management fees 22,482 2210 Rent deferred credits 675 2320 Current maturities of long term debt 283,526 ------- Total Current Liabilities 456,073 DEPOSITS LIABILITIES 2191 Tenant security deposits (contra) 34,440 LONG TERM LIABILITIES 2320 Long term debt, net of current maturities $ 9,435,867 2335 Accrued interest 103,030 ------------- 9,538,897 CONTINGENCY - 3130 PARTNERS' EQUITY 5,092,113 ------------- $15,121,523 STATEMENT OF PROFIT AND LOSS DECEMBER 31, 1997 RENTAL INCOME 5120 Apartments or member carrying charges (Coops) $ 305,325 5121 Tenant assistance payments 1,988,739 ------- Total rent revenue potential at 100% occupancy $2,294,064 VACANCIES 5220 Apartments (7,223) -------------- Total vacancies (7,223) Net rental revenue 2,286,841 FINANCIAL REVENUE 5410 Interest Income -project operations 6,619 5440 Income from investments - reserve for replacement 12,093 ----- Total financial revenue 18,712 OTHER REVENUE 5910 Laundry and vending 9,482 5920 NSF and late charges 4,117 ----- Total other revenue 13,599 Total revenue 2,319,152 STATEMENT OF PROFIT AND LOSS (continued) DECEMBER 31, 1997 ADMINISTRATIVE EXPENSES 6210 Advertising and marketing 8,719 6250 Other renting expenses 5,778 6310 Office salaries 89,954 6311 Office Supplies 26,989 6320 Management fee 130,164 6331 Manager or superintendent rent free unit 7,548 6340 Legal expenses - project 13,711 6350 Auditing expenses - project 9,600 6351 Bookkeeping fees/accounting services 16,368 6360 Telephone and answering services 11,916 6370 Bad debts 4,749 6390 Miscellaneous administrative expenses 23,761 ------ Total administrative expenses 349,257 UTILITIES EXPENSE 6450 Electricity 17,224 6451 Water 14,777 6452 Gas 109,333 Total utilities expense 141,334 OPERATING AND MAINTENANCE EXPENSES 6515 Janitor and cleaning supplies 9,387 6517 Janitor and cleaning contract 3,843 6520 Exterminating supplies 734 6525 Garbage and trash removal 38,158 6530 Security payroll/contract 166,940 6536 Grounds supplies 893 6537 Grounds contract 35,980 6540 Repairs payroll 127,205 6541 Repairs material 102,277 6542 Repairs contract 11,242 STATEMENT OF PROFIT AND LOSS (continued) DECEMBER 31, 1997 6546 Heating/cooling repairs and maintenance 8,406 6548 Snow removal 1,275 6560 Decorating payroll contract 22,135 6561 Decorating supplies 7,557 6570 Other 9,544 6590 Miscellaneous operating and maintenance expenses 236 ----------- Total operating and maintenance expenses 545,812 TAXES AND INSURANCE 6710 Real estate taxes 123,445 6711 Payroll taxes (FICA) 29,527 6719 Miscellaneous taxes, licenses and permits 400 6720 Property and liability insurance (Hazard) 88,162 6721 Fidelity bond insurance 914 6722 Workmen's compensation 11,018 6723 Heath insurance and other employee benefits 28,951 ------ Total taxes and insurance 282,417 FINANCIAL EXPENSES 6820 Interest on mortgage payable 435,537 6840 Interest on notes payable - short-term 1,342 6850 Mortgage insurance premium/service charge 45,753 ------ Total financial expenses 482,632 DEPRECIATION AND AMORTIZATION Total cost of operations before depreciation 1,801,452 Profit (Loss) before depreciation 517,700 Depreciation and amortization 574,584 Operating Profit or (Loss) (56,884) CORPORATE OR MORTGAGOR ENTITY EXPENSES 7190 Other (revenue)/expenses (9,077) Total corporate expenses (9,077) ---- Net Profit (47,807) STATEMENT OF PARTNER'S EQUITY DECEMBER 31, 1997 Special Investor General Limited Limited Partner Partner Partner Total Partners' equity, Beginning $217,706 - $4,922,214 $5,139,920 Net Loss (478) - (47,329) (47,807) --------- ------------ --------- ----------- Partners' equity, End $ 217,228 - $ 4,874,885 $ 5,092,113 --------- ----------- ----------- Statement OF CASH FLOWS DECEMBER 31, 1997 Cash flows from operating activities Rental income received $ 2,131,151 Interest received 18,709 Other income received 13,599 Administrative expenses paid (133,228) Management fees paid (130,164) Utilities paid (145,670) Salaries and wages paid (406,234) Operating and maintenance paid (217,547) Real estate taxes paid (65,118) Payroll taxes paid (29,527) Property insurance paid (124,576) Other taxes and insurance paid (29,351) Interest paid on mortgage (413,662) Interest paid on notes (1,342) Mortgage insurance premium paid (45,753) Decrease in mortgage escrow deposits 2,700 Mortgagor entity income received, net 9,077 Net tenant security deposits received 2,163 -------------- Net cash provided by operating activities 435,227 -------------- Cash flows from investing activities Deposits to reserve for replacement (96,633) Deposits to painting reserve (42,497) Payment of developer fees payable (34,554) Purchase of fixed assets (18,440) ------------- Net cash used in investing activities (192,124) ------------- Cash flow from financing activities Mortgage and note principal payments (261,217) Proceeds from note payable 17,940 ---------------- Net cash used in financing activities (243,277) STATEMENT OF CASH FLOWS (CONTINUED) DECEMBER 31, 1997 NET DECREASE IN CASH (174) Cash, beginning 392,622 Cash, end $ 392,448 =============== NOTES TO FINANCIAL STATEMENTS December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Circle Terrace Associates Limited Partnership was organized under the laws of the State of Maryland on March 28, 1990, for the purpose of acquiring and operating a rental housing project under Section 236 of the National Housing Act. The project consists of 303 units located in Lansdowne, Maryland, and is currently operating under the name of Circle Terrace Apartments. The property is managed by an affiliate of the general partner based on a fee of $35.80 per unit per month. Cash distributions are limited by agreements between the partnership and the United States Department of Housing and Urban Development (HUD) to an annual amount of $30,340 per year to the extent of surplus cash as defined by HUD. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements. Each building of the project has qualified and been allocated low-income housing credits pursuant to Internal Revenue Code Section 42 ("Section 42") which regulates the use of the project as to occupant eligibility and unit gross rent, among other requirements. Each building of the project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the credits. In addition, Circle Terrace Associates Limited Partnership has executed an Extended Low-income Housing Agreement/Land Deed Restriction/Extended Use Commitment which requires the utilization of the project pursuant to Section 42 for a minimum of 30 years, even after the disposition of the project by the partnership. Use of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Rental Property Rental property is recorded at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method over a 27.5-year life. Personal property is recorded at cost and is depreciated over its estimated service life of 5-7 years using accelerated methods. 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 profit and loss. Amortization Mortgage costs are amortized over the term of the respective loan using the straight-line method. Provision for Doubtful Accounts The partnership considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations upon such determination. 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. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the property are operating leases. NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments Investments in U.S. Treasury bills are carried at amortized cost, which approximates fair market value, and are classified as held to maturity. Such investments are included in the reserve for replacements in the accompanying balance sheet. NOTE B - PARTNERS' CAPITAL CONTRIBUTIONS The partnership has one general partner - Cooperative Associates Limited Partnership and two limited partners - SLP, Inc. (the special limited partner) and Boston Financial Qualified Housing Tax Credits L.P. V, a Limited Partnership (the investor limited partner). The general partner has made capital contributions of $413,562. SLP, Inc. is required to make a capital contribution of $10. The investor limited partner has made capital contributions totaling $5,615,234. NOTE C - LONG-TERM DEBT First Mortgage The partnership is obligated under the terms of a mortgage note which is insured by the Federal Housing Administration (FHA) and bears interest at the rate of 7%, less a varying interest subsidy in the current amount of $17,879 per month. Monthly payments of principal and interest in the reduced amount of $10,564 are due through maturity in February 2017. The total interest subsidy of $213,447 is reflected as a reduction of interest expense. Principal and accrued interest due at December 31, 1997 are $3,596,386 and $2,897, respectively. Under agreements with the mortgage lender and FHA, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners. The liability of the partnership under the mortgage note is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. NOTE C - LONG-TERM DEBT (Continued) Second Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $4,000,000, which is insured by the Maryland Housing Fund (MHF) payable to Crestar of Richmond, Virginia, Inc. The note bears interest at the rate of 8%. Monthly payments of principal and interest in the amount of $34,576 are due through maturity in December 2011. Principal and accrued interest due at December 31, 1997 are $3,483,497 and $24,099, respectively. The liability of the partnership under the terms of the mortgage is limited to the underlying value of the real estate collateral plus other amounts deposited with the lender. Third Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $2,227,330 payable to the Department of Housing and Community Development of the State of Maryland (CDA). The note bears interest at 4.5%. Monthly payments of principal and interest of $11,373 are due through July 1, 2023. Principal and accrued interest due at December 31, 1997 are $2,071,870 and $7,767, respectively. The liability of the partnership under the terms of the mortgage is limited to the underlying value of the real estate collateral. Promissory Note The partnership is obligated under the terms of an unsecured promissory note payable to Baltimore County, Maryland. Interest accrues at the rate of 4%. Annual interest payments commenced January 1, 1996. Annual payments of principal will be due commencing January 1, 2000 and will extend for 30 years through maturity on December 31, 2030. Payments may be made only to the extent of surplus cash as defined by HUD. Principal and accrued interest due at December 31, 1997 are $550,000 and $103,030, respectively. NOTE C - LONG-TERM DEBT (Continued) Note Payable The partnership is obligated under the terms of a note payable for the purchase of a truck. The note bears interest at 8.75% and requires monthly payments of principal and interest of $588 through maturity in October 2000. The amount payable at December 31, 1997 is $17,640. Aggregate annual maturities of long-term debt for each of the next five years are as follows: - --------------------------------------------- -- ---------------- December 31, 1998 $ 283,526 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 1999 304,471 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2000 325,839 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2001 343,827 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2002 369,264 - --------------------------------------------- -- ---------------- NOTE D - RELATED PARTY TRANSACTIONS Working Capital Advances The general partner is obligated to make working capital advances to the partnership as needed, up to an aggregate of $100,000. Such advances are noninterest bearing and can be repaid out of available net cash flow as defined in the partnership agreement. No such advances were required as of December 31, 1997. In the event cash flow does not provide sufficient funds to pay the investor limited partner its minimum distribution, such amount required will be advanced by the general partner and will be considered a project expense loan. Management Agreement The property is managed by an affiliate of the general partner. The management fee is based on a charge of $35.80 per unit per month. The management agent also receives fees of $4.50 per unit per month for accounting services provided to the partnership. Management and accounting fees charged to operations during 1997 were $130,164 and $16,368, respectively, of which $22,482 of management fee is payable at December 31, 1997. NOTE D - RELATED PARTY TRANSACTIONS (Continued) Insurance The sole shareholder of an affiliate of the general partner provided debt financing for the capitalization of LaMere Associates, Inc. (LaMere). In connection with such debt financing, the shareholder received 20% of the stock of LaMere. LaMere was paid premiums in connection with the following insurance coverage provided to the partnership: property and liability, fidelity bond and auto. In connection with such insurance coverage, the partnership incurred $100,094 in premiums for the year ended December 31, 1997. Computer Services In accordance with HUD Regulations 4381.5 Rev-2, Paragraph 6.38, the partnership uses the services of a computer consultant company to provide the following services: purchase and install personal computers and the related equipment and software for the project's rental office; provide training and technical support, and consult on software upgrades. Dynamic Information Services, Inc. (DIS), which is owned by a relative of an officer of the management company, is a licensed representative of Project Data Systems, Inc., a nationally known provider of computer system software for the subsidized housing industry. DIS derives 40% of its consulting service revenues from third-party clients not affiliated with the management company. In 1997, the partnership paid DIS $2,174 for equipment and software, representing actual cost, and $1,697 for technical support and training services based on billable hours. NOTE E - CONTRACT WITH BALTIMORE COUNTY (IN LIEU OF TAXES) The partnership has entered into an agreement with Baltimore County, Maryland, whereby the partnership is to pay the County $162.50 per apartment unit per year (the minimum payment) in lieu of real estate taxes. To the extent there is net cash flow, as defined in the agreement, such amount is to be applied toward additional payments. The minimum payment has been increased 10% annually. The amount incurred during 1997 under the terms of this agreement was $58,327. This amount is included with other city and county real estate taxes in the statement of profit and loss. As of December 31, 1997, $91,140 remains payable. NOTE F - HOUSING ASSISTANCE PAYMENT (HAP) CONTRACT AGREEMENTS HUD has contracted with the partnership under the United States Housing Act of 1937 to make housing assistance payments to the partnership on behalf of qualified tenants. The terms of the contract covering 142 units expires on November 30, 1998 and the contract covering 161 units expired on November 30, 1997. The contracts do not have renewal options. With Congressional passage in October 1997 of the Multifamily Assisted Housing and Reform and Affordability Act (the Act), HUD has been given budgetary authority to approve requests for one-year renewals on all Section 8 contracts expiring through September 30, 1998. Thus, one of the partnership's HAP agreements will be eligible for a one-year renewal through March 31, 1999. Under provisions of the Act, renewal of Section 8 contracts expiring after September 30, 1998 are subject to evaluation and assessment under a complex set of requirements as prescribed by this "mark-to-market" legislation. Further, implementing regulations by HUD affecting administration over the renewal process have not been finalized. As a result, it is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operation of the project. The project is economically dependent upon the rental income received from both of its agreements. If HUD were not to extend either one, the project's operating cash flow would be adversely affected. NOTE G - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS All profits and losses are allocated 1% to the general partner and 99% to the investor limited partner. Cash flow, as defined in the partnership agreement, is to be distributed as follows: 1. 99% to the investor limited partner and 1% to the general partner until the investor limited partner has received distributions, in the aggregate, equal to the cumulative priority distribution. 2. To the repayment of any project expense loans. NOTE G - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS (Continued) 3. To the general partner until it has received cumulatively an amount equal to the cumulative amount paid to the investor limited partner as defined above. 4. 50% to the general partner and 50% to the investor limited partner. Gain, if any, from a sale, exchange or other disposition is allocable as follows: 1. To all partners having negative balances in their capital accounts prior to the distribution of any sale or refinancing proceeds, an amount of such gain to increase their negative balance to zero. 2. To each partner until the positive capital account balance is equal to the amount of cash available for distribution as a result of the transaction, as defined in the partnership agreement. Loss from a sale is allocable as follows: 1. To the partners in proportion to their positive capital account balances. In the event the loss is less than the sum of the positive capital accounts, the loss is to be allocated such that the resulting capital account balance is as near as possible to the amount of cash to be distributed as a result of the transaction. 2. 1% to the general partner and 99% to the investor limited partner. NOTE H - TAXABLE LOSS A reconciliation of the financial statement net loss to the income tax net loss of the partnership for the year ended December 31, 1997 is as follows: ---------------------------------------------------------------------- Financial statement net loss $ (47,807) ---------------------------------------------------------------------- ---------------------------------------------------------------------- Excess depreciation for income tax purposes (5,750) ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Income net tax loss $ (53,557) ---------------------------------------------------------------------- NOTE I - INVESTMENT IN REAL ESTATE A reconciliation of the basis of the investment in real estate for financial reporting purposes to that for income tax purposes as of December 31, 1997 is as follows: - ------------------------------------------------------------------------------- Investment in real estate for financial reporting $ 13,468,510 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Excess accumulated depreciation for income tax purposes (50,844) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Interest expense portion of subsidy capitalized for income tax purposes 177,337 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Investment in real estate for income tax purposes $ 13,595,003 - ------------------------------------------------------------------------------- NOTE J - CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances in several banks. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank. As of December 31, 1997, the uninsured portion of the partnership cash balances held at one bank was $147,311. NOTE K - CONTINGENCY The partnership's low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility and/or unit gross rent, or to correct noncompliance within a specified time period, could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may require an adjustment to the capital contributed by the investor limited partner. NOTE L - OTHER MORTGAGOR ENTITY EXPENSES (ACCOUNT NO. 7190) Other mortgagor entity expenses consist of the following: ------------------------------------------------------------------------ Interest income - partnership accounts $ 9,077 ------------------------------------------------------------------------ SUPPLEMENTAL INFORMATION SUPPORTING DATA REQUIRED BY HUD AND CDA SUPPLEMENTAL INFORMATION SUPPORTING DATA REQUIRED BY HUD AND CDA December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 - 52 - ACCOUNTS AND NOTES RECEIVABLE (OTHER THAN FROM REGULAR TENANTS) --------------------------------------------------------------------------------------------------------------- Name of borrower Original date Terms Original amount Balance due --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- U.S. Department of Housing and Oct. - Dec. 1/98 $ 178,313 $ 178,313 Urban Development 1997 --------------------------------------------------------------------------------------------------------------- DELINQUENT TENANT ACCOUNTS RECEIVABLE --------------------------------------------------------------------------------------------------------------- Number of Amount tenants past due ---------------------------------- ---------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 30 days 56 $ 1,980 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 31-60 days 52 1,807 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 61-90 days 32 2,022 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent over 90 days 49 5,911 ----------------------------------------------------------------------------- -------------------- ----------------------------------------------------------------------------- -------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- $ 11,720 ----------------------------------------------------------------------------- -------------------- CONTRIBUTIONS DUE --------------------------------------------------------------------------------------------------------------- SLP, Inc. $ 10 --------------------------------------------------------------------------------------------------------------- MORTGAGE ESCROW DEPOSITS --------------------------------------------------------------------------------------------------------------- Estimated amount required as of December 31, 1997, for future payment of: --- --- City, state and county taxes (P.I.L.O.T) $ 37,836 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Property insurance 31,915 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Mortgage insurance 13,314 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- 83,065 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Amount on deposit in excess of estimated requirements 25,927 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Total confirmed by mortgagee $ 108,992 --------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION - CONTINUED SUPPORTING DATA REQUIRED BY HUD AND CDA December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 TENANT SECURITY DEPOSITS Tenant security deposits are held in a separate bank account in the name of the project. RESERVE FOR REPLACEMENTS In accordance with the provisions of the regulatory agreement, restricted cash is held by Mellon Mortgage Company to be used for replacement of property with the approval of HUD as follows: ---------------------------------------------------------------------- Balance at December 31, 1996 $ 390,217 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Monthly deposits ---------------------------------------------------------------------- ---------------------------------------------------------------------- $7,045 x 12 84,540 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Interest earned 12,093 ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Balance at December 31, 1997, confirmed by mortgagee $ 486,850 ---------------------------------------------------------------------- RESIDUAL RECEIPTS NONE PAINTING RESERVE The partnership has established a reserve for painting of the property. The restricted cash is held by the partnership. ---------------------------------------------------------------------- Balance at December 31, 1996 $ 81,496 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Monthly deposits ---------------------------------------------------------------------- ---------------------------------------------------------------------- $3,333 x 12 39,996 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Interest earned 2,501 ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Balance at December 31, 1997 $ 123,993 ---------------------------------------------------------------------- ACCOUNTS PAYABLE (OTHER THAN TRADE CREDITORS) NONE ACCRUED TAXES -------------------------------------------------------------------------------------------------------------- Description of tax Basis for accrual Period covered Date due Amount accrued -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Baltimore County, Maryland P.I.L.O.T. 1997 12/31/97 $ 91,140 P.I.L.O.T. -------------------------------------------------------------------------------------------------------------- LETTERS OF CREDIT NONE LOANS AND NOTES PAYABLE (OTHER THAN THE INSURED MORTGAGE) --------------------------------------------------------------------------------------------------------------- Creditor Interest Collateral Date Terms Original amount Balance due rate incurred -------------------------------------------------------------------------- ----------------- ----------------- -------------------------------------------------------------------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Crestar of 8% Second trust 12/91 20 yrs 4,000,000 $ 3,483,497 Richmond, Virginia, Inc. --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- State of Maryland 4.5% Third trust 12/91 20 yrs 2,227,330 $ 2,071,870 CDA --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Baltimore County, 4.0% Unsecured 11/90 40 yrs 550,000 $ 550,000 Maryland --------------------------------------------------------------------------------------------------------------- MORTGAGES PAYABLE --------------------------------------------------------------------------- Creditor Address of creditor --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- HUD Washington, D.C. --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Crestar of Richmond, Virginia, Inc. Richmond, Virginia --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Department of Housing and Community Crownsville, Maryland Development of the State of Maryland --------------------------------------------------------------------------- Servicer Address of servicer Mellon Mortgage Company Cleveland, Ohio Crestar of Richmond, Virginia, Inc. Richmond, Virginia Bogman, Inc. Bethesda, Maryland MORTGAGES PAYABLE FROM SURPLUS CASH NONE COMPENSATION OF PARTNERS NONE UNAUTHORIZED DISTRIBUTIONS OF PROJECT INCOME TO PARTNERS NONE IDENTITY OF INTEREST COMPANIES AND ACTIVITIES -------------------------------------------------------------------------------------------------------------- Company name Services rendered Amount paid Amount payable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Rental Housing Management $ 130,164 $ 22,482 Partnership Property management -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Rental Housing Management $ 16,368 $ - Partnership Accounting fees -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- LaMere Associates, Inc. $ 100,094 $ - Insurance coverage -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Dynamic Information Equipment, software, technical support $ 3,871 $ - Services, Inc. and training services -------------------------------------------------------------------------------------------------------------- NON-REVENUE PRODUCING UNITS ------------------------------------------------------------------------------------------------------------ Name of occupant Connection with project ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ Willfred Chatterton Assistant Supervisor ------------------------------------------------------------------------------------------------------------ DECLARATION OF OWNERSHIP - UNAUDITED ---------------------------------------------------------------------------------------------------------------- Type of partner Name of partner Capital Ownership contributed percentage ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- General Partner Cooperative Associates Limited $ 413,562 1% Partnership ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Special Limited Partner SLP, Inc. $ 0 0% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Limited Partner Boston Financial Qualified $ 5,615,234 $ 99% Housing Partnership ---------------------------------------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1997, and have issued our report thereon dated January 21, 1998. We have also audited Circle Terrace Associates Limited Partnership's compliance with specific requirements applicable to major HUD-assisted and CDA programs and have issued our report thereon dated January 21, 1998. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, 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 and the Maryland Department of Housing and Community Development, Community Development Administration Audit Guide dated October 1997. Those standards and the two guides require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether Circle Terrace Associates Limited Partnership complied with laws and regulations, noncompliance with which would be material to major HUD-assisted and CDA programs. The management of the partnership is responsible for establishing and maintaining internal control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. The objectives of internal control 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 and CDA programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in internal control, errors, fraud or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of internal control 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 of controls may deteriorate. In planning and performing our audits of the partnership for the year ended December 31, 1997, we obtained an understanding of the design of the relevant 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 partnership's financial statements and on its compliance with specific requirements applicable to major HUD-assisted and CDA programs and to report on internal control in accordance with the provisions of the Guide and not to provide an opinion on internal control. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of controls that we considered relevant to preventing or detecting material noncompliance with specific requirements that are applicable to the partnership's HUD-assisted and CDA programs. Our procedures were less in scope than would be necessary to render an opinion on internal control. Accordingly, we do not express such an opinion. Our consideration of internal control would not necessarily disclose all matters in internal control 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 the risk that errors or fraud in amounts that would be material in relation to the financial statements or that noncompliance with laws and regulations that would be material to a HUD-assisted or CDA 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 control and its operation that we consider to be material weaknesses as defined above. This report is intended for the information of the audit committee, management, the Department of Housing and Urban Development and the Maryland Community Development Administration. However, this report is a matter of public record and its distribution is not limited. Bethesda, Maryland January 21, 1998 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD AND CDA PROGRAMS To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1997, and have issued our report thereon dated January 21, 1998. We have also audited Circle Terrace Associates Limited Partnership's compliance with specific program requirements governing federal financial reports; mortgage status; replacement reserve; residual receipts; security deposits; cash receipts and disbursements; distributions to owners; tenant application, eligibility, and recertification; and management functions that are applicable to its major HUD-assisted and CDA programs for the year ended December 31, 1997. The management of Circle Terrace Associates Limited Partnership 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 of compliance with specific program requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, 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 and the Maryland Department of Housing and Community Development, Community Development Administration Audit Guide dated October 1997. Those standards and the two guides 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 Circle Terrace Associates Limited Partnership's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. The results of our audit procedures disclosed immaterial instances of noncompliance with the requirements referred to above, which are described in the accompanying Schedule of Findings and Questioned Costs. We considered these instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. In our opinion, Circle Terrace Associates Limited Partnership complied, in all material respects, with the specific program requirements that are applicable to its major HUD-assisted and CDA programs for the year ended December 31, 1997. This report is intended for the information of the audit committee, management, the Department of Housing and Urban Development and the Maryland Community Development Administration. However, this report is a matter of public record and its distribution is not limited. Bethesda, Maryland January 21, 1998 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1997, and have issued our report thereon dated January 21, 1998. We have also audited Circle Terrace Associates Limited Partnership's compliance with specific requirements applicable to major HUD-assisted and CDA programs and have issued our report thereon dated January 21, 1998. We have applied procedures to test Circle Terrace Associates Limited Partnership's compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted and CDA programs for the year ended December 31, 1997. Our procedures were limited to the applicable procedures described in 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. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Circle Terrace Associates Limited Partnership'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 the audit committee, management, the Department of Housing and Urban Development and the Maryland Community Development Administration. However, this report is a matter of public record and its distribution is not limited. Bethesda, Maryland January 21, 1998 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL STATEMENTS To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1997, and have issued our report thereon dated January 21, 1998. 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. Compliance with laws, regulations, contracts, and grants applicable to Circle Terrace Associates Limited Partnership is the responsibility of Circle Terrace Associates Limited Partnership's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of Circle Terrace Associates Limited Partnership's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. 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 Government Auditing Standards. However, the results of our tests disclosed certain immaterial instances of noncompliance that are described in the accompanying Schedule of Findings and Questioned Costs. This report is intended for the information of the audit committee, management, the Department of Housing and Urban Development and the Maryland Community Development Administration. However, this report is a matter of public record and its distribution is not limited. Bethesda, Maryland January 21, 1998 SCHEDULE OF FINDINGS AND QUESTIONED COSTS December 31, 1997 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Finding In performing our lease tests on the tenant files, we noted the following findings: 1) One lease did not have the manager's signature. 2) One recertification did not have the manager's signature. Recommendation Management should strengthen procedures to ensure that all forms are signed by the appropriate individuals. CLIENT NAME Circle Terrace Apartments CLOSING DATE December 31, 1997 ANNUAL AUDIT QUESTIONNAIRE CDA PROJECTS Answers to these questions should be based upon a review of procedures and/or an actual test of transactions. "NO" answers are indicative of an adverse condition which must be described in the audit report unless the mortgagor has written permission from DHCD to deviate from the regular mortgage requirements. - -------------------------------------------------------------------------------------------------------------------- Examination Item Yes, No or N/A Working (Not Applicable) Paper Reference - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1. Mortgage Status - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are payments on all mortgages current? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 1 Yes AA-2 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 2 Yes AA-3 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 3 Yes AA-3 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 4 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 5 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Has the mortgagor complied with the terms and conditions of the Yes AA Regulatory Agreement and/or workout arrangements? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2. Books and Records - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are a complete set of books and records maintained in a Yes CF satisfactory manner? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Does the mortgagor make frequent postings (at least monthly) to the Yes CF ledger accounts? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 3. Cash Activities - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are the cash receipts deposited in the name of the project in a Yes CF bank whose deposits are federally-insured? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Are security deposits kept separate and apart from all other funds Yes A-9 of the project in an insured institution? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- c. Does the mortgagor keep sufficient funds in the security deposit Yes DD-1 account to equal or exceed the aggregate of all outstanding obligations to the depositors? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- d. Does the owner or his/her management agent have a fidelity bond in Yes CF an amount at least equal to potential collections for two months plus the full security deposit liability which provides coverage for all employees handling assets of the project? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- e. Did cash disbursements exclude payments for items listed below: - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1) Legal expenses incurred in the sale of partnership interest? Yes CF - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2) The fee for the preparation of a partner's, shareholder's or Yes CF individual's federal, state or local income tax returns? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 3) Advice to an owner on tax consequences of foreclosure? Yes CF - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 4) Reimbursement to the owners or affiliates while the mortgage N/A is in default, or under workout arrangements for prior advances, capital expenditures and/or project acquisition costs? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 5) Letter of credit fees? N/A - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- f. Were distributions made to, or on behalf of, the owners limited to Yes A-1 those authorized by the Regulatory Agreement or the distributions in accordance with prior written approval of CDA while the project was in a "surplus cash" position? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- NOTE - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1) Distribution to nonprofit mortgagor entities or principals may N/A not be permitted by the Regulatory Agreement. - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2) The use of rental proceeds to pay for costs included in the N/A mortgagor's costs certification are unauthorized distributions of project income. - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- g. Was surplus cash available for payment on cash flow debt for the Regulatory Agreement and Note? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- h. Were residual receipts deposited with the mortgagee within 90 days N/A after the close of the mortgagor's annual accounting period? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- i. Were excess rental collections in Section 236 projects remitted to Yes CF HUD each month? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- j. Does the mortgagor have a formal collection policy? Yes CF - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- k. Is the collection policy enforced? Yes CF - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- l. Do tenant accounts receivable consist exclusively of amounts due Yes B-1 from other than employees? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- m. Have "write-offs" of tenants' accounts been less than 1% of the Yes B-1 gross rent? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- n. Are accounts receivable other than tenants' receivables composed Yes B-2 exclusively of amounts due from unrelated persons or firms? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- o. Were there indications that payments for services, supplies or Yes CF materials were not in excess of amounts normally paid for such services? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- p. If applicable, were utility allowance payments to residents paid on N/A a monthly basis? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 4. Management Compensation - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Was compensation to the management agent limited to the amounts Yes 25 prescribed in the management agreement or amendments thereto? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 5. Rents and Occupancy - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Is the gross potential income from apartments equal to or less than Yes 10 that approved by DHCD? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. In subsidized projects, are dwelling unit contract rental rates and Yes CF Fair Market rental rates in Section 236 projects the same as those approved by DHCD? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 6. DHCD/HUD Subsidy Payments (Section 8/RAP Projects Only) - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Were the amounts requested from DHCD/HUD adequately supported by Yes B-2 the accounting records? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Were subsidy payments received recorded in the proper accounts? Yes B-2 - -------------------------------------------------------------------------------------------------------------------- FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CIRCLE TERRACE ASSOCIATES LIMITED PARTNERSHIP HUD PROJECT NO.: 052-44056-LDP CDA PROJECT NO.: 28.04.0010 DECEMBER 31, 1998 TABLE OF CONTENTS - CONTINUED Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 PAGE MORTGAGOR'S CERTIFICATION 6 INDEPENDENT AUDITORS' REPORT 7 FINANCIAL STATEMENTS BALANCE SHEET 9 STATEMENT OF OPERATIONS 11 STATEMENT OF PARTNERS' EQUITY (DEFICIT) 14 STATEMENT OF CASH FLOWS 15 NOTES TO FINANCIAL STATEMENTS 17 SUPPLEMENTAL INFORMATION ACCOUNTS AND NOTES RECEIVABLE 29 DELINQUENT TENANT ACCOUNTS RECEIVABLE 29 CONTRIBUTIONS RECEIVABLE 29 MORTGAGE ESCROW DEPOSITS 30 RESERVE FOR REPLACEMENTS 30 RESIDUAL RECEIPTS RESERVE 30 ACCOUNTS PAYABLE 31 ACCRUED EXPENSES 31 LETTERS OF CREDIT 31 LOANS AND NOTES PAYABLE 32 MORTGAGES PAYABLE 32 MORTGAGES PAYABLE FROM SURPLUS CASH 32 UNAUTHORIZED DISTRIBUTIONS OF PROJECT INCOME TO PARTNERS 32 IDENTITY OF INTEREST COMPANIES AND ACTIVITIES 33 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS 34 CHANGES IN FIXED ASSET ACCOUNTS 35 DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS 36 OTHER INFORMATION 38 INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL 39 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD AND DHCD-ASSISTED PROGRAMS 41 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION 43 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL STATEMENTS 44 ANNUAL AUDIT QUESTIONNAIRE 45 December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 - 30 - MORTGAGOR'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same is complete and accurate. GENERAL PARTNER --------------------------------------- Judith Siegel, President Date Landex of Maryland, Inc. for Cooperative Associates Limited Partnership as General Partner of Circle Terrace Limited Partnership Partnership Employer Identification Number: 05-0461953 Telephone Number: (703) 516-6690 MANAGEMENT AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same is complete and accurate. MANAGING AGENT Rental Housing Management Partnership --------------------------------------- Eric Richelson Date David Staley Managing Agent Employer Property Manager Identification Number: 13-3580730 INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1998, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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 Circle Terrace Associates Limited Partnership as of December 31, 1998, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. The Housing Assistance Payment contracts covering all 303 units expired on November 30, 1998 and November 30, 1997. It is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operations of the project (see note G). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 28 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. 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. December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 20, 1999 on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD and DHCD-assisted programs, fair housing and non-discrimination, and laws and regulations applicable to the financial statements. Bethesda, Maryland Federal Employer January 20, 1999 Identification Number: 52-1088612 Audit Principal: Lester Kanis BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS 1120 Cash - Operstions $ 232,306 1125 Cash - Entity 80,337 1130 Tenant accounts receivable 15,651 1135 Accounts receivable - HUD 160,117 1140 Accounts and notes receivable - operations 9,477 1145 Accounts and notes receivable - entity 860 1200 Miscellaneous prepaid expenses 78,039 ------------------- Total current assets 576,787 DEPOSITS HELD IN TRUST - FUNDED 1191 Tenant deposits 42,824 RESTRICITAD DEPOSITS AND FUNDED RESERVES 1310 Escrow deposits 75,274 1320 Reserve for replacements 586,618 1330 Other reserves 233,968 895,860 RENTAL PROPERTY 1410 Land 1,104,269 1420 Buildings 15,271,257 1440 Building and equipment - portable 31,654 1460 Furnishings 8,378 1480 motor vehicles 18,340 1490 Miscellaneous fixed assets 86,167 ------ 16,520,065 1495 Less accumulated depreciation 3,501,702 --------- 13,018,363 OTHERASSETS 1520 Intangible assets, net of accumulated amortization of $99,195 207,725 14,741,559 NOTES TO FINANCIAL STATEMENTS December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 LIABILITIES AND PARTNERS' EQUITY (DEFICIT) CURRENT LIABILITIES 2110 Accounts payable 77,228 2121 Accrued payroll taxes payable 178 2123 Accrued management fee payable 22,482 2131 Accrued interest payable - first mortgage 2,393 2132 Accrued interest payable - second mortgage 22,275 2134 Accrued interest payable - other loans/notes 7,603 2160 Notes payable, current maturities 6,257 2170 Mortgage payable - first mortgage, current maturities 99,190 2172 Mortgage payable - second mortgage, current maturities 152,678 2174 Other loans/noted payable, current maturities 46,346 2190 Miscellaneous current liabilities 21,144 2210 Prepaid revenue 2,791 Total Current Liabilities 460,565 DEPOSITS LIABILITY 2191 Tenant deposits held in trust(contra) 39,580 LONG TERM LIABILITIES 2133 Accrued interest payable - other loans/notes(surplus cash) 103,030 2310 Notes payable, net of current maturities 5,648 2311 Notes payable - surplus cash 550,000 2320 Mortgage payable - first mortgage, net of current maturities 3,404,737 2322 Mortgage payable - second mortgage, net of current maturities 3,188,620 2324 Other loans/notes payable, net of current maturities 1,981,365 9,233,400 CONTINGENCY - 3130 PARTNERS' EQUITY (DEFICIT) 5,008,014 $ 14,741,559 RENTAL REVENUE 5120 Rent revenue - gross potential $ 335,564 5121 Tenant assistance payments 1,958,686 --------- Total rental revenue $2,294,250 VACANCIES 5220 Apartments (13,871) 5250 Rental concessions (2,830) ------- Total vacancies (16,701) Net rental revenue 2,277,549 FINANCIAL REVENUE 5410 Financial revenue - project operations 8,469 5440 Revenue from investment - replacement reserve 15,228 ------ Total financial revenue 23,697 OTHER REVENUE 5910 Laundry and vending 12,848 5920 Tenant charges 5,917 5990 Miscellaneous revenue 1,575 ----- Total other revenue 20,340 Total revenue 2,321,586 ADMINISTRATIVE EXPENSES 6210 Advertising and marketing 3,199 6250 Other renting expenses 1,749 6310 Office salaries 136,160 6311Office expenses 49,522 6320 Management fee 130,164 6331 Administrative rent free unit 5,661 6340 Legal expense - project 15,346 6350 Auditing expense 9,600 6351 Bookkeeping fees/accounting service 16,368 6370 Bad debts 10,697 6390 Miscellaneous administrative expenses 43,940 ------ Total administrative expenses 422,406 UTILITIES EXPENSE 6450 Electricity 28,145 6451 Water 25,465 6452 Gas 87,218 Total utility expense 140,828 OPERATING AND MAINTENANCE EXPENSES 6510 Payroll 142,202 6515 Supplies 35,595 6520 Contracts 88,217 6525 Garbage and trash removal 32,202 6530 Security payroll/contract 139,709 6546 Heating/cooling repairs and maintenance 13,319 6548 Snow removal 571 6570 Vehicle and maintenance equipment operation and repairs26,639 6590 Miscellaneous operating and maintenance expenses 70,148 ------ Total operating and maintenance expenses 548,602 TAXES AND INSURANCE 6710 Real estate taxes 126,078 6711 payroll taxes 26,199 6720 Property and liability insurance 83,542 6723 Heath insurance and other employee benefits 21,323 ------ Total taxes and insurance 257,142 FINANCIAL EXPENSES 6820 Interest on mortgage payable 395,638 6830 Interest on notes payable - long-term 1,317 6850 Mortgage insurance premium/service charge 43,848 ------ Total financial expenses 440,803 DEPRECIATION AND AMORTIZATION 6600 Depreciation expense 571,976 6610 Amortization expense 14,004 ------ Total depreciation and amortization 585,980 CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES 7140 Interest income (12,945) 7141 Interest on notes payable 22,000 7190 Other (revenue)/expenses 870 --- Total corporate or mortgagor entity revenue and expenses 9,925 ----- Total expenses 2,405,686 Net income (loss) (84,100) See notes to financial statements General partners Limited partners Total Partners' equity (deficit), December 31, 1997 $217,228 $4,874,886 $5,092,114 Net income (loss) (841) (83,259) (84,100) ----- ------- -------- Partners' equity (deficit), December 31, 1998 $ 216,387 $ 4,791,627 $ 5,008,014 --------- ----------- ----------- See notes to financial statements Cash flows from operating activities Rental receipts $ 2,277,573 Interest receipts 23,697 Other operating receipts 10,003 Administrative expenses paid (129,954) Management fees paid (130,164) Utilities paid (140,167) Salaries and wages paid (418,071) Operating and maintenance paid (222,341) Real estate taxes paid (216,629) Property insurance paid (74,523) Net tenant security deposits received (paid) 3,150 Other operating expenses paid (27,240) Interest paid on mortgages (397,965) Interest paid on notes (1,482) Mortgage insurance premium paid (43,261) Entity expenses received (paid) Interest income 12,945 Professional fees (870) Interest expense (22,000) -------- Net cash provided by (used in) operating activities 502,701 Cash flows from investing activities Net withdrawals from mortgage escrows 33,718 Net deposits to reserve for replacements (99,768) Net deposits to other reserves (109,975) Net purchases of fixed assets (121,929) --------- Net cash provided by (used in) investing activities (297,954) Cash flow from financing activities Mortgage principal payments (284,552) --------- Net cash provided by (used in) financing activities (284,552) --------- NET INCREASE (DECREASE) IN CASH (79,805) Cash, beginning 392,447 ------- Cash, end $ 312,642 --------------- See notes to financial statements Reconciliation of net income (loss) to net Cash provided by (used in) operating activities Net income (loss) $ (84,100) ------------- Adjustments to reconcile net income (loss) to net Cash provided by (used in) operating activities Depreciation 571,976 Amortization 14,004 Changes in asset and liability accounts (Increase) decrease in assets Tenant account receivable 3,929 Miscellaneous prepaid expenses 10,195 Tenant security deposits funded (1,990) Increase (decrease) in liabilities Accounts payable 65,069 Accrued liabilities (81,146) Accrued interest payable (2,492) Tenant security deposits held in trust 5,140 Prepaid revenue 2,116 ----- Total adjustments 586,801 Net cash provided by (used in) operating activities $ 502,701 --------- NOTE A - ORGANIZATION Circle Terrace Associates Limited Partnership was organized under the laws of the State of Maryland on March 28, 1990, for the purpose of acquiring and operating a rental housing project under Section 236 of the National Housing Act. The project consists of 303 units located in Lansdowne, Maryland, and is currently operating under the name of Circle Terrace Apartments. Cash distributions are limited by agreements between the partnership and the United States Department of Housing and Urban Development (HUD) to an annual amount of $30,340 per year to the extent of surplus cash as defined by HUD. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements. Each building of the project has qualified and been allocated low-income housing credits pursuant to Internal Revenue Code Section 42 ("Section 42") which regulates the use of the project as to occupant eligibility and unit gross rent, among other requirements. Each building of the project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the credits. In addition, Circle Terrace Associates Limited Partnership has executed an Extended Low-income Housing Agreement/Land Deed Restriction/Extended Use Commitment which requires the utilization of the project pursuant to Section 42 for a minimum of 30 years, even after the disposition of the project by the partnership. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Rental Property Rental property is recorded at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method over a 27.5-year life. Personal property is recorded at cost and is depreciated over its estimated service life of five to seven years using accelerated methods. 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. Intangible Assets and Amortization Mortgage costs are amortized over the term of the respective loan using the effective interest method. Provision for Doubtful Accounts The partnership considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations upon such determination. 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. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the property are operating leases. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) SFAS No. 121 The partnership has implemented Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lives Assets which requires the partnership under certain circumstances to receive long-lived assets to determine if the carrying value exceeds the fair value. If the carrying value exceeds the fair value then recorded amounts of the assets will be reduced to their fair value. NOTE C - MORTGAGES PAYABLE First Mortgage The partnership is obligated under the terms of a mortgage note which is insured by the Federal Housing Administration (FHA) and bears interest at the rate of 7%, less a varying interest subsidy in the current amount of $18,052 per month. Monthly payments of principal and interest in the reduced amount of $10,564 are due through maturity in February 2017. The total interest subsidy of $216,628 is reflected as a reduction of interest expense. Principal and accrued interest due at December 31, 1998 are $3,503,927 and $2,393, respectively. Under agreements with the mortgage lender and FHA, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners. Second Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $4,000,000, which is insured by the Maryland Housing Fund (MHF) payable to Crestar of Richmond, Virginia, Inc. The note bears interest at the rate of 8%. Monthly payments of principal and interest in the amount of $34,645 are due through maturity in December 2011. Principal and accrued interest due at December 31, 1998 are $3,341,298 and $22,275, respectively. NOTE C - MORTGAGES PAYABLE (Continued) Third Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $2,227,330 payable to the Department of Housing and Community Development of the State of Maryland (CDA). The note bears interest at 4.5%. Monthly payments of principal and interest of $11,373 are due through July 1, 2023. Principal and accrued interest due at December 31, 1998 are $2,027,711 and $7,603, respectively. The liability of the partnership under the terms of all of these mortgages is limited to the underlying value of the real estate collateral plus deposits held by the lenders. Aggregate annual maturities of mortgages payable for each of the next five years and thereafter are as follows: - --------------------------------------------- -- ---------------- December 31, 1999 $ 298,214 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2000 318,873 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2001 343,827 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2002 369,264 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2003 396,638 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- Thereafter 7,146,120 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- $ 8,872,936 - --------------------------------------------- -- ---------------- NOTE D - NOTES PAYABLE The partnership is obligated under the terms of an unsecured promissory note payable to Baltimore County, Maryland. Interest accrues at the rate of 4%. Annual interest payments commenced January 1, 1996. Annual payments of principal will be due commencing January 1, 2000 and will extend for 30 years through maturity on December 31, 2030. Payments may be made only to the extent of surplus cash as defined by HUD. Principal and accrued interest due at December 31, 1998 are $550,000 and $103,030, respectively. NOTE D - NOTES PAYABLE (Continued) The partnership is obligated under the terms of a note payable for the purchase of a truck. The note bears interest at 8.75% and requires monthly payments of principal and interest of $588 through maturity in October 2000. The amount payable at December 31, 1998 is $11,905. Aggregate annual maturities of notes payable for each of the next five years and thereafter are as follows: - --------------------------------------------- -- ---------------- December 31, 1999 $ 6,257 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2000 5,648 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2001 - - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2002 - - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- 2003 - - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- Thereafter 550,000 - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- - --------------------------------------------- -- ---------------- $ 561,905 - --------------------------------------------- -- ---------------- NOTE E - RELATED PARTY TRANSACTIONS Working Capital Advances The general partner is obligated to make working capital advances to the partnership as needed, up to an aggregate of $100,000. Such advances are noninterest bearing and can be repaid out of available net cash flow as defined in the partnership agreement. No such advances were required as of December 31, 1998. In the event cash flow does not provide sufficient funds to pay the investor limited partner its minimum distribution, such amount required will be advanced by the general partner and will be considered a project expense loan to be paid from surplus cash after required distributions as defined in the partnership agreement. Insurance The sole shareholder of an affiliate of the general partner provided debt financing for the capitalization of LaMere Associates, Inc. (LaMere). In connection with such debt financing, the shareholder received 20% of the stock of LaMere. LaMere was paid premiums in connection with the following insurance coverage provided to the partnership: property and liability, fidelity bond and auto. In connection with such insurance coverage, the partnership incurred $83,542 in premiums for the year ended December 31, 1998. NOTE E - RELATED PARTY TRANSACTIONS (Continued) Shared Project Payroll Costs The site superintendent was shared with another project in the area and payroll costs were allocated based on time spent on each project. Computer Services In accordance with HUD Regulations 4381.5 Rev-2, Paragraph 6.38, the partnership uses the services of a computer consultant company to provide the following services: purchase and install personal computers and the related equipment and software for the project's rental office; provide training and technical support, and consult on software upgrades. Dynamic Information Services, Inc. (DIS), which is owned by a relative of an officer of the management company, is a licensed representative of Project Data Systems, Inc., a nationally known provider of computer system software for the subsidized housing industry. DIS derives 40% of its consulting service revenues from third-party clients not affiliated with the management company. In 1998, the partnership paid DIS $1,710 for technical support and training services based on billable hours. Laundry Lease The partnership has entered into a lease agreement with Moonbeam Equipment and Communications, LLC ("Moonbeam"), an affiliate of the general partner and management agent, which permits Moonbeam to install coin operated laundry equipment for use by the tenants. The partnership retains 55% of the income on the coin operated equipment as reimbursement of utility and janitorial expenses incurred by the partnership to maintain the common area laundry facilities; the balance is remitted to Moonbeam. The lease agreement expires in January 2023 and, among other terms, states that expenses relating to the maintenance and repair of the equipment are the obligation of Moonbeam. Moonbeam earned $9,591 from the proceeds of the laundry room collections during 1998. As of December 31, 1998, Moonbeam owes the partnership $860 for maintenance expenses relating to installed equipment, which was paid subsequent to December 31, 1998. NOTE F - MANAGEMENT FEE The property is managed by an affiliate of the general partner. The management fee is based on a charge of $35.80 per unit per month. The management agent also receives fees of $4.50 per unit per month for accounting services provided to the partnership. Management and accounting fees charged to operations during 1998 were $130,164 and $16,368, respectively, of which $22,482 of management fee is payable at December 31, 1998. NOTE G - HOUSING ASSISTANCE PAYMENT (HAP) CONTRACT AGREEMENTS HUD has contracted with the partnership under the United States Housing Act of 1937 to make housing assistance payments to the partnership on behalf of qualified tenants. The terms of the contract covering 142 units expired on November 30, 1998 and the contract covering 161 units expired on November 30, 1997. The contracts do not have renewal options. Under the Multifamily Assisted Housing and Reform and Affordability Act (MAHRAA) of 1997, Congress set forth the legislation for a permanent "mark-to-market" program and provided for permanent authority for the renewal of Section 8 contracts. On September 11, 1998, HUD issued an interim rule to provide clarification of the implementation of the mark-to-market program. Owners with Section 8 contracts expiring after September 30, 1998 are subject to the provisions of MAHRAA. As such, the partnership may choose to either opt out of the Section 8 program, request mortgage restructuring and renewal of the Section 8 contract, or request renewal of the Section 8 contract without mortgage restructuring. Each option contains a specific set of rules and procedures that must be followed in order to comply with the requirements of MAHRAA. As of the date of the report, the partnership has extended both contracts from October 1, 1998 through September 30, 1999. It is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operation of the project. The project is economically dependent upon the rental income received from both of its agreements. If HUD were not to extend either one, the project's operating cash flow would be adversely affected. NOTE H - PARTNERS' CAPITAL CONTRIBUTIONS The partnership has one general partner - Cooperative Associates Limited Partnership and two limited partners - SLP, Inc. (the special limited partner) and Boston Financial Qualified Housing Tax Credits L.P. V, a Limited Partnership (the investor limited partner). The general partner has made capital contributions of $413,562. SLP, Inc. is required to make a capital contribution of $10. The investor limited partner has made capital contributions totaling $5,615,234. NOTE I - CONTRACT WITH BALTIMORE COUNTY (IN LIEU OF TAXES) The partnership has entered into an agreement with Baltimore County, Maryland, whereby the partnership is to pay the County $162.50 per apartment unit per year (the minimum payment) in lieu of real estate taxes. To the extent there is net cash flow, as defined in the agreement, such amount is to be applied toward additional payments. The minimum payment has been increased 10% annually. The amount incurred during 1998 under the terms of this agreement was $58,329. This amount is included with other city and county real estate taxes in the statement of operations. The County has advised the partnership that $239,359 is due for additional taxes and interest applicable to 1992 through 1995 and has placed a lien on the property. The partnership believes that such payments are not due in accordance with the P.I.L.O.T. agreement. Such amount has not been recorded until this matter is resolved. NOTE J - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS All profits and losses are allocated 1% to the general partner and 99% to the investor limited partner. Cash flow, as defined in the partnership agreement, is to be distributed as follows: 1. 99% to the investor limited partner and 1% to the general partner until the investor limited partner has received distributions, in the aggregate, equal to the cumulative priority distribution. 2. To the repayment of any project expense loans. NOTE J - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS (Continued) 3. To the general partner until it has received cumulatively an amount equal to the cumulative amount paid to the investor limited partner as defined above. 4. 50% to the general partner and 50% to the investor limited partner. Gain, if any, from a sale, exchange or other disposition is allocable as follows: 1. To all partners having negative balances in their capital accounts prior to the distribution of any sale or refinancing proceeds, an amount of such gain to increase their negative balance to zero. 2. To each partner until the positive capital account balance is equal to the amount of cash available for distribution as a result of the transaction, as defined in the partnership agreement. Loss from a sale is allocable as follows: 1. To the partners in proportion to their positive capital account balances. In the event the loss is less than the sum of the positive capital accounts, the loss is to be allocated such that the resulting capital account balance is as near as possible to the amount of cash to be distributed as a result of the transaction. 2. 1% to the general partner and 99% to the investor limited partner. NOTE K - TAXABLE LOSS A reconciliation of the financial statement net loss to the income tax net loss of the partnership for the year ended December 31, 1998 is as follows: Financial statement net loss $ (84,100) Excess depreciation for income tax purposes (13,329) Prepaid rent 2,791 Income net tax loss $ (94,638) ================== NOTE L - INVESTMENT IN REAL ESTATE A reconciliation of the basis of the investment in real estate for financial reporting purposes to that for income tax purposes as of December 31, 1998 is as follows: Investment in real estate for financial reporting $ 13,018,363 Excess accumulated depreciation for income tax purposes (53,042) Interest expense portion of subsidy capitalized for income tax purposes 177,317 Investment in real estate for income tax purposes $ 13,142,638 ================== NOTE M - CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances and escrow in several banks. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank. As of December 31, 1998, the uninsured portion of the cash balances held at two banks was $285,780. NOTE N - CONTINGENCY The partnership's low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility and/or unit gross rent, or to correct noncompliance within a specified time period, could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may require an adjustment to the capital contributed by the investor limited partner. Baltimore County has advised the partnership that $239,359 is due for additional taxes and interest applicable to 1992 through 1995 and has placed a lien on the property. The partnership believes that such payments are not due in accordance with the P.I.L.O.T agreement. Such amount has not been recorded until this matter is resolved. NOTE O - YEAR 2000 ISSUE (UNAUDITED) The Managing Agent/General Partner has assessed the partnership's exposure to date sensitive computer software programs that may not be operative subsequent to 1999 and has implemented a requisite course of action to minimize Year 2000 risk and ensure that neither significant costs nor disruption of normal business operations are encountered. However, because there is no guarantee that all systems of outside vendors or other entities affecting the partnership's operation will be Year 2000 compliant, the partnership remains susceptible to consequences of the Year 2000 Issue. SUPPLEMENTAL INFORMATION SUPPORTING DATA REQUIRED BY HUD AND CDA SUPPLEMENTAL INFORMATION SUPPORTING DATA REQUIRED BY HUD AND CDA December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 - 54 - ACCOUNTS AND NOTES RECEIVABLE (OTHER THAN FROM REGULAR TENANTS) --------------------------------------------------------------------------------------------------------------- Name of borrower Original date Terms Original amount Balance due --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- U.S. Department of Housing and Oct. - Nov. 1998 Demand $ 160,117 $ 160,117 Urban Development --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- Travelers Sept. - Oct. 1998 Demand $ 28,312 $ 9,477 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Moonbeam Dec. 1998 Demand $ 860 $ 860 --------------------------------------------------------------------------------------------------------------- DELINQUENT TENANT ACCOUNTS RECEIVABLE --------------------------------------------------------------------------------------------------------------- Number of Amount tenants past due ---------------------------------- ---------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 30 days 41 $ 6,775 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 31-60 days 9 1,356 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent 61-90 days 13 2,131 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Delinquent over 90 days 19 5,389 ----------------------------------------------------------------------------- -------------------- ----------------------------------------------------------------------------- -------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- $ 15,651 ----------------------------------------------------------------------------- -------------------- CONTRIBUTIONS RECEIVABLE --------------------------------------------------------------------------------------------------------------- SLP, Inc. $ 10 --------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION - CONTINUED SUPPORTING DATA REQUIRED BY HUD AND CDA December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 MORTGAGE ESCROW DEPOSITS -------------------------------------------------------------------------- Estimated amount required as of December 31, 1998, for future payment of: --- --- City, state and county taxes (P.I.L.O.T) $ 38,632 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Property insurance 31,136 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Mortgage insurance 8,826 -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- 78,594 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Amount on deposit in deficient of estimated requirements (3,320) -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Total confirmed by mortgagee $ 75,274 -------------------------------------------------------------------------- RESERVE FOR REPLACEMENTS In accordance with the provisions of the regulatory agreement, restricted cash is held by Mellon Mortgage Company to be used for replacement of property with the approval of HUD as follows: ---------------------------------------------------------------------- Balance at December 31, 1997 $ 486,850 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Monthly deposits ---------------------------------------------------------------------- ---------------------------------------------------------------------- $7,045 x 12 84,540 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Interest earned 15,228 ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- ---------------------------------------------------------------------- Balance at December 31, 1998, confirmed by mortgagee $ 586,618 ---------------------------------------------------------------------- RESIDUAL RECEIPTS RESERVE NONE ACCOUNTS PAYABLE --------------------------------------------------------------------------- Payable within 30 days $ 77,228 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Payable within 31-60 days - --------------------------------------------------------------------------- --------------------------------------------------------------------------- Payable within 61-90 days - --------------------------------------------------------------------------- --------------------------------------------------------------------------- Payable more than 90 days - --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Balance $ 77,228 --------------------------------------------------------------------------- ACCRUED EXPENSES ---------------------------------------------------------------------------------------------------------------- Description Basis for Owed to Date due Amount accrued accrual ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Payroll taxes 12/98 F.W.I./FICA 1/99 $ 178 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Management fee 12/98 Rental Housing 1/99 $ 22,482 Management Partnership ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Interest - first mortgage 12/98 HUD 1/99 $ 2,393 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Interest - second mortgage 12/98 Crestar Bank 1/99 $ 22,275 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Interest - Baltimore County note 12/98 Baltimore County Surplus cash $ 103,030 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Interest - third mortgage 12/98 State of Maryland 1/99 $ 7,603 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Audit fee 12/98 Reznick, Fedder and 2/99 $ 3,536 Silverman ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Water and sewer 12/98 City of Baltimore 2/99 $ 6,392 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Utility reimbursement 12/98 Tenants 1/99 $ 10,821 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Payroll 12/98 Employees 1/99 $ 395 ---------------------------------------------------------------------------------------------------------------- LETTERS OF CREDIT NONE LOANS AND NOTES PAYABLE (OTHER THAN MORTGAGES) --------------------------------------------------------------------------------------------------------------- Creditor Interest Collateral Date incurred Terms Original amount Balance due rate ----------------------------------------------------------------------- ----------------- ----------------- ----------------------------------------------------------------------- ----------------- ----------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- Baltimore 4.0% Unsecured 11/90 40 yrs $ 550,000 $ 550,000 County, Maryland --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- GMAC 8.75% Truck 11/97 3 yrs $ 18,096 $ 11,905 --------------------------------------------------------------------------------------------------------------- MORTGAGES PAYABLE --------------------------------------------------------------------------------------------------------------- Creditor Terms Original amount Balance due ------------------------------------------------------------------------ ------------------ ----------------- ------------------------------------------------------------------------ ------------------ ----------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- HUD $10,564 per month $ 4,034,207 $ 3,503,927 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- ---- --------------------------------------------------------------------------- ---- Crestar of Richmond, Virginia, Inc. $34,645 per month $ 4,000,000 $ 3,341,298 --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- ---- --------------------------------------------------------------------------- ---- Department of Housing and Community $11,373 per month $ 2,227,330 $ 2,027,711 Development of the State of Maryland --------------------------------------------------------------------------------------------------------------- MORTGAGES PAYABLE FROM SURPLUS CASH NONE UNAUTHORIZED DISTRIBUTIONS OF PROJECT INCOME TO PARTNERS NONE IDENTITY OF INTEREST COMPANIES AND ACTIVITIES -------------------------------------------------------------------------------------------------------------- Company name Services rendered Amount paid Amount payable -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Rental Housing Management $ 130,164 $ 22,482 Partnership Property management -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Rental Housing Management $ 16,368 $ - Partnership Accounting fees -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- LaMere Associates, Inc. $ 83,542 $ - Insurance coverage -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Dynamic Information Equipment, software, technical $ 1,710 $ - Services, Inc. support and training services -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Moonsbeam Equipment and Laundry equipment $ 8,731 $ - Communications, LLC -------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION - CONTINUED SUPPORTING DATA REQUIRED BY HUD AND CDA Year ended December 31, 1998 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS - ------------------------------------------------------------------------------- Part A - Compute Surplus Cash --------------------- Cash (Accounts 1120, 1170 and 1191 less 2105) $ 275,130 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Tenant subsidy vouchers due for period covered by financial statements 160,117 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Other (describe in detail) - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Total cash 435,247 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Accrued mortgage interest payable 32,271 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Delinquent mortgage principal payments - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Delinquent deposits to reserve for replacements - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Accounts payable (due within 30 days) 77,228 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Loans and notes payable (due within 30 days) - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Deficient tax, insurance or MIP escrow deposits 3,320 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Accrued expenses (not escrowed) 43,804 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Prepaid revenue (Account 2210) 2,791 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Tenant security deposits liability (Account 2191) 39,580 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Other current obligations (describe in detail) - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Contracted maintenance $ 208,950 - -------------------------------------------------------- ---- - ------------------------------------------------------------- ---- Required maintenance 270,360 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Less total current obligations 469,354 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Surplus cash (deficiency) $ (34,107) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------ Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts Surplus cash $ NONE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Limited dividend projects --------------------- --------------------- Annual distribution earned during fiscal period covered by the 30,340 statements - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Distribution accrued and unpaid as of the end of the prior fiscal period422,419 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Distributions and entity expenses or paid during fiscal period covered (22,000) by the statements - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Amount remaining as distribution earned but unpaid 430,759 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Amount available for distribution during next fiscal period $ - - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Deposit due residual receipts reserve $ NONE - ------------------------------------------------------------------------------- Facsimile form HUD-93486 CHANGES IN FIXED ASSET ACCOUNTS ---------------------------------------------------------------------------------------------------------------- Assets ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Balance 12/31/97 Additions Deductions Balance 12/31/98 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Land $ 1,104,269 $ - $ - $ 1,104,269 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Buildings 15,248,985 22,272 - 15,271,257 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Building equipment - portable 18,164 13,490 - 31,654 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Furnishings 8,378 - - 8,378 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Motor vehicles 18,340 - 18,340 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Miscellaneous fixed assets - 86,167 - 86,167 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- $ 16,398,136 $ 121,929 $ - $ 16,520,065 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Accumulated depreciation $ 2,929,726 $ 571,976 $ - $ 3,501,702 ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ------------------------------------ ---- ---- ---- ------------------------------------ ---- ---- ---- Total net book value $ 13,018,363 ------------------------------------ ---- ---- --------------------- Fixed Asset Detail Additions to Buildings Account -------------------------------------------------------------------- Item and quantity Amount -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- Railings $ 5,304 -------------------------------------------------------------------- Lighting fixtures 9,373 -------------------------------------------------------------------- Drains 7,595 -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- $ 22,272 -------------------------------------------------------------------- CHANGES IN FIXED ASSET ACCOUNTS (Continued) Fixed Asset Detail (Continued) Additions to Building Equipment - Portable Account -------------------------------------------------------------------- Item and quantity Amount -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- Security camera equipment $ 5,750 -------------------------------------------------------------------- -------------------------------------------------------------------- Computer cabinets 7,740 -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- $ 13,490 -------------------------------------------------------------------- Additions to Miscellaneous Fixed Assets Account -------------------------------------------------------------------- Item and quantity Amount -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- Landscaping shrubs, trees $ 33,944 -------------------------------------------------------------------- -------------------------------------------------------------------- Sidewalk replacement 52,223 -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- $ 86,167 -------------------------------------------------------------------- DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNT NO. 6390) ----------------------------------------------------------------------- Payroll preparation $ 1,668 ----------------------------------------------------------------------- ----------------------------------------------------------------------- License and fees 6,516 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Travel 3,129 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Resident services 19,000 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Miscellaneous 13,627 ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- $ 43,940 ----------------------------------------------------------------------- DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS (Continued) OTHER OPERATING AND MAINTENANCE EXPENSES (ACCOUNT NO. 6590) ----------------------------------------------------------------------- Extraordinary repairs $ 2,566 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Alterations and improvements 29,230 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Appliances 11,035 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Carpeting 26,017 ----------------------------------------------------------------------- ----------------------------------------------------------------------- Additional maintenance 1,300 ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- ----------------------------------------------------------------------- $ 70,148 ----------------------------------------------------------------------- OTHER INFORMATION --------------------------------------------------------------------------- Total mortgage principal payments required during the audit year (12 monthly payments). Applies to all direct loans and HUD-held and fully-insured mortgages. Any HUD-approved second mortgages are included. $284,552 --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Total of 12 monthly deposits in the audit year made to the replacement reserve account, as required by the regulatory agreement, even if payments are temporarily suspended or reduced. $84,540 --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- ---------------------------------------------------------------------------- Replacement reserve and residual receipts reserve releases which are included as expense items on the statement of operations. $ - --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Project improvement reserve releases under the flexible subsidy program which are included as expense items on the statement of operations. $ - --------------------------------------------------------------------------- --------------------------------------------------------------------------- Mortgage payable note detail (Section 236 only) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Interest reduction payments from subsidy $ 216,628 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Related party transactions detail: --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------------------------------------------------------------------- Entity name Amount paid --------------------------------------------------------------------------- --------------------------------------------------------------------------- ---------------------- ---------------------- LaMere Associates, Inc. $ 83,542 -------------------------------------- ------------------------------------- ---------------------- ---------------------- Dynamic Information Systems, Inc. $ 1,710 -------------------------------------- ------------------------------------- ---------------------- ---------------------- Rental Housing Management Partnership $ 16,368 ------------------------------------- -------------------------------------- ---------------------- ---------------------- Rental Housing Management Partnership $ 130,164 ------------------------------------ -------------------------------------- ---------------------- ---------------------- Moonbeam Equipment and Communications, LLC $ 8,731 --------------------------------- INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1998, and have issued our report thereon dated January 20, 1999. We have also audited Circle Terrace Associates Limited Partnership's compliance with specific requirements applicable to major HUD-assisted and DHCD-assisted programs and have issued our report thereon dated January 20, 1999. We conducted our audits in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, 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 and the Audit Guide issued by the Maryland Department of Housing and Community Development. Those standards and the two guides require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether Circle Terrace Associates Limited Partnership complied with laws and regulations, noncompliance with which would be material to major HUD-assisted and DHCD-assisted programs. The management of the partnership is responsible for establishing and maintaining internal control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of controls. The objectives of internal control 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 and DHCD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in internal control, errors, fraud or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of internal control 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 of controls may deteriorate. In planning and performing our audits of the partnership for the year ended December 31, 1998, we obtained an understanding of the design of the relevant 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 partnership's financial statements and on its compliance with specific requirements applicable to major HUD-assisted and DHCD-assisted programs and to report on internal control in accordance with the provisions of the Guide and not to provide any assurance on internal control. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of controls that we considered relevant to preventing or detecting material noncompliance with specific requirements that are applicable to the partnership's HUD-assisted and DHCD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control. Accordingly, we do not express such an opinion. Our consideration of internal control would not necessarily disclose all matters in internal control 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 the risk that errors or fraud in amounts that would be material in relation to the financial statements or that noncompliance with laws and regulations that would be material to a HUD-assisted or DHCD-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 control and its operation that we consider to be material weaknesses as defined above. This report is intended solely for the information and use of the audit committee, management, others within the organization, the Department of Housing and Urban Development and the Maryland Department of Housing and Community Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland January 20, 1999 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD AND DHCD-ASSISTED PROGRAMS To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1998, and have issued our report thereon dated January 20, 1999. We have also audited Circle Terrace Associates Limited Partnership's compliance with specific program requirements governing federal financial reports; mortgage status; replacement reserve; residual receipts; security deposits; cash receipts and disbursements; distributions to owners; tenant application, eligibility, and recertification; and management functions that are applicable to its major HUD-assisted and DHCD-assisted programs for the year ended December 31, 1998. The management of Circle Terrace Associates Limited Partnership 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 of compliance with specific program requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, 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 and the Audit Guide issued by the Maryland Department of Housing and Community Development. Those standards and the two guides 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 Circle Terrace Associates Limited Partnership's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, Circle Terrace Associates Limited Partnership complied, in all material respects, with the specific program requirements that are applicable to its major HUD-assisted and DHCD-assisted programs for the year ended December 31, 1998. This report is intended solely for the information and use of the audit committee, management, others within the organization, the Department of Housing and Urban Development and the Maryland Department of Housing and Community Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland January 20, 1999 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1998, and have issued our report thereon dated January 20, 1999. We have applied procedures to test Circle Terrace Associates Limited Partnership's compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted and DHCD-assisted programs for the year ended December 31, 1998. Our procedures were limited to the applicable procedures described in 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. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Circle Terrace Associates Limited Partnership'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 solely for the information and use of the audit committee, management, others within the organization, the Department of Housing and Urban Development and the Maryland Department of Housing and Community Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland January 20, 1999 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL STATEMENTS To the Partners Circle Terrace Associates Limited Partnership We have audited the financial statements of Circle Terrace Associates Limited Partnership as of and for the year ended December 31, 1998, and have issued our report thereon dated January 20, 1999. 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. Compliance with laws, regulations, contracts, and grants applicable to Circle Terrace Associates Limited Partnership is the responsibility of Circle Terrace Associates Limited Partnership's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of Circle Terrace Associates Limited Partnership's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. 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 Government Auditing Standards. This report is intended solely for the information and use of the audit committee, management, others within the organization, the Department of Housing and Urban Development and the Maryland Department of Housing and Community Development and is not intended to be and should not be used by anyone other than these specified parties. Bethesda, Maryland January 20, 1999 CLIENT NAME Circle Terrace Associates Limited Partnership PROJECT NUMBER 28.04.0010 ANNUAL AUDIT QUESTIONNAIRE FISCAL YEAR END December 31, 1998 CDA PROJECTS ------------------------------------------------------- Answers to these questions should be based upon a review of procedures and/or an actual test of transactions. Answers indicative of an adverse condition must be described in the audit report unless the mortgagor has written permission from DHCD to deviate from the requirements of law, regulation, contract or grant. - -------------------------------------------------------------------------------------------------------------------- Examination Status Yes, No or N/A Working (Not Applicable) Paper Reference - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1. Mortgage Status - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are payments on all mortgages current? Yes AA-1 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 1 Yes AA-2 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 2 Yes AA-4 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 3 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 4 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Position 5 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Has the mortgagor complied with the terms and conditions of the Yes Regulatory Agreement and/or workout agreements? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2. Books and Records - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are a complete set of books and records maintained in a Yes CF satisfactory manner? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Does the mortgagor make frequent postings (at least monthly) to the Yes CF ledger accounts? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 3. Cash Activities - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Are the cash receipts deposited in the name of the project in a Yes A-1 bank whose deposits are federally-insured? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Are security deposits kept separate and apart from all other funds Yes A-10 of the project in an insured institution? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- c. Does the mortgagor keep sufficient funds in the security deposit Yes DD-1 account to equal or exceed the aggregate of all outstanding obligations to the tenants? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- d. Does the owner or his/her management agent have a fidelity bond in Yes CF an amount at least equal to the requirements of the Regulatory Agreement which provides coverage for all employees handling assets of the project? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- e. Did cash disbursements exclude payments for items listed below: - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1) Legal expenses incurred in the sale of partnership interest? Yes - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2) The fee for the preparation of a partner's, shareholder's or Yes individual's federal, state or local income tax returns? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 3) Advice to an owner on tax consequences of foreclosure? Yes - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 4) Reimbursement to the owners or affiliates while the mortgage Yes is in default, or under workout arrangements for prior advances, capital expenditures and/or project acquisition costs? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 5) Letter of credit fees? Yes - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- f. Were distributions made to, or on behalf of, the owners limited to those authorized by the Regulatory Agreement or the distributions in accordance with prior written approval of CDA while the project was in a "surplus cash" position? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- NOTE - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 1) Distribution to nonprofit mortgagor entities or principals may not be permitted by the Regulatory Agreement. - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 2) The use of rental proceeds to pay for costs included in the N/A mortgagor's costs certification are unauthorized distributions of project income. - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- g. Was surplus cash available for payment on cash flow debt per the N/A Deed of Trust and Note? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- h. Were residual receipts deposited with the mortgagee within 90 days N/A after the close of the mortgagor's fiscal year? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- i. Were excess rental collections in Section 236 projects remitted to N/A HUD each month? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- j. Does the mortgagor have a formal collection policy? Yes HUD-Q - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- k. Is the collection policy enforced? Yes HUD-Q - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- l. Do tenant accounts receivable consist exclusively of amounts due Yes B-1 from tenants? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- m. Have "write-offs" of tenants' accounts been less than 1% of the Yes 11 gross rents? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- n. Are accounts receivable other than tenants' receivables composed No B-3 exclusively of amounts due from unrelated persons or firms? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- o. Were there indications that payments for services, supplies or Yes materials were consistent with amounts normally paid for such services? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- p. If applicable, were utility allowance payments to residents paid on Yes Lease test a monthly basis? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 4. Management Compensation - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Was compensation to the management agent limited to the amounts Yes 20 prescribed in the management agreement as written or amended? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 5. Rents and Occupancy - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Is the gross potential income from apartments equal to or less than Yes 10 that approved by DHCD? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. In subsidized projects, are dwelling unit contract rental rates and Yes Fair Market rental rates in Section 236 projects the same as those approved by DHCD? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- 6. DHCD/HUD Subsidy Payments (Section 8/RAP Projects Only) - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- a. Were the amounts requested from DHCD/HUD adequately supported by Yes the accounting records? - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- b. Were subsidy payments received recorded in the proper accounts? Yes - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- ---- - --------------------------------------------------------------------------------- ---- 7. Ownership Interest - --------------------------------------------------------------------------------- ---- - --------------------------------------------------------------------------------- ---- - --------------------------------------------------------------------------------- ---- - --------------------------------------------------------------------------------- ---- a. Were any changes of stockholders or investors during the current N/A fiscal year approved by DHCD? (provide a schedule of significant changes) - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- ---- - --------------------------------------------------------------------------------- ---- b. Were any dividends paid or other distribution made to owners or No stockholders including distribution, purchase or redemption of stock that is not reflected in the equity statement? (provide a schedule of payments or distributions) - -------------------------------------------------------------------------------------------------------------------- FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CIRCLE TERRACE ASSOCIATES LIMITED PARTNERSHIP HUD PROJECT NO.: 052-44056-LDP CDA PROJECT NO.: 28.04.0010 DECEMBER 31, 1999 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 TABLE OF CONTENTS MORTGAGOR'S CERTIFICATION MANAGING AGENT'S CERTIFICATION INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS BALANCE SHEET STATEMENT OF OPERATIONS STATEMENT OF PARTNERS' EQUITY (DEFICIT) STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS SUPPLEMENTAL INFORMATION ASSETS AND LIABILITIES DATA INCOME AND EXPENSE STATEMENT DATA ACCOUNTS AND NOTES RECEIVABLE RESERVE FOR REPLACEMENTS RESIDUAL RECEIPTS RESERVE LETTERS OF CREDIT LOANS AND NOTES PAYABLE MORTGAGES PAYABLE MORTGAGES PAYABLE FROM SURPLUS CASH Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 TABLE OF CONTENTS - CONTINUED SUPPLEMENTAL INFORMATION (CONTINUED) IDENTITY OF INTEREST COMPANIES AND ACTIVITIES COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS CHANGES IN FIXED ASSET ACCOUNTS DETAIL OF ACCOUNTS - STATEMENT OF OPERATIONS OTHER INFORMATION INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD AND DHCD-ASSISTED PROGRAMS INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS APPLICABLE TO THE FINANCIAL STATEMENTS ANNUAL AUDIT QUESTIONNAIRE Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 December 31, 1999 MORTGAGOR'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same are complete and accurate. OFFICER Peter Siegel, Vice President Date Landex of Maryland, Inc. for Cooperative Associates Limited Partnership as General Partner of Circle Terrace Limited Partnership Partnership Employer Identification Number: 05-0461953 Telephone Number: (410) 234-0111 MANAGING AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental data of Circle Terrace Associates Limited Partnership and, to the best of my knowledge and belief, the same are complete and accurate. MANAGING AGENT Rental Housing Management Partnership Fred Beguin David Staley Property Manager Managing Agent Taxpayer Identification Number: 13-3580730 INDEPENDENT AUDITORS' REPORT To the Partners Circle Terrace Associates Limited Partnership We have audited the accompanying balance sheet of Circle Terrace Associates Limited Partnership as of December 31, 1999, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 Circle Terrace Associates Limited Partnership as of December 31, 1999, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 27 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. 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. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated March 24, 2000 on our consideration of Circle Terrace Associates Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD programs and fair housing and non-discrimination. Bethesda, Maryland Federal Employer March 24, 2000 Identification Number: 52-1088612 Lead Auditor: Robert J. Denmark Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 BALANCE SHEET DECEMBER 31, 1999 ASSSETS CURRENT ASSETS 1120 Cash - operations $ 197,819 1125 Cash - entity 83,708 1130 Tenant accounts receivable 7,305 1135 Accounts receivable - HUD 30,070 1200 Miscellaneous prepaid expenses 94,917 ---------------- Total current assets 413,819 DEPOSITS HELD IN TRUST - FUNDED 1191 Tenant deposits 46,173 RESTRICTED DEPOSITS AND FUNDED RESERVES 1310 Escrow deposits $ 48,177 1320 Reserve for replacements 688,508 1330 Other reserves 275,538 ------------------ 1,012,223 RENTAL PROPERTY 1410 Land 1,104,269 1420 Buildings 15,271,257 1440 Building equipment - portable 31,654 1460 Furnishings 8,378 1480 Motor vehicles 18,340 1490 Miscellaneous fixed assets 86,167 ------------------- 16,520,065 1495 Less accumulated depreciation (4,074,656) ------------------ 12,445,409 OTHER ASSETS 1520 Intangible assets, net of accumulated amortization of $113,199 193,721 ------------------ $ 14,111,345 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 BALANCE SHEET - Continued DECEMBER 31, 1999 LIABILIATIES AND PARTNERS' EQUITY (DEFICIT) CURRENT LIABILITIES 2110 Accounts payable - operations $ 66,510 2123 Accrued management fee payable 22,482 2131 Accrued interest payable - first mortgage 2,393 2132 Accrued interest payable - second mortgage 22,275 2134 Accrued interest payable - other loans/notes 7,603 2160 Notes payable, current maturities 5,000 2170 Mortgage payable - first mortgage, current maturities 106,364 2172 Mortgage payable - second mortgage, current maturities 165,351 2174 Other loans/notes payable, current maturities 48,476 2180 Utility allowances 977 2190 Miscellaneous current liabilities 16,438 2210 Prepaid revenue 1,415 -------------------- Total current liabilities 465,284 DEPOSITS LIABILITY 2191 Tenant deposits held in trust (contra) 44,969 LONG-TERM LIABILITIES 2133 Accrued interest payable - other loans/notes (surplus cash) $ 125,030 2311 Notes payable - surplus cash 550,000 2320 Mortgage payable - first mortgage, net of current maturities 3,298,373 2321 Mortgage payable - second mortgage, net of current maturities 3,022,010 2324 Other loans/notes payable, net of current maturities 1,932,744 ----------------- 8,928,157 CONTINGENCIES - 3130 PARTNERS' EQUITY (DEFICIT) 4,672,935 ---------------- $ 14,111,345 See notes to financial statements Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement of Operations - Continued Year end DECEMBER 31, 1999 RENTAL REVENUE 5120 Rent revenue - gross potential $ 403,361 5121 Tenant assistance payments 1,875,570 ------------------ Total rental revenue $ 2,278,931 VACANCIES 5220 Apartments (10,077) 5250 Rental concessions (5,587) -------------------- Total vacancies (15,664) Net rental revenue 2,263,267 FINANCIAL REVENUE 5410 Financial revenue - project operations 7,494 5440 Revenue from investments - replacement reserve 17,350 5490 Revenue from investments - miscellaneous 2,314 -------------------- Total financial revenue 27,158 OTHER REVENUE 5910 Laundry and vending 18,276 5920 Tenant charges 4,674 5990 Miscellaneous revenue 7,997 -------------------- Total other revenue 30,947 Total revenue 2,321,372 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement of Operations - Continued Year end DECEMBER 31, 1999 ADMINISTRATIVE EXPENSES 6210 Advertising and marketing 13,789 6250 Other renting expenses 10,086 6310 Office salaries 169,032 6311 Office expenses 52,082 6320 Management fee 130,164 6331 Administrative rent free unit 3,774 6340 Legal expense - project 15,944 6350 Auditing expense 10,275 6351 Bookkeeping fees/accounting services 16,368 6370 Bad debts 20,504 6390 Miscellaneous administrative expenses 24,423 ------------------- Total administrative expenses 466,441 UTILITIES EXPENSE 6450 Electricity 32,231 6451 Water 25,852 6452 Gas 70,637 6453 Sewer 2,188 -------------------- Total utilities expense 130,908 OPERATING AND MAINTENANCE EXPENSES 6510 Payroll 173,639 6515 Supplies 54,463 6520 Contracts 220,014 6525 Garbage and trash removal 36,820 6530 Security payroll/contract 149,009 6546 Heating/cooling repairs and maintenance 17,328 6548 Snow removal 1,709 6570 Vehicle and maintenance equipment operation and repairs 15,478 6590 Miscellaneous operating and maintenance expenses 78,662 ------------------- Total operating and maintenance expenses 747,122 Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement of Operations - Continued Year end DECEMBER 31, 1999 TAXES AND INSURANCE 6710 Real estate taxes 139,107 6711 Payroll taxes 37,131 6720 Property and liability insurance 80,122 6723 Health insurance and other employee benefits 25,809 ------------------- Total taxes and insurance 282,169 FINANCIAL EXPENSES 6820 Interest on mortgage payable 377,439 6830 Interest on notes payable - long-term 547 6850 Mortgage insurance premium/service charge 44,738 ------------------- Total financial expenses 422,724 6900 Nursing home/Assisted living and other elderly care expenses 1,500 DEPRECIATION AND AMORTIZATION 6600 Depreciation expense 572,954 6610 Amortization expense 14,004 ------------------- Total depreciation and amortization 586,958 CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES 7105 Entity revenue (3,371) 7141 Interest on notes payable 22,000 ------------------- Total corporate or mortgagor entity revenue and expenses 18,629 Total expenses 2,656,451 Net income (loss) $ (335,079) ================ See notes to financial statements Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement of Partner's Equity (deficit) Year ended December 31, 1999 General Limited Partner Partners Total Partners' equity (deficit) December 31, 1998 $ 216,387 $ 4,791,627 $ 5,008,014 Net income (loss) (3,351) (331,728) (335,079) ------------------- ---------------- ---------------- Partners' equity (deficit) December 31, 1999 $ 213,036 $ 4,459,899 $ 4,672,935 ================== ================= ================ See notes to financial statements Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement Cash Flows Year ended December 31, 1999 Cash flows from operating activities Rental receipts $ 2,376,006 Interest receipts 27,158 Other operating receipts 30,947 Entity/construction receipts Entity interest income 3,371 Administrative expenses paid (133,490) Management fees paid (130,164) Utilities paid (129,931) Salaries and wages paid (491,680) Operating and maintenance paid (435,192) Real estate taxes paid (150,451) Property insurance paid (87,072) Miscellaneous taxes and insurance paid (178) Net tenant security deposits received (paid) 2,040 Other operating expenses paid (69,146) Interest paid on mortgages (377,439) Interest paid on notes (547) Mortgage insurance premium paid (43,322) Net cash provided by (used in) operating activities 390,910 Cash flows from investing activities Net deposits to mortgage escrows 27,097 Net deposits to reserve for replacements (101,890) Net deposits to other reserves (41,570) Net cash provided by (used in) investing activities (116,363) --------------------- Cash flows from financing activities Mortgage principal payments (306,523) Entity/construction financing activities Due from affiliate 860 Net cash provided by (used in) financing activities (305,663) --------------------- NET INCREASE (DECREASE) IN CASH (31,116) Cash, beginning 312,643 Cash, end $ 281,527 ==================== Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 Statement Cash Flows - continued Year ended December 31, 1999 Reconciliation of net income (loss) to net cash provided by (used in) operating activities Net income (loss) $ (335,079) ------------------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 572,954 Amortization 14,004 Changes in asset and liability accounts (Increase) decrease in assets Tenant accounts receivable 8,346 Accounts receivable - other 130,047 Accounts receivable - interest 9,477 Miscellaneous prepaid expenses (16,878) Tenant security deposits funded (3,349) Increase (decrease) in liabilities Accounts payable (10,718) Accrued liabilities (3,907) Accrued interest payable 22,000 Tenant security deposits held in trust 5,389 Prepaid revenue (1,376) Total adjustments 725,989 Net cash provided by (used in) operating activities $ 390,910 ================== See notes to financial statements Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 NOTES TO FINANCIAL STATEMENTS December 31, 1999 NOTE A - ORGANIZATION Circle Terrace Associates Limited Partnership was organized under the laws of the State of Maryland on March 28, 1990, for the purpose of acquiring and operating a rental housing project under Section 236 of the National Housing Act. The project consists of 303 units located in Lansdowne, Maryland, and is currently operating under the name of Circle Terrace Apartments. Cash distributions are limited by agreements between the partnership and the United States Department of Housing and Urban Development ("HUD") to an annual amount of $30,340 per year to the extent of surplus cash as defined by HUD. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide surplus cash in excess of current requirements. Each building of the project has qualified and been allocated low-income housing credits pursuant to Internal Revenue Code Section 42 ("Section 42") which regulates the use of the project as to occupant eligibility and unit gross rent, among other requirements. Each building of the project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the credits. In addition, Circle Terrace Associates Limited Partnership has executed an Extended Low-income Housing Agreement/Land Deed Restriction/Extended Use Commitment which requires the utilization of the project pursuant to Section 42 for a minimum of 30 years, even after the disposition of the project by the partnership. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Circle Terrace Associates Limited Partnership HUD Project No.: 052-44056-LDP CDA Project No.: 28.04.0010 NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1999 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Rental Property Rental property is recorded at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight-line method over a 27.5-year life. Personal property is recorded at cost and is depreciated over its estimated service life of five to seven years using accelerated methods. 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. Intangible Assets and Amortization Mortgage costs are amortized over the term of the respective loan using the effective interest method. Provision for Doubtful Accounts The partnership considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations upon such determination. 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. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the partnership and tenants of the property are operating leases. NOTE C - MORTGAGES PAYABLE First Mortgage The partnership is obligated under the terms of a mortgage note which is insured by the Federal Housing Administration ("FHA") and bears interest at the rate of 7%, less a varying interest subsidy in the current amount of $17,999 per month. Monthly payments of principal and interest in the reduced amount of $10,564 are due through maturity in February 2017. The total interest subsidy of $215,990 is reflected as a reduction of interest expense. Principal and accrued interest due at December 31, 1999 are $3,404,737 and $2,393, respectively. Under agreements with the mortgage lender and FHA, the partnership is required to make monthly escrow deposits for taxes, insurance and replacement of project assets, and is subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners. Second Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $4,000,000, which is insured by the Maryland Housing Fund ("MHF") and payable to Crestar of Richmond, Virginia, Inc. The note bears interest at the rate of 8%. Monthly payments of principal and interest in the amount of $34,645 are due through maturity in December 2011. Principal and accrued interest due at December 31, 1999 are $3,187,361 and $22,275, respectively. Third Mortgage The partnership is obligated under the terms of a mortgage note in the original amount of $2,227,330 payable to the Department of Housing and Community Development of the State of Maryland ("CDA"). The note bears interest at 4.5%. Monthly payments of principal and interest of $11,373 are due through July 1, 2023. Principal and accrued interest due at December 31, 1999 are $1,981,220 and $7,603, respectively. The liability of the partnership under the terms of all of these mortgages is limited to the underlying value of the real estate collateral plus deposits held by the lenders. NOTE C - MORTGAGES PAYABLE (Continued) Third Mortgage (Continued) Aggregate annual maturities of mortgages payable for each of the next five years and thereafter are as follows: December 31, 2000 $ 320,191 2001 343,827 2002 369,264 2003 396,638 2004 426,097 Thereafter 6,717,301 ------------------- $ 8,573,318 =================== NOTE D - NOTES PAYABLE The partnership is obligated under the terms of an unsecured promissory note payable to Baltimore County, Maryland. Interest accrues at the rate of 4%. Annual interest payments commenced January 1, 1996. Annual payments of principal will be due commencing January 1, 2000 and will extend for 30 years through maturity on December 31, 2030. Payments may be made only to the extent of surplus cash as defined by HUD. Principal and accrued interest due at December 31, 1999 are $550,000 and $125,030, respectively. The partnership is obligated under the terms of a note payable for the purchase of a truck. The note bears interest at 8.75% and requires monthly payments of principal and interest of $588 through maturity in October 2000. The amount payable at December 31, 1999 is $5,000. NOTE D - NOTES PAYABLE (Continued) Aggregate annual maturities of notes payable for each of the next five years and thereafter are as follows: December 31, 2000 $ 5,000 2001 - 2002 - 2003 - 2004 - Thereafter 550,000 ------------------- $ 555,000 =================== NOTE E - RELATED PARTY TRANSACTIONS Working Capital Advances The general partner is obligated to make working capital advances to the partnership as needed, up to an aggregate of $100,000. Such advances are noninterest bearing and can be repaid out of available net cash flow as defined in the partnership agreement. No such advances were required as of December 31, 1999. In the event cash flow does not provide sufficient funds to pay the investor limited partner its minimum distribution, such amount required will be advanced by the general partner and will be considered a project expense loan to be paid from surplus cash after required distributions as defined in the partnership agreement. Insurance The majority shareholder of an affiliate of the general partner provided debt financing for the capitalization of LaMere Associates, Inc. ("LaMere"). In connection with such debt financing, the shareholder received 20% of the stock of LaMere. LaMere was paid premiums in connection with the following insurance coverage provided to the partnership: property and liability, fidelity bond and auto. In connection with such insurance coverage, the partnership incurred $80,228 in premiums for the year ended December 31, 1999. NOTE E - RELATED PARTY TRANSACTIONS (Continued) Shared Project Payroll Costs The site superintendent was shared with another project in the area and payroll costs were allocated based on time spent on each project. Computer Services In accordance with HUD Regulations 4381.5 Rev-2, Paragraph 6.38, the partnership uses the services of a computer consultant company to provide the following services: purchase and install personal computers and the related equipment and software for the project's rental office, provide training and technical support, and consult on software upgrades. Dynamic Information Services, Inc. (DIS), which is owned by a relative of an officer of the management company, is a licensed representative of Project Data Systems, Inc., a nationally-known provider of computer system software for the subsidized housing industry. DIS derives 40% of its consulting service revenues from third-party clients not affiliated with the management company. In 1999, the partnership paid DIS $928 for technical support and training services based on billable hours. Laundry Lease The partnership has entered into a lease agreement with Moonbeam Equipment and Communications, LLC ("Moonbeam"), an affiliate of the general partner, which permits Moonbeam to install coin-operated laundry equipment for use by the tenants. The partnership retains 45% of the income on the coin-operated equipment as reimbursement of utility and janitorial expenses incurred by the partnership to maintain the common area laundry facilities; the balance is remitted to Moonbeam. The lease agreement expires in January 2023 and, among other terms, states that expenses relating to the maintenance and repair of the equipment are the obligation of Moonbeam. Moonbeam earned $8,918 from the proceeds of the laundry room collections during 1999, of which $6,245 remains payable as of December 31, 1999. NOTE F - MANAGEMENT FEE The property is managed by an affiliate of the general partner. The management fee is based on a charge of $35.80 per unit per month. The management agent also receives fees of $4.50 per unit per month for accounting services provided to the partnership. Management and accounting fees charged to operations during 1999 were $130,164 and $16,368, respectively, of which $22,482 of management fee is payable at December 31, 1999. NOTE G - HOUSING ASSISTANCE PAYMENT (HAP) CONTRACT AGREEMENTS HUD has contracted with the partnership under the United States Housing Act of 1937 to make housing assistance payments to the partnership on behalf of qualified tenants. The terms of the contract covering 142 units expired on November 30, 1998, and the contract covering 161 units expired on November 30, 1997. The contracts do not have renewal options. Under the Multifamily Assisted Housing and Reform and Affordability Act ("MAHRAA") of 1997, Congress set forth the legislation for a permanent "mark-to-market" program and provided for permanent authority for the renewal of Section 8 contracts. On September 11, 1998, HUD issued an interim rule to provide clarification of the implementation of the mark-to-market program. Owners with Section 8 contracts expiring after September 30, 1998 are subject to the provisions of MAHRAA. As such, the partnership may choose to either opt out of the Section 8 program, request mortgage restructuring and renewal of the Section 8 contract, or request renewal of the Section 8 contract without mortgage restructuring. Each option contains a specific set of rules and procedures that must be followed in order to comply with the requirements of MAHRAA. As of the date of the report, the partnership has extended both contracts from October 1, 1999 through September 30, 2000. It is uncertain whether HUD will renew these contracts under terms that are consistent with the successful operation of the project. The project is economically dependent upon the rental income received from both of its agreements. If HUD were not to extend either one, the project's operating cash flow would be adversely affected. NOTE H - PARTNERS' CAPITAL CONTRIBUTIONS The partnership has one general partner - Cooperative Associates Limited Partnership and two limited partners - SLP, Inc. (the special limited partner) and Boston Financial Qualified Housing Tax Credits L.P. V, a Limited Partnership (the investor limited partner). The general partner has made capital contributions of $413,562. SLP, Inc. is required to make a capital contribution of $10. The investor limited partner has made capital contributions totaling $5,615,234. NOTE I - CONTRACT WITH BALTIMORE COUNTY (IN LIEU OF TAXES) The partnership is obligated under the terms of an agreement with Baltimore County, Maryland, whereby the partnership is to pay the County $220 per apartment unit per year (the minimum payment) in lieu of real estate taxes. To the extent there is net cash flow, as defined in the agreement, such amount is to be applied toward additional payments. The minimum payment has been increased 10% annually. The amount incurred during 1999 under the terms of this agreement was $66,660. This amount is included with other city and county real estate taxes in the statement of operations. The County has advised the partnership that $239,359 is due for additional taxes and interest applicable to 1992 through 1995 and has placed a lien on the property. The partnership believes that such payments are not due in accordance with the P.I.L.O.T. agreement. Such amount has not been recorded until this matter is resolved. NOTE J - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS All profits and losses are allocated 1% to the general partner and 99% to the investor limited partner. Cash flow, as defined in the partnership agreement, is to be distributed as follows: 1. 99% to the investor limited partner and 1% to the general partner until the investor limited partner has received distributions, in the aggregate, equal to the cumulative priority distribution. 2. To the repayment of any project expense loans. NOTE J - PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS (Continued) 3. To the general partner until it has received cumulatively an amount equal to the cumulative amount paid to the investor limited partner as defined above. 4. 50% to the general partner and 50% to the investor limited partner. Gain, if any, from a sale, exchange or other disposition is allocable as follows: 1. To all partners having negative balances in their capital accounts prior to the distribution of any sale or refinancing proceeds, an amount of such gain to increase their negative balance to zero. 2. To each partner until the positive capital account balance is equal to the amount of cash available for distribution as a result of the transaction, as defined in the partnership agreement. Loss from a sale is allocable as follows: 1. To the partners in proportion to their positive capital account balances. In the event the loss is less than the sum of the positive capital accounts, the loss is to be allocated such that the resulting capital account balance is as near as possible to the amount of cash to be distributed as a result of the transaction. 2. 1% to the general partner and 99% to the investor limited partner. NOTE K - TAXABLE LOSS A reconciliation of the financial statement net loss to the income tax net loss of the partnership for the year ended December 31, 1999 is as follows: Financial statement net loss $ (335,079) Excess depreciation for income tax purposes (6,393) Other differences (6,658) ------------------- Income net tax loss $ (348,130) =================== NOTE L - INVESTMENT IN REAL ESTATE A reconciliation of the basis of the investment in real estate for financial reporting purposes to that for income tax purposes as of December 31, 1999 is as follows: Investment in real estate for financial reporting $ 12,445,409 Excess accumulated depreciation for income tax purposes (59,435) Interest expense portion of subsidy capitalized for income tax purposes 177,317 ------------------- Investment in real estate for income tax purposes $ 12,563,291 =================== NOTE M - CONCENTRATION OF CREDIT RISK The partnership maintains its cash balances and escrow in several banks. The balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per bank. As of December 31, 1999, the uninsured portion of the cash balances held at two banks was $337,199. NOTE N - CONTINGENCIES The partnership's low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility and/or unit gross rent, or to correct noncompliance within a specified time period, could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may require an adjustment to the capital contributed by the investor limited partner. Baltimore County has advised the partnership that $239,359 is due for additional taxes and interest applicable to 1992 through 1995 and has placed a lien on the property. The partnership believes that such payments are not due in accordance with the P.I.L.O.T. agreement. Such amount has not been recorded until this matter is resolved.