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 December 31, 1996 [ ] 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 0-13520 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2828131 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 Christina Street, Suite 203, Newton, Massachusetts 02161 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 244-2242 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable Documents incorporated by reference: None Exhibits Index on Pages: 165-178 Page 1 of 180 PART I Item 1. Business The Registrant, Liberty Housing Partners Limited Partnership (the "Partnership"), is a limited partnership organized under the provisions of the Massachusetts Uniform Limited Partnership Act on March 20, 1984. Until December 27, 1995, the partners in the Partnership consisted of Liberty Real Estate Corporation, the managing general partner (the "Former Managing General Partner"), LHP Associates Limited Partnership, the associate general partner (the "Former Associate General Partner") and, together with the Former Managing General Partner, (the "Former General Partners"), and 998 Limited Partners owning 21,576 units of Limited Partnership Interest ("Units"). The Units were offered and sold commencing July 13, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The offering was completed on July 12, 1985. On December 27, 1995, the Former General Partners withdrew from the Partnership and TNG Properties, Inc., a Massachusetts corporation (the "Managing General Partner"), was admitted to the Partnership as a substitute general partner with an interest equivalent to the aggregate interests of the Former General Partners. The Partnership will terminate on December 31, 2020, unless sooner dissolved or terminated as provided in Section 11 of the Amended Agreement of Limited Partnership dated as of July 13, 1984, as amended to date (the "Partnership Agreement"). The Partnership has no employees. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership and its properties. The Partnership is engaged in only one industry segment, the business of investing in, operating, owning, leasing and improving interests in real estate through ownership of interests in other limited partnerships (the "Local Limited Partnerships") which own and operate government- assisted, multi-family rental housing complexes. As described in Item 2, the Partnership owns interests in 13 Local Limited Partnerships, each of which owns and operates a government-assisted, garden-style, residential multi-family housing complex. Each complex consists of one-to-three- story buildings of wood frame and brick construction located on landscaped lots. The apartments within each of the complexes contain fully equipped kitchens and some of the complexes include swimming pools. The Partnership paid for two of the 13 limited partnership interests in cash upon acquisition. The Partnership paid for 11 of such limited partnership interests by delivery of cash, short-term promissory notes (which have all been paid in full) and nonrecourse promissory notes which bear interest at the rate of 9% per annum ("Purchase Money Notes"). Each Purchase Money Note permits interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. The Purchase Money Notes do not require payment of any portion of the principal amount of the notes prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). 2 Item 1. Business, continued As a result of these interest accrual and payment provisions, each Purchase Money Note will require a substantial balloon payment at maturity. The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. The Purchase Money Notes had an original term of from 15 to 17 years and mature at varying dates during 1999, 2000 and 2001. Additional information concerning the Purchase Money Notes is set forth below under "Management's Discussion and Analysis of Financial Condition and Results of Operations." One of the two Local Limited Partnerships in which the Partnership acquired its interest for cash issued purchase money notes in connection with the purchase of its housing complex. Such notes have terms which are substantially identical to those of the Purchase Money Notes, and are secured by a pledge by all of the partners in such Local Limited Partnership (including the Partnership) of their respective partnership interests therein. See the table under Item 2 (Properties) below. The Partnership does not intend to make any additional investments. The Partnership's business is not seasonal. In connection with the Partnership's investment in the Local Limited Partnerships, Liberty LGP Limited Partnership, an affiliate of the Former General Partners ("Liberty LGP") acquired co-general partnership interests or special limited partnership interests in each of the Local Limited Partnerships. In some cases, such interests entitle Liberty LGP to approve or disapprove certain actions proposed to be taken by the unaffiliated general partners of the Local Limited Partnership (the "Local General Partners"). In all cases, Liberty LGP, acting alone, is authorized to cause each Local Limited Partnership to sell and/or refinance the project owned by such Local Limited Partnership. On December 27, 1995, TNG Properties, Inc. acquired the 99% limited partnership interest in Liberty LGP. Liberty Housing Corporation retained the 1% general partner interest, and Michael A. Stoller, President and CEO of the Managing General Partner acquired all of the outstanding stock of Liberty Housing Corporation from the Former Managing General Partner. The Partnership's investments are and will continue to be subject to various risks, including the following: (1) The risk that Partnership funds will not be sufficient to enable the Partnership to pay its debts and obligations. Among the Partnership's liabilities are the Purchase Money Notes. Such notes do not require payments during their term, except to the extent of cash distributions from the Local Limited Partnerships, but will require substantial balloon payments at maturity. The Partnership may not have funds sufficient to repay such notes at maturity. See Item 7. (2) Risk of recapture of previously claimed tax losses as a result of the Partnership's inability to pay at maturity the Purchase Money Notes. As a result of such recapture, the investors in the Partnership would have taxable income from the Partnership, and the associated income tax liability, without cash distributions from the Partnership with which to satisfy such income tax liability. (3) The risks associated with an investment in a partnership, including tax risks as a result of possible adjustments by the IRS to federal income tax returns filed by the Partnership and its Partners, and other tax risks. (4) Risks that the federal government will cease or reduce funding of housing subsidies, including subsidies under the Section 8 and Section 236 programs, both of which provide substantial operating 3 Item 1. Business, continued revenues to many of the Local Limited Partnerships. (5) Possible restrictions imposed by Federal, state or local agencies that provide government assistance to the projects, which may limit the amount of costs which may be passed on to tenants in the form of rent increases, limit future direct government assistance to Local Limited Partnerships, or restrict the Partnership's ability to sell or refinance its Local Limited Partnership interests. (6) The risk that properties owned by Local Limited Partnerships will not generate income sufficient to meet their operating expenses and debt service or to fund adequate reserves for capital expenditures. (7) Continuing quality of on-site management of the local properties. Such on-site management is subject to direct control by the Local General Partners of the Local Limited Partnerships and not by the Partnership. (8) Possible adverse changes in general economic conditions and adverse local conditions, such as competitive over-building, a decrease in employment, or adverse changes in real estate selling laws, which may reduce the desirability of real estate in a particular area. (9) Circumstances over which the Local Limited Partnerships may have little or no control, such as fires, earthquakes, and floods. Item 2. Properties The Partnership owns limited partnership interests in 13 Local Limited Partnerships, each of which owns the fee interest in a government-assisted residential multi-family rental housing complex. The following table reflects: (1) the name of each of the Local Limited Partnerships and the percentage of the total interests in the Local Limited Partnership represented by the Partnership's interest; (2) the date on which the Partnership acquired each of such interests; (3) the consideration paid for each interest, (including purchase money notes); (4) the original principal amount, the aggregate amount of the principal and accrued and unpaid interest outstanding as of December 31, 1996, and the maturity date of the Purchase Money Notes relating to each interest; (5) the Partnership's share of the mortgage indebtedness of each Local Limited Partnership; (6) the size and the location of the housing project owned by each Local Limited Partnership; and (7) the government program pursuant to which the complex receives assistance and the number of housing units in the project receiving such assistance. More detailed information related to the properties owned by the Local Limited Partnerships, including their respective amounts of mortgage indebtedness is included in Schedule III, Real Estate and Accumulated Depreciation, included in Item 8, and is contained in the separate financial statements of the Local Limited Partnerships. It is unlikely that operating cash flows from the Local Limited Partnerships will generate any distributions to investors in the Partnership, because in nearly all cases, the Partnership's share of operating cash flows from the properties owned by the Local Limited Partnerships must be applied to repayment of accrued interest and principal on the related Purchase Money Notes. 4 Item 2. Properties Purchase Money Notes ----------------------------- Unpaid Principal At Acquisition Total and -------------------- Description of Apartment Complex Name/Percentage Interest Acquisi- Original Interest LHPLP Total --------------------------------- Ownership of Local Acquisiton tion Principal as of Maturity Share of Invested Geographic Government Limited Partnership Date Cost Amount(A) 12/31/96 Date Local Debt Assets (C) Size Location Assistance (D) - ----------------------- ---------- -------- --------- --------- -------- ---------- ---------- ----- ---------- -------------- 98% interests are owned in the following Local Limited Partnerships(B): 1 Glendale Manor 8/31/84 $810,000 $450,000 $584,981 8/29/2000 $929,000 $1,739,000 50 Units Clinton, SC 221(d)(4) Apartments 30,310 SF 100% 5.5 Acres Section 8(E) 2 Surry Manor, Ltd. 8/31/84 740,000 360,000 647,304 7/9/2001 1,006,000 1,746,000 44 Units Dobson, NC 221(d)(4) 27,253 SF 100% 5.0 Acres Section 8(E) 3 Oxford Homes 9/28/84 1,004,000 644,000 825,765 9/28/1999 653,000 1,657,000 50 Units Oxford, NC 221(d)(4) for the Elderly, 26,672 SF 100% Ltd. 4.5 Acres Section 8(E) 4 Williamston 9/28/84 1,064,000 664,000 708,395 9/28/1999 649,000 1,713,000 50 Units Williamstown, 221(d)(4) Homes for the 26,496 SF NC 100% Elderly, Ltd. 7 Acres Section 8(E) 5 Fuquay-Varina 9/28/84 1,118,000 707,000 753,207 9/28/1999 822,000 1,940,000 60 Units Fuqyay 221(d)(4) Homes for the 35,056 SF -Varina, NC 100% Elderly, Ltd. 6 Acres Section 8(E) 6 Fiddlers Creek 9/28/84 2,876,000 1,750,000 2,826,436 9/28/1999 2,396,000 5,272,000 160 Units Winston 221(d)(4) Apartments 126,900SF -Salem, NC 15 Acres 7 Austintown 10/30/84 3,081,000 1,600,000 3,222,822 10/30/1999 3,635,000 6,716,000 200 Units Austintown, 236 HUD Associates 189,200SF OH 100% 20 Acres Section 8(E) 8 Osuna Apartments 11/30/84 2,042,000 1,300,000 2,603,637 11/27/1999 1,527,000 3,569,000 110 Units Albuquerque, 236 HUD Company 97,400 SF NM Section 8,(E) 7.3 Acres 22 Units 9 Linden Park 12/06/84 2,997,000 1,800,000 2,707,748 12/11/1999 3,359,000 6,356,000 198 Units Triangle, 221(d)(4) Associates 164,327 SF VA VA Housing Limited Partnership 10 Acres Development Authority Interest Subsidy (Continued) 5 Item 2. Properties, continued Purchase Money Notes ----------------------------- Unpaid Principal At Acquisition Total and -------------------- Description of Apartment Complex Name/Percentage Interest Acquisi- Original Interest LHPLP Total --------------------------------- Ownership of Local Acquisiton tion Principal as of Maturity Share of Invested Geographic Government Limited Partnership Date Cost Amount(A) 12/31/96 Date Local Debt Assets (C) Size Location Assistance (D) - ----------------------- ---------- -------- --------- --------- -------- ---------- ---------- ----- ---------- -------------- 94% interests are owned in the following Local Limited Partnerships(B): 10 Pine Forest 10/29/84 736,000 350,000 702,340 10/30/1999 1,190,000 1,926,000 64 Units Cairo, GA 515 RECD Apartments, Ltd. 53,344 SF 521 RECD 6 Acres 29 Units 11 Brierwood, Ltd. 10/29/84 563,000 270,000 550,362 10/30/1999 838,000 1,401,000 56 Units Bainbridge, 515 RECD 42,840 SF GA 521 RECD 6 Acres 33 Units 12 Meadowwood, Ltd. 10/29/84 1,001,000 610,000 1,261,185 10/30/1999 1,004,000 2,005,000 80 Units Tifton,GA 515 RECD 67,416 SF 6.8 Acres 13 Brierwood II, Ltd. 01/25/85 101,000 351,000 452,000 18 Units Bainbridge, 515 RECD 12,402 SF GA 1.4 Acres ----------- ----------- ----------- ----------- ----------- Total Acquisitions $18,133,000 $10,505,000 $17,394,182 $18,359,000 $36,492,000 1,140 units =========== =========== =========== =========== =========== (Continued) 6 <FN> Item 2. Properties, continued (A) Purchase Money Notes bear interest at 9% per annum (See Note 6 to Financial Statements). Notes issued in conjuction with the acquisition of Linden Park were issued by the Local Limited Partnership; all other notes were issued by the Partnership. Each note requires no principal payments prior to maturity. Each note requires payment of interest prior to maturity solely to the extent of cash distributions from the Local Limited Partnership to which the note relates. To the extent interest is not paid currently, it accrues and is payable at maturity. Accordingly, each note will require a substantial balloon payment at maturity. The total of principal and accrued and unpaid interest outstanding at December 31, 1996 on the Purchase Money Notes is as follows: Principal Interest Total --------- -------- ----- Obligation of: The Partnership $8,705,000 $5,981,434 $14,686,434 Linden Park 1,800,000 907,748 2,707,748 ----------- ---------- ----------- $10,505,000 $6,889,182 $17,394,182 =========== ========== =========== (B) Where the Partnership has acquired a 98% interest as investor partner, the Local General Partner has retained a 1% general partner interest and Liberty LGP has acquired a 1% general partner interest. Where the Partnership has acquired a 94% interest as investor partner, the Local General Partner has retained a 5% general partner interest and Liberty LGP has acquired a 1% Special Limited Partner interest. (C) The amount of any partnership management fee, as defined in the Partnership Agreement, which may be accrued and unpaid for any year is limited to a specified percentage of Invested Assets, as defined in the Partnership Agreement. (D) Government Assistance: 221 (d) (4): Mortgage is insured by HUD Section 8: Rental Assistance from HUD for low or elderly housing 515 RHS: Mortgage financing and interest subsidies from RHS pursuant to Section 515 of the Housing Act of 1949 521 RHS: Rental assistance from RHS pursuant to Section521 of the Housing Act of 1949 236 HUD: Mortgage insurance and interest subsidies from HUD (E) Section 8 rental assistance contracts expire as follows: Glendale Manor Apartments 05/2000 Surry Manor, Ltd. 07/2000 Oxford Homes for the Elderly, Ltd. 07/1998 Williamston Homes for the Elderly, Ltd. 09/1998 Fuquay-Varina Homes for the Elderly, Ltd. 05/1998 Austintown Associates 11/1998 Osuna Apartments Company 08/1999 </FN> 7 Item 3. Legal Proceedings There are no material pending legal proceedings to which the Partnership is a party or, to the knowledge of the Managing General Partner, of which any of the properties owned by the Local Limited Partnerships is the subject. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for the Partnership's Securities and Related Security Holder Matters (a) Market Information The Partnership's outstanding securities consist of units of limited partnership interest ("Units"). There is no public market for the Units, and it is not anticipated that such a public market will develop. Transfer of the Units is subject to compliance with state and federal securities laws, and in various states is subject to compliance with the minimum investment and suitability standards imposed by the Partnership and applicable "blue sky" laws. (b) Holders. As of March 18, 1997, there were 999 holders of record of the 21,576 Units outstanding. (c) Dividends. The Partnership Agreement requires that Distributable Cash from Operations (as defined in the Partnership Agreement) be distributed 99% to the Limited Partners and 1% to the General Partners, to the extent then available, within 120 days after completion of the Partnership's fiscal year. The Partnership Agreement provides that Cash from Sales or Refinancings (as defined in the Partnership Agreement), if any, received by the Partnership, will be distributed (i) first, until the Limited Partners have received an amount equal to their total invested capital, 100% to the Limited Partners, and (ii) the balance, 85% to the Limited Partners and 15% to the General Partners; provided however that if the amount of Cash from Sales or Refinancings exceeds the amount of profits for tax purposes arising from such sale or refinancing, the amount of such excess is distributed to those Partners, if any, who have positive balances in their capital accounts following any 8 Item 5. Market for the Partnership's Securities and Related Security Holder Matters, continued distributions made pursuant to clause (i) in connection with such sale or refinancing, in proportion to and to the extent of such positive balances, and prior to any distributions pursuant to clause (ii). No distributions have been made by the Partnership since its organization in 1984. 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. Amounts are expressed in thousands with the exception of per Unit calculations. For the Years Ended December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Interest income $ 61 $ 32 $ 36 $ 34 $ 43 Net loss (1,962) (1,564) (1,527) (1,364) (1,488) Net loss per Unit(a) (90.02) (71.77) (69.92) (62.47) (68.15) Total assets at December 31 2,587 2,964 3,174 3,833 4,283 Long-term debt (including current portion, net of discount) at December 31 9,684 8,152 6,864 5,869 5,002 Distributable Cash From Operations per Unit(a) - - - - - (a) Per Unit calculations as presented above are based on 21,576 Units outstanding as of the end of December 31, 1996 and 1995 and 21,616 units outstanding for the years ended December 31, 1992 through 1994. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Partnership. The Partnership is liable for the amount of the purchase money notes delivered to purchase its interests in the Local Limited Partnerships (as hereinafter described), and for the Partnership's day-to-day administrative and operating expenses. The Partnership acquired its interests in two Local Limited Partnerships for cash. The Partnership acquired its interests in the other eleven Local Limited Partnerships by delivery of cash, short-term promissory notes (all of which have been paid in full) and purchase money promissory notes which bear interest at the rate of 9% per annum (the "Purchase Money Notes"). The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. Each note had an initial term of 15 to 17 years, and the Purchase Money Notes mature at varying dates between September 1999 and July 2001. None of the Purchase Money Notes is cross-defaulted to the others, nor are the Purchase Money Notes cross- collateralized in any manner. The terms of each Purchase Money Note permit interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. Generally, the amount of such cash distributions have not been sufficient in any year to pay the full amount of interest accrued for that year on the Purchase Money Notes. The Purchase Money Notes do not require payment of any portion of the principal amount of the note prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). Accordingly, each Purchase Money Note will require a substantial balloon payment at maturity. The aggregate outstanding principal amount of and accrued and unpaid interest on the Purchase Money Note obligations of the Partnership, as of December 31, 1996, as set forth in the table included in Item 2 above, was $14,686,434. The outstanding obligations are expected to increase annually until maturity as interest continues to accrue under the Purchase Money Notes. The aggregate outstanding principal amount of the Purchase Money Notes reported on the Partnership's Balance Sheet ($9,684,281 at December 31, 1996), reflects a discount using an imputed interest rate of approximately 21%, which was applied to the face amount of the notes on the respective investment purchase dates and which is used to calculate an annual interest accrued in accordance with generally accepted accounting principles that will equate to the legal obligation (as presented in Item 2 and discussed above) expected at maturity of the notes. Linden Park Limited Partnership, one of the two Local Limited Partnerships in which the Partnership acquired its interest for cash ("LPLP"), issued purchase money notes in connection with the purchase of its housing complex. The terms of such notes are substantially identical to those of the Partnership's Purchase Money Notes, requiring no payment of principal prior to maturity and permitting interest to accrue prior to maturity to the extent LPLP's cash flow is insufficient to pay such interest. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, continued The Partnership acquired its interest in LPLP for cash, and accordingly, no Purchase Money Notes were delivered in connection therewith. However, LPLP delivered purchase money notes in the original principal amount of $1,800,000 in connection with LPLP's acquisition of the housing project which it owns (the "LPLP Notes"). The LPLP Notes are secured by a pledge of LPLP's cash flow, and by a pledge by each of the partners in LPLP (including the Partnership) of its respective interest in LPLP. The LPLP Notes were issued on December 6, 1984, bear interest at the rate of 9% per annum and mature on December 11, 1999. The LPLP Notes permit interest to accrue to the extent that cash flow of LPLP is not sufficient to enable LPLP to pay interest on a current basis. The LPLP Notes do not require payment of any portion of the principal amount thereof prior to maturity (except that such notes require immediate payment following a default (as defined therein) by LPLP thereunder). As a result of such interest accrual and payment provisions, the LPLP Notes will require substantial balloon payments at maturity. As of December 31, 1996 the unpaid principal amount of and accrued and unpaid interest on the LPLP Notes equaled $2,707,748. In order for LPLP to pay at maturity the LPLP Notes, LPLP would most likely be required to sell or refinance its housing project in a transaction generating proceeds sufficient to repay the notes. There can be no assurance that LPLP will be able to successfully consummate any of such types of transactions. Accordingly, the LPLP Notes, while not technically Purchase Money Notes issued by the Partnership, will present the same issues to the Partnership as will the maturity of the Purchase Money Notes. In order to pay at maturity the Purchase Money Notes with respect to any particular Local Limited Partnership, the Partnership will most likely be required to (a) sell its interest in the Local Limited Partnership for a price equal to or greater than the amounts due under the associated notes (b) obtain financing in an amount sufficient to repay the notes or (c) cause the Local Limited Partnership to sell or refinance its housing project in a transaction sufficient to repay indebtedness encumbering the project and generate net proceeds to the Partnership sufficient to enable the Partnership to repay the notes. Alternatively, the Partnership could seek extension or modification of the payment terms of the Purchase Money Notes. The process of exploring and negotiating any of the foregoing alternatives will require substantial time, effort and resources. There can be no assurance that the Partnership will be able to successfully consummate any of such types of transactions. If Partnership funds are insufficient to pay when due the Purchase Money Notes, the holders of the Purchase Money Notes will have the right to foreclose on the Partnership's respective interests in the Local Limited Partnerships. The sale or other disposition by the Partnership of its interests in the Local Limited Partnerships, including in connection with such a foreclosure, is likely to result in recapture of previously claimed tax losses to the Partnership and may have other adverse tax consequences to the Partnership and to the Limited Partners. Such recapture may cause some or all of the Limited Partners to have taxable income from the Partnership without cash distributions from the Partnership with which to satisfy the tax liability resulting therefrom. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, continued The only sources of Partnership funds are (i) distributions from the Local Limited Partnerships (substantially all of which are presently required to be applied to payment of interest accruing on the Purchase Money Notes), (ii) payments to the Partnership of amounts due under certain promissory notes acquired by the Partnership from one of the Local Limited Partnerships (as hereinafter described) and (iii) Partnership reserves. At December 31, 1996, the Partnership's had reserves of $163,915 (in cash and cash equivalents), compared with $293,331 at December 31, 1995. Such reserves have partially funded the Partnership administrative expenses, including expense reimbursement to the Former Managing General Partner. Due to the assignment of the Former Managing General Partner's interest to the current Managing General Partner, the Partnership incurs certain administrative costs, including the partnership Management Fee, which are earned by or reimbursed to the current Managing General Partner. As discussed more fully in Note 6 to the financial statements, such administrative costs were $98,240 and $88,771 in 1996 and 1995, respectively. In connection with the assignment of the Former General Partners' interests to the current Managing General Partner, the Former Managing General Partner refunded to the Partnership certain amounts previously received from the Partnership as expense reimbursements. The amount refunded in respect of expenses accrued prior to January 1, 1995 has been recorded as a $3,202 contribution to the Partnership's capital by the Former Managing General Partner. During 1996, 1995 and 1994, distributable cash flow from the Local Limited Partnerships (LLP's) to which the Partnership delivered purchase money notes was distributed to the partnership, as follows: 1996: Seven LLP's - $288,086; 1995: Eight LLP's - $316, 819; and 1994: Eight LLP's - $298,385. On April 30, 1996, 1995, and 1994, the Partnership used such cash distributions to pay a portion of the accrued and unpaid interest on the related Purchase Money Notes. In 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership, one of the Local Limited Partnerships ("Linden Park"). Such notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership (in connection with the Partnership's acquisition of an interest in Linden Park). The Partnership purchased such notes, which had an outstanding principal amount of $173,803 plus accrued and unpaid interest of $49,692, as of the date of acquisition, for $58,000. The notes mature on December 11, 1999, and bear interest at 9% per annum, payable only to the extent of available cash from Linden Park's operations. During 1996, the Partnership received $35,410 of interest payments on such notes and accrued unpaid interest of $81,450. As of December 31, 1996, the outstanding balance of principal and accrued and unpaid interest receivable on these notes amounted to $255,253. 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Local Limited Partnerships. The liquidity of the Local Limited Partnerships in which the Partnership has invested is dependent on the ability of the respective Local Limited Partnerships, which own and operate government assisted multi-family rental housing complexes, to generate cash flow sufficient to fund operations and debt service and to maintain working capital reserves. Each of the Local Limited Partnerships is regulated by government agencies which require monthly funding of certain operating and capital improvements reserves and which regulate the amount of cash to be distributed to owners. Each Local Limited Partnership's source of funds is rental income received from tenants and government subsidies. Certain of the Local Limited Partnership's receive rental income pursuant to Section 8 rental assistance contracts which expire beginning in 1998 and continuing through 2000. Certain government programs are currently in place which may allow the Local Limited Partnerships to renew or extend this government subsidy. It is not certain whether these programs will be available at the time the existing Section 8 contracts expire. Each of the Local Limited Partnerships has incurred mortgage indebtedness as reflected in Item 8 in Schedule III - Real Estate and Accumulated Depreciation. The mortgage loans provide for equal monthly payments of principal and interest in amounts which will reduce the principal amount of the loans to zero at maturity. Each of the maturity dates of the respective mortgages is substantially beyond the due date of the Purchase Money Note obligations. Upon a sale of a property by a Local Limited Partnership the mortgage indebtedness of such property must be satisfied prior to distribution of any funds to the partners in the Local Limited Partnership. Partnership Operations The Partnership is engaged solely in the business of owning interests in the Local Limited Partnerships rather than the direct ownership of real estate. The Partnership's interest income reflects interest earned on reserves and interest net of discount amortization on the long term notes receivable. Total interest income increased to $61,407 in 1996 from $32,035 in 1995. The increase was principally attributible to interest payments received on the long-term note receivable ($35,410 in 1996 versus $2,919 in 1995.) Interest income was $36,118 in 1994. The decrease in 1995 over 1994 was mainly due to lower reserve balance during the year. The Partnership's interest expense increased to $1,904,536 in 1996 from $1,569,007 in 1995 and $1,138,651 in 1994. Such increases are attributable to the accrual of interest under the Purchase Money Notes. Refer to Note 7 to the Financial Statements. General and administrative expenses of the Partnership were $143, 556 in 1996, $121,353 in 1995 and $157,756 in 1994. In 1995, the Partnership was charged for less expense reimbursements by the Former Managing General Partner due to the assignment of its interest in the Partnership. Average occupancy levels at the projects owned by the Local Limited Partnerships ranged from 94% to 100% in 1996, and 89% to 100% in 1995 and 1994. 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Partnership Operations, continued The Partnership's equity in income (losses) from the Local Limited Partnerships was $24,678 in 1996, $94,133 in 1995 and ($86,319) in 1994. The recognition of income in 1995 and 1996 and decrease in equity in loss of Local Limited Partnership investments in 1994 is primarily attributable to the fact that the Partnership did not record losses for four Local Limited Partnerships because its related investment account in such partnerships had already been reduced to zero. In 1996, the Partnership did not record approximately $125,000 of net losses for four Local Limited Partnerships and was able to apply $55,714 of loss carry forwards against the current year net income of one Local Limited Partnership. In 1995 and 1994, approximately $256,000 and $259,000, respectively, of net losses were not recorded. The Partnership is not obligated to make additional capital contributions to fund the deficit in its capital accounts in any of the Local Limited Partnerships. Because of the above discussed factors, net loss increased to $1,962,007 in 1996 from $1,564,192 and $1,526,608 in 1995 and 1994, respectively. The operations of the Partnership and of each of the Local Limited Partnerships are subject to numerous risks, including material tax risks. See Item 1 above. 14 Item 8. Financial Statements and Supplementary Data LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) INDEX Page Financial Statements: Balance Sheets, December 31, 1996 and 1995 16-17 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 18 Statements of Changes in Partners' Deficit for the Years Ended December 31, 1996, 1995 and 1994 19 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 20 Notes to Financial Statements 21-30 Independent Auditors' Report 31 Report of Independent Accountants for the year ended December 31, 1994 32 Separate Financial Statements, including Reports of Independent Accountants, for Significant Subsidiaries: Fuquay-Varina Homes for the Elderly, Ltd. 33-62 Fiddlers Creek Apartments, Ltd. 63-93 Austintown Associates 94-127 Osuna Apartments Company 128-157 Financial Statement Schedules: Independent Auditors' Report 158 Schedule III - Real Estate and Accumulated Depreciation 159 All schedules other than those indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. 15 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS December 31, --------------------------- 1996 1995 ---- ---- Assets Current assets: Cash and cash equivalents $ 163,915 $ 293,331 Other current assets 31 108 ---------- ---------- Total current assets 163,946 293,439 Long-term notes and accrued interest receivable 127,668 111,850 Investments in local limited partnerships 2,295,189 2,559,088 ---------- ---------- $2,586,803 $2,964,377 ========== ========== (continued) The accompanying notes are an integral part of these financial statements. 16 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) BALANCE SHEETS (continued) December 31, ---------------------------- 1996 1995 ---- ---- Liabilities and Partners' Deficit Current liabilities: Accounts payable to affiliates $ 58,271 $ 88,771 Accounts payable 1,000 -- Accrued expense 15,600 15,650 Accrued interest payable 385,901 304,628 ------------ ------------ Total current liabilities 460,772 409,049 Purchase money notes 9,684,281 8,151,571 ------------ ------------ Total liabilities 10,145,053 8,560,620 ------------ ------------ Partners' deficit: General partners: Capital contributions 4,202 4,202 Accumulated losses (176,373) (156,753) ------------ ------------ (172,171) (152,551) ------------ ------------ Limited partners (21,576 Units in 1996 and in 1995): Capital contributions (net of offering costs of $1,134,440) 9,649,520 9,649,520 Accumulated losses (17,035,599) (15,093,212) ------------ ------------ (7,386,079) (5,443,692) ------------ ------------ Total partners' deficit (7,558,250) (5,596,243) ------------ ------------ Total liabilities and partners' deficit $ 2,586,803 $ 2,964,377 ============ ============ The accompanying notes are an integral part of these financial statements. 17 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF OPERATIONS For the Years Ended December 31, -------------------------------- 1996 1995 1994 ---- ---- ---- Interest income $ 61,407 $ 32,035 $ 36,118 Expenses: Interest expense 1,904,536 1,569,007 1,318,651 General and administrative expense 143,556 121,353 157,756 ----------- ----------- ----------- Total expenses 2,048,092 1,690,360 1,476,407 ----------- ----------- ----------- Loss before equity in income(loss) of local limited partnership investment (1,986,685) (1,658,325) (1,440,289) Equity in income (loss) of local limited partnership investment 24,678 94,133 (86,319) ----------- ----------- ----------- Net loss $(1,962,007) $(1,564,192) $(1,526,608) =========== =========== =========== Net loss per Limited Partnership Unit, based on 21,576 Units outstanding in 1996 and 1995 and 21,616 units outstanding in 1994 $ (90.02) $ (71.77) $ (69.92) =========== =========== =========== The accompanying notes are an integral part of these financial statements. 18 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the years ended December 31, 1996, 1995 and 1994 General Limited Partners Partners Total -------- -------- ----- Partners' deficit at December 31, 1993 $ (124,845) $(2,383,800) $(2,508,645) Net loss (15,266) (1,511,342) (1,526,608) ----------- ----------- ----------- Partners' deficit at December 31, 1994 $ (140,111) $(3,895,142) $(4,035,253) Net loss (15,642) (1,548,550) (1,564,192) Capital Contributed 3,202 -- 3,202 ----------- ----------- ----------- Partners' deficit at December 31, 1995 $ (152,551) $(5,443,692) $(5,596,243) Net loss (19,620) (1,942,387) (1,962,007) ----------- ----------- ----------- Partners' deficit at December 31, 1996 $ (172,171) $(7,386,079) $(7,558,250) =========== =========== =========== The accompanying notes are an integral part of these financial statements. 19 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) STATEMENTS OF CASH FLOWS For the Years Ended December 31 ----------------------------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Cash distributions from local limited partnerships $ 288,577 $ 316,819 $ 298,385 Interest payments on purchase money notes (290,554) (316,109) (298,885) Cash paid for Partnership administration expenses (173,106) (23,136) (310,340) Interest received 45,667 19,300 30,721 ----------- ----------- ----------- Net cash used in operating activities (129,416) (3,126) (280,119) ----------- ----------- ----------- Cash flows from financing activity: Contributions from former general partners -- 3,202 -- ----------- ----------- ----------- Net cash provided by financing activity -- 3,202 -- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (129,416) 76 (280,119) Cash and cash equivalents at: Beginning of period 293,331 293,255 573,374 ----------- ----------- ----------- End of period $ 163,915 $ 293,331 $ 293,255 =========== =========== =========== Reconciliation of net loss to net cash used in operating activities: Net loss $(1,962,007) $(1,564,192) $(1,526,608) Adjustments to reconcile net loss to net cash used in operating activities: Share of (income) losses of local limited partnership investments (24,678) (94,133) 86,319 Cash distributions from local limited partnerships 288,577 316,819 298,385 Interest expense added to purchase money notes, net of discount amortization 1,532,710 1,287,533 994,985 Interest income added to long-term notes receivable, net of discount amortization, and interest received (15,818) (14,607) (5,485) Decrease (increase) in other current assets 77 1,870 (539) (Decrease) increase in: Accrued interest payable 81,273 (34,635) 25,408 Accounts payable to affiliates (30,500) 82,569 (150,752) Accounts payable 1,000 -- (1,832) Accrued expenses (50) 15,650 -- ----------- ----------- ----------- Net cash used in operating activities $ (129,416) $ (3,126) $ (280,119) =========== =========== =========== The accompanying notes are an integral part of these financial statements. 20 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. Organization of Partnership Liberty Housing Partners Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on March 20, 1984 for the primary purpose of investing in other limited partnerships which own and operate government assisted multi-family rental housing complexes (the "Local Limited Partnerships"). The General Partners of the Partnership through December 27, 1995 were Liberty Real Estate Corporation, which served as the Managing General Partner, and LHP Associates Limited Partnership, which served as the Associate General Partner. On December 27, 1995, Liberty Real Estate Corporation and LHP Associates Limited Partnership withdrew from the Partnership and assigned and transferred all of their interests in the Partnership to the Successor General Partner, TNG Properties Inc., which was admitted to the Partnership as Successor General Partner. TNG Properties Inc. serves as the Managing General Partner. The Partnership Agreement authorized the sale of up to 30,010 units of Limited Partnership Interest ("Units") of which 21,616 were subscribed for and sold as of the completion of the offering on July 12, 1985. During fiscal 1995, the Partnership recorded as cancelled and no longer outstanding 40 units which were formally abandoned by the holders of such units. Pursuant to terms of the Partnership Agreement, Profits or Losses for Tax Purposes (other than from sales or refinancings) and Distributable Cash From Operations, both as defined in the Partnership Agreement, are allocated 99% to the Limited Partners and 1% to the General Partners. Different allocations of profits or losses and cash distributions resulting from other events are specified in the Partnership Agreement. 2. Significant Accounting Policies The Partnership records are maintained on the accrual basis of accounting. Investments in Local Limited Partnerships are accounted for by the equity method whereby costs to acquire the investments, including cash paid, notes issued and other costs of acquisition, are capitalized as part of the investment account. The Partnership's equity in the earnings or losses of each of the Local Limited Partnerships is reflected as an addition to or reduction of the respective investment account. The Partnership does not recognize losses which reduce its investment account below zero. Cash equivalents at December 31, 1996 and 1995, consist of a 16 day certificate of deposit with interest accruing at a rate of 4.3 percent and a 14 day certificate of deposit with interest accruing at a rate of 4.5 percent, respectively, and money market fund investments with no stated maturity, valued at cost, which approximates market value. Discounts on long-term purchase money notes are amortized over the terms of the related notes using the effective interest method. Discounts on long-term notes receivable are amortized 21 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 2. Significant Accounting Policies, continued over the term of the notes using the effective interest method. Net loss per Unit is based on the weighted average number of Units outstanding in the applicable year. Refer to Note 1 for information regarding profit and loss sharing ratios. No provision for income taxes has been made since the liability for such taxes is the obligation of the Partners rather than the Partnership. 3. Changes in Accounting Principles In 1996, the partnership adopted the Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No adjustment was required as a result of the adoption of SFAS No. 121. 4. Investments in Local Limited Partnerships The Partnership acquired Local Limited Partnership interests in thirteen Local Limited Partnerships which own and operate government assisted multi-family housing complexes. The Partnership, as Investor Limited Partner pursuant to Local Limited Partnership Agreements, acquired interests ranging from 94% to 98% in the profit or losses from operations and cash from operations of each of the Local Limited Partnerships. Twelve Local Limited Partnership interests were acquired from withdrawing partners of existing Local Limited Partnerships and one Local Limited Partnership interest was acquired from a newly formed Local Limited Partnership. In conjunction with the acquisition of eleven of the Local Limited Partnership interests from withdrawing partners, the Partnership issued long-term purchase money notes in the aggregate principal amount of $8,705,000, before discount, to such withdrawing partners. In conjunction with the acquisition of one of the Local Limited Partnership interests, the Local Limited Partnership issued purchase money notes to withdrawing partners amounting to $1,800,000 with the same terms as the purchase money notes issued by the Partnership in connection with its acquisition of interests in other Local Limited Partnerships. All of the Purchase Money Notes carry simple interest at 9% per annum. Interest is payable annually but only to the extent of cash distributed from the respective Local Limited Partnerships. Both principal and unpaid interest are due at maturity. Recourse on such purchase money notes is limited to the Partnership's respective Local Limited Partnership interests which are pledged as security on the notes. See Note 7 for further information on Purchase Money Notes. The following is a summary of cumulative activity for investments in Local Limited Partnerships since their dates of acquisition: 22 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued Years Ended December 31, ------------------------ 1996 1995 ---- ---- Total acquisition cost to the Partnership $ 9,356,379 $ 9,356,379 Additional capital contributed by the Partnership 11,425 11,425 Partnership's share of losses of Local Limited Partnerships (3,818,174) (3,842,845) Cash distributions received from Local Limited Partnerships (3,254,441) (2,965,871) ----------- ----------- Investments in Local Limited Partnerships $ 2,295,189 $ 2,559,088 =========== =========== Summarized financial information from the combined financial statements of all Local Limited Partnerships is as follows: Summarized Balance Sheets ------------------------- December 31, ------------ 1996 1995 ---- ---- Assets: Investment property, net of accumulated depreciation $ 17,379,631 $ 16,911,657 Current assets 2,637,472 2,847,206 Other assets 307,297 320,313 ------------ ------------ Total assets $ 20,324,400 $ 20,079,176 ============ ============ Liabilities and Partners' Equity (Deficit): Current liabilities $ 1,945,146 $ 970,055 Long-term debt, net of discounts 17,217,990 17,583,554 ------------ ------------ Total liabilities 19,163,136 18,553,609 Partnership's equity(deficit) 1,344,630 1,703,695 Other partners' equity(deficit) (183,366) (178,128) ------------ ------------ Total liabilities and partners' equity(deficit) $ 20,324,400 $ 20,079,176 ============ ============ 23 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued Summarized Statements of Operations ----------------------------------- For the Years Ended December 31, ------------------------------- 1996 1995 1994 ---- ---- ---- Rental and other income $ 5,199,572 $ 5,191,089 $ 5,051,090 Expenses: Operating expenses 3,298,651 3,185,215 3,340,402 Interest expense 954,170 1,242,398 1,111,356 Depreciation and amortization 991,323 922,690 951,056 ----------- ----------- ----------- Total expenses 5,244,144 5,350,303 5,402,814 ----------- ----------- ----------- Net loss $ (44,572) $ (159,214) $ (351,724) =========== =========== =========== Partnership's share of net loss $ (45,752) $ (161,616) $ (345,328) =========== =========== =========== Other partners' share of net income (loss) $ 1,180 $ 2,402 $ (6,396) =========== =========== =========== The difference between the Partnership's share of income (loss) in Local Limited Partnership investments in the Partnership's Statement of Operations for the years ended December 31, 1996 through 1994 and the share of loss in the above Summarized Statements of Operations consists of the Partnership's unrecorded share of losses as follows: 1996 1995 1994 ---- ---- ---- Share of income (loss) in Local Limited Partnership Investments in the Partnership's Statement of Operations $ 24,678 $ 94,133 $ (86,319) Partnership's share of income(loss) in the above summarized Statements of Operations (44,572) (161,616) (345,328) --------- --------- --------- Difference $ 69,250 $ 255,749 $ 259,009 ========= ========= ========= Unrecorded Losses: Linden Park (Prior year loss carry forward applied against 1996 net income) $ (55,714) $ 192,452 $ 119,871 Brierwood, Ltd. 36,982 16,115 44,188 Brierwood II, Ltd. 20,189 4,458 14,666 Pine Forest Apartments, Ltd. 39,870 42,724 80,284 Surry Manor 28,145 -- -- Other (222) -- -- --------- --------- --------- Total $ 69,250 $ 255,749 $ 259,009 ========= ========= ========= 24 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 4. Investments in Local Limited Partnerships, continued The Partnership's investment in Local Limited Partnerships reported in its Balance Sheet at December 31, 1996 and 1995 are, respectively, $950,559 and $855,393 greater than the Partnership's equity reported in the Summarized Balance Sheets above. This is related to the share of unrecorded losses of the five Local Limited Partnerships where the investment has been reduced to zero. The Partnership recorded its share of losses in Linden Park, Brierwood Ltd., Brierwood II, Ltd. Pine Forest Apartments, Ltd. and Surry Manor until its related investment was reduced to zero. Subsequent to that point, any cash distributions received from these five partnerships have been recognized as investment income rather than as a reduction in Investment in Local Limited Partnerships on the Partnership's Balance Sheet. The Partnership is not obligated to make additional capital contributions to fund the deficit in its capital accounts in these Local Limited Partnerships. 5. Long-term Notes and Interest Receivable During 1989, the Partnership purchased long-term purchase money notes of Linden Park Associates Limited Partnership ("Linden Park"), a Local Limited Partnership. The notes represent obligations of Linden Park to former partners whose partnership interests were purchased for resale to the Partnership in connection with the Partnership's acquisition of an interest in Linden Park. The Partnership purchased such notes, which carried a face value of $173,803 plus accrued and unpaid interest of $49,692, for $58,000. The notes mature on December 11, 1999 and bear interest at 9% per annum payable only from available cash from operations of Linden Park. During the year ended December 31, 1996 the Partnership received $35,410 of interest on such notes. Any interest that is unpaid prior to maturity is due at maturity. 6.Transactions with Affiliates During the years ended December 31, 1996, 1995 and 1994 the Partnership recognized general and administrative expenses owed to the current or predecessor Managing General Partner, as follows: 1996 1995 1994 ---- ---- ---- Reimbursement of Partnership administration expenses $48,240 $38,771 $59,211 Partnership management fees 50,000 50,000 50,000 As of December 31, 1996 and 1995, accounts payable to affiliates totaling $58,271 and $88,771 respectively, represents amounts owed for reimbursements of Partnership administration expenses of $7,771 and $38,771, respectively, and partnership management fees of $50,500 and $50,000, respectively. 25 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purchase Money Notes Long-term purchase money notes consist of the following at December 31: 1996 1995 ---- ---- Purchase Money Notes, due July 9, 2001, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Surry Manor, Ltd.: Original principal balance $ 360,000 $ 360,000 Accrued and unpaid interest 287,304 254,904 Purchase Money Notes, due August 29, 2000, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Glendale Manor Apartments: Original principal balance 450,000 450,000 Accrued and unpaid interest 134,981 132,680 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Oxford Homes for the Elderly, Ltd.: Original principal balance 643,600 643,600 Accrued and unpaid interest 182,165 159,241 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Williamston Homes for the Elderly, Ltd.: Original principal balance 664,100 664,100 Accrued and unpaid interest 44,295 30,892 26 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purhase Money Notes (Continued) 1996 1995 ------ ----- Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fuquay-Varina Homes for the Elderly, Ltd.: Original principal balance 707,300 707,300 Accrued and unpaid interest 45,907 51,449 Purchase Money Notes, due September 28, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Fiddlers Creek Apartments: Original principal balance 1,750,000 1,750,000 Accrued and unpaid interest 1,076,436 1,067,442 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Meadowwood, Ltd.: Original principal balance 610,000 610,000 Accrued and unpaid interest 651,185 596,285 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Brierwood, Ltd.: Original principal balance 270,000 270,000 Accrued and unpaid interest 280,362 256,062 Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Pine Forest Apartments, Ltd.: Original principal balance 350,000 350,000 Accrued and unpaid interest 352,340 320,840 27 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS 7. Long-term Purhase Money Notes (Continued) 1996 1995 ----- ----- Purchase Money Notes, due October 30, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Austintown Associates: Original principal balance 1,600,000 1,600,000 Accrued and unpaid interest 1,622,822 1,503,918 Purchase Money Notes, due November 27, 1999, bearing interest at 9% per annum, collateralized by the Partnership's Local Limited Partnership interest in Osuna Apartments Company: Original principal balance 1,300,000 1,300,000 Accrued and unpaid interest 1,303,637 1,195,738 ----------- ----------- Total principal and accrued and unpaid interest at 9% at December 31 14,686,434 14,274,451 Aggregate discount on the above purchase money notes plus accrued interest (based upon average imputed interest rates of 19%) (5,002,153) (6,122,880) ----------- ----------- Long-term purchase money note liability $ 9,684,281 $ 8,151,571 =========== =========== The purchase money notes were originally discounted using an imputed interest rate of approximately 19% and assuming a certain level of cash flow from distributions from the underlying Local Limited Partnerships ("distributions"). Since 1990, on an annual basis, the Partnership has reviewed the estimated annual level of distributions expected to be received based on historical and re-forecasted future distributions and adjusted accordingly the future effective annual interest expense. The effective annual interest rate as of December 31, 1996 is approximately 21%. All of the purchase money notes and accrued interest thereon may be repaid without penalty prior to maturity. However, it is not anticipated that any principal payments will be made prior to maturity and therefore the principal balances are classified as long-term. The portion of interest which is expected to be paid currently is classified as a current liability and the portion of interest which is not expected to be paid until maturity has been reflected as interest added to purchase money note debt. 28 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 8. Reconciliation of Loss in Financial Statements to Loss for Federal Income Tax Purposes A reconciliation of the loss reported in the Statements of Operations for the years ended December 31, 1996, 1995 and 1994, to the loss reported for Federal income tax purposes is as follows: 1996 1995 1994 ---- ---- ---- Net loss per Statements of Operations $(1,962,007) $(1,564,192) $(1,526,608) Less: Excess of tax equity over book equity in loss of Local Limited Partnership (746,209) (835,209) (1,019,519) Add: Additional book basis interest 1,033,449 728,881 520,283 Expenses not deducted pursuant to I.R.C Section 267 (30,500) 88,771 -- ----------- ----------- ----------- Net loss for Federal income tax purposes $(1,705,267) $(1,581,749) $(2,025,844) =========== =========== =========== 9. Disclosure About Fair Value of Financial Instruments Long Term Notes Receivable Management does not believe it is practical to estimate the fair value of the notes receivable because notes with similar terms and provisions are not available to the partnership. Purchase Money Mortgages Payable Management does not believe it is practical to determine the fair value of the Purchase Money Notes payable because notes with similar terms and provisions are not currently available to the partnership. 10. Concentration of Credit Risk The partnership maintains its cash and cash equivalents in one financial institution. The balances are insured by the Federal Deposit Insurance Corporation up to $100,000 by this bank. As of December 31, 1996, the uninsured portion of the cash and cash equivalents balances held at this institution was $63,915. 29 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 11. Statement of Distributable Cash from Operations (Unaudited) Distributable Cash From Operations for the year ended December 31, 1996, as defined in Section 17 of the Partnership Agreement, is as follows: Interest income per Statement of Operations $ 61,407 Less: Interest income added to long-term notes receivable, net of discount amortization (15,818) Plus: 1996 cash distributions to be received from Local Limited Partnerships 371,992 Less: 1996 interest payments on purchase money notes to be paid out of 1996 cash distributions from Local Limited Partnerships (371,992) General and administrative expenses per Statement of Operations (143,556) --------- Cash from Operations, as defined (97,967) --------- Distributable Cash from Operations, as defined $ -- ========= 30 INDEPENDENT AUDITORS' REPORT To the Partners Liberty Housing Partners Limited Partnership We have audited the accompanying balance sheets of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in 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. The financial statements of Liberty Housing Partners Limited Partnership as of and for the year ended December 31, 1994 were audited by other auditors whose report, dated February 24, 1995, expressed an unqualified opinion on those statements. 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 1996 and 1995 financial statements referred to above present fairly, in all material respects, the financial position of Liberty Housing Partners Limited Partnership as of December 31, 1996 and 1995, and the results of its operations and its cash flow for the years then ended in conformity with general accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 18, 1997 31 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) We have audited the accompanying statements of operations, change in partners' deficit and cash flows of Liberty Housing Partners Limited Partnership (a Massachusetts Limited Partnership) for the year ended December 31, 1994. 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 results of operations and cash flows of Liberty Housing Partners Limited partnership for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Boston, Massachusetts February 24, 1995 32 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) INDEPENDENT AUDITORS' REPORTS FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION DECEMBER 31, 1996 33 C O N T E N T S Page Certificate of Partners 3 Management Agent's Certification 4 Independent Auditors' Report 5 Auditor Information 6 Financial Statements: Balance sheet 7 Statement of partners' equity 8 Statement of profit and loss 9-10 Statement of cash flows 11-12 Summary of accounting policies 13 Notes to financial statements 14-16 Supplemental Information: 17-22 Independent Auditors' Report on the Internal Control Structure 23-24 Independent Auditors' Report on Compliance Based on an Audit of Financial Statements 25 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major HUD Programs 26 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Programs 27 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing 28 Schedule of Findings and Questioned Costs 29 Auditors' Comments on Audit Resolution Matters Relating to the HUD Programs 30 34 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996 CERTIFICATE OF PARTNERS We hereby certify that we have examined the accompanying financial statements of Fuquay- Varina Homes for the Elderly, Ltd. and, to the best of our knowledge and belief, the same are complete and accurate. GENERAL PARTNERS /s/ Billy P. Shadrick 2/18/97 Billy P. Shadrick Date Liberty LGP Limited Partnership Michael Stoller Date Partnership Employer Identification Number: 56-1449307 35 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996 MANAGEMENT AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental information of Fuquay-Varina Homes for the Elderly, Ltd. and, to the best of my knowledge and belief, the same are complete and accurate. /s/ Billy P. Shadrick Billy P. Shadrick President, Triple S Management, Inc. 2/18/97 Date 36 Independent Auditors' Report January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the accompanying balance sheet of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership) as of December 31, 1996, and the related statements of profit and loss, 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 Fuquay-Varina Homes for the Elderly, Ltd. as of December 31, 1996, and the results of its operations 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 a report dated January 17, 1997 on our consideration of Fuquay-Varina Homes for the Elderly, Ltd. 's internal control structure and a report dated January 17, 1997, on its compliance with laws and regulations. The supplemental information on pages 17-22 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Fuquay-Varina Homes for the Elderly, Ltd. 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. SHARRARD, McGEE & CO., P.A. 37 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) December 31, 1996 AUDITOR INFORMATION January 17, 1997 The Audit Partner on this engagement was Carroll L. Royster, 1813 North Main Street, P.O. Box 5869, High Point, North Carolina 27262, (910)884-0410. Sharrard, McGee & Co., P.A.'s federal employer identification number is 56-1146197. SHARRARD, McGEE & CO., P.A. 38 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) BALANCE SHEET December 31, 1996 ASSETS CURRENT ASSETS: 1110 Petty cash $ 250 1120 Cash in bank 71 158 1140 Accounts receivable - other 11 243 1144 Accounts receivable - HAP 495 $ 83 146 ----------- DEPOSITS HELD IN TRUST - FUNDED: 1191 Tenant security deposits (contra) 9 085 RESTRICTED DEPOSITS AND FUNDED RESERVES: 1310 Mortgage escrow deposits 14 667 1320 Reserve for replacements 25 043 39 710 ------------ PROPERTY, BUILDINGS, AND EQUIPMENT - AT COST (Note 3): 1410 Land 72 396 1411 Land improvements 6 880 1420 Buildings 1 335 745 1430 Building equipment - portable 38 826 1450 Furniture for project administrative use 1 155 1460 Furnishings 26 566 1470 Maintenance equipment 5 769 1492 Computer equipment 3 829 ------------ 1 491 166 4100 Less accumulated depreciation 603 240 887 926 ------------ OTHER ASSETS: 1902 Loan costs, net of accumulated amortization 20 421 ------------- $ 1 040 288 ============= LIABILITIES AND PARTNERS' EQUITY CURRENT LIABILITIES: 2110 Accounts payable - trade $ 2 563 2112 Accounts payable - Triple S Management, Inc. (Note 4) 1 841 2114 Accounts payable - surplus cash (Note 4) 4 000 2130 Accrued interest payable 4 563 2320 Mortgage payable - current maturities (Note 3) 13 986 $ 26 953 ------------ DEPOSIT AND PREPAYMENT LIABILITIES: 2191 Tenant security deposits (contra) 8 653 LONG-TERM LIABILITIES: 2320 Mortgage payable (Note 3) 730 143 Less current maturities 13 986 716 157 ------------ PARTNERS' EQUITY 288 525 ---------- $ 1 040 288 =========== See accompanying summary of accounting policies and notes to financial statements. 39 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) STATEMENT OF PARTNERS' EQUITY For the Year Ended December 31, 1996 Associate Investor Limited General Local General Total (100%) Partner (98%) Partner (1%) Partner (1%) -------------------- -------------------- -------------------- ----------------- Balance at beginning of year $ 293 964 $ 302 874 $ (4 455) $ (4 455) Net income for the year 44 685 43 791 447 447 Withdrawals by partners (50 124) (49 122) (501) (501) ------------------- ------------------- ------------------- ------------- Balance at end of year $ 288 525 $ 297 543 $ (4 509) $ (4 509) =================== =================== =================== ============= See accompanying summary of accounting policies and notes to financial statements. 40 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052(Exp. 1/31/95) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses. For Month/Period Ending: Project Project Name: FUQUAY- Beginning Number: VARINA HOMES FOR THE JANUARY 1, 1996 DECEMBER 31, 1996 053-35198-PM-WAH-L8 ELDERLY, LTD. Part I Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 82,591 Tenant Assistant Payments 5121 $ 208,223 Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $290,814 Vacancies 5200 Apartments 5220 $ (1,057) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies (1,057) Net Rental Revenue Rent Revenue Less Vacancies $289,757 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 1,870 Income from Investments--Residual Receipts 5430 $ Income from Investments--Reserve for Replacement 5440 $ 777 Income from Investments--Miscellaneous 5490 Total Financial Revenue $ 2,647 Other Revenue 5900 Laundry and Vending 5910 $ 1,397 NSF and Late Charges 5920 $ 28 Damages and Cleaning Fees 5930 $ 54 Forfeited Tenant Security Deposits 5940 $ Other Revenue (specify) 5990 $ Total Other Revenue $ 1,479 Total Revenue $293,883 Administrative Expenses Advertising 6210 $ 6200/6300 Other Administrative Expense 6250 $ 2,840 Office Salaries 6310 $ 2,891 Office Supplies 6311 $ 3,596 Office or Model Apartment Rent 6312 $ Management 6320 $ 20,376 Manager or Superintendent Salaries 6330 $ 22,948 Manager or Superintendent Rent Free Unit 6331 $ Legal Expenses (Project) 6340 $ Auditing Expenses (Project) 6350 $ 4,000 Bookkeeping Fees/Accounting Services 6351 $ 1,800 Telephone and Answering Service 6360 $ 955 Bad Debts 6370 Miscellaneous Administrative Expenses (specify) 6390 $ Total Administrative Expenses $ 59,406 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 4,249 Water 6451 $ 2,470 Gas 6452 $ Sewer 6453 $ 3,248 Total Utilities Expense $ 9,967 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. See accompanying summary of accounting policies and notes to financial statements. 41 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. 053-35198-PM-WAH-L8 Operating and Janitor and Cleaning Payroll 6510 $ Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 1,425 6500 Janitor and Cleaning Contract 6517 $ Exterminating Payroll/Contract 6519 $ 850 Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 2,488 Security Payroll/Contract 6530 $ Grounds Payroll 6535 $ Grounds Supplies 6536 $ 1,207 Grounds Contract 6537 $ 950 Repairs Payroll 6540 $ 17,770 Repairs Material 6541 $ 4,567 Repairs Contract 6542 $ 1,591 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ Swimming Pool Maintenance/Contract 6547 $ Snow Removal 6548 $ Decorating Payroll/Contract 6560 $ 2,000 Decorating supplies 6561 $ 2,393 Other 6570 $ 673 Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $ 35,914 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 15,210 Payroll Taxes (FICA) 6711 $ 3,227 Miscellaneous Taxes, Licenses and Permits 6719 $ Property and Liability Insurance (Hazard) 6720 $ 7,009 Fidelity Bond Insurance 6721 $ Workmen's Compensation 6722 $ 1,474 Health Insurance and Other Employee Benefits 6723 $ 3,985 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ 30,905 Financial Expenses 6800 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 55,213 Interest on Notes Payable (Long-Term) 6830 $ Interest on Notes Payable (Short-Term) 6840 $ Mortgage Insurance Premium/Service Charge 6850 $ 3,681 Miscellaneous Financial Expenses 6890 $ Total Financial Expenses $ 58,894 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $195,086 Profit (Loss) Before Depreciation $ 98,797 Depreciation (Total)--6600 (specify) 6600 $ 49,130 Operating Profit or (Loss) $ 49,667 Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) Admin. Fee - 4,000 7190 $ 4,982 Total Corporate Expenses Amortization 982 $ 4,982 Net Profit or (Loss) $ 44,685 Warning: HUD will prosecute false claims and statements. Conviction may result lin criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other income and expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 12,978 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 10,057 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ 2,500 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ 0 See accompanying summary of accounting policies and notes to financial statements. 42 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) STATEMENT OF CASH FLOWS For the Year Ended December 31, 1996 Cash flows from operating activities: Rental receipts $ 289 197 Interest receipts 2 647 Other receipts 1 479 ------------ 293 323 Administrative $ (11 391) Management fees (20 352) Accounting fees (1 800) Operating and maintenance (19 341) Real estate taxes (15 210) Tenant security deposits (164) Salaries and wages (43 609) Miscellaneous taxes (3 227) Insurance (12 468) Utilities (9 967) Interest on mortgage note (55 295) Mortgage insurance (3 681) (196 505) ------------ ------------ Net cash provided by operating activities 96 818 Cash flows from investing activities: Purchase of property and equipment (13 532) Reserve for replacements - deposits (10 834) Reserve for replacements - withdrawals 2 884 Mortgage escrow deposits (969) ------------ Net cash used in investing activities (22 451) Cash flows from financing activities: Partnership administrative fee (4 000) Mortgage principal payments (12 978) Withdrawals by partners (50 124) ------------ Net cash used in financing activities (67 102) ------------ Net increase in cash 7 265 Cash at beginning of year 64 143 ------------ Cash at end of year $ 71 408 ============ See accompanying summary of accounting policies and notes to financial statements. 43 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) STATEMENT OF CASH FLOWS For the Year Ended December 31, 1996 (Continued) Reconciliation of net income to net cash provided by operating activities: Net income $ 44 685 --------- Nonoperating expense included in determining net income 4 000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation $ 49 130 Amortization 982 50 112 ----------- Decrease (increase) in assets: Accounts receivable (495) Tenant security deposits (1 307) (1 802) ----------- Increase (decrease) in liabilities: Accounts payable (1 173) Accrued interest (82) Tenant security deposits 1 143 Prepaid rents (65) (177) ----------- -------- Total adjustments 52 133 -------- Net cash provided by operating activities $ 96 818 ======== See accompanying summary of accounting policies and notes to financial statements. 44 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUMMARY OF ACCOUNTING POLICIES MANAGEMENT ESTIMATES The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS For purposes of the Statement of Cash Flows, the Company considers all investments purchased with a maturity of three months or less to be cash equivalents. BASIS OF REPORTING This report does not give effect to any assets that the partners may have outside their interests in the Partnership nor to any personal obligations, including income taxes, of the partners. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives using the straight-line method. INCOME TAXES No provision for income taxes has been included in these financial statements since the tax gains and losses pass through to and are reportable by the partners on their respective income tax returns. Taxable income or loss reported by the partners will differ from income or loss reflected in the financial statements, due to the different bases in certain assets (primarily property, buildings, and equipment) for financial reporting and income tax purposes. AMORTIZATION Loan costs are amortized by using the straight-line method over the life of the mortgage loan. 45 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION The Partnership was organized as a North Carolina limited partnership on February 28, 1977 to construct, own, and operate a 60-unit garden apartment project located in Fuquay-Varina, North Carolina, known as Fuquay-Varina Homes for the Elderly, Ltd., under Section 221(d)(4) of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The Regulatory Agreement limits distributions of net operating receipts to "surplus cash" available at the end of semi-annual periods. On September 30, 1984, pursuant to an Amended and Restated Certificate of Limited Partnership dated as of that date, partners' ownership interests amounting to 99% of the existing partners' interests were transferred by the original partners to two new partners. As a result of the transfer of ownership interests, the Partnership, as of September 30, 1984, retained one of the original general partners as a local general partner, admitted a new general partner as associate general partner, and admitted a sole investor limited partner. After the aforementioned transfer, the Amended and Restated Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner, and 98% to the investor limited partner. In the case of certain events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property), the allocation may be different than that described above for profits and losses from operations. NOTE 2 - CONCENTRATION OF CREDIT RISK The Partnership's policy is to maintain its cash balances in reputable financial institutions insured by the Federal Deposit Insurance Corporation which provides $100,000 of insurance coverage on each customer's cash balances. NOTE 3 - MORTGAGE PAYABLE The mortgage, originally in the amount of $863,400, is payable in monthly installments of $5,689, including interest at 7.5% per annum. The final payment is due in August 2018. The loan is secured by land and buildings and is insured by the Federal Housing Administration. Neither the Partnership nor any of the partners assume liability in the event of default. The maturities of this debt are as follows: 1997 $ 13 986 1998 15 072 1999 16 242 2000 17 503 2001 18 862 2002 and after 648 478 -------------- $ 730 143 ============== 46 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4 - RELATED PARTY TRANSACTIONS/IDENTITY OF INTEREST A - Management of Project: The Partnership contracted with Triple S Management, Inc. to manage the project. The contract calls for a management fee of 7% of gross revenue collections plus accounting fees of $2.50 per housing unit per month. Management and accounting fees are analyzed as follows: Charged to Unpaid at Operations Unpaid at January 1, During December 31, 1996 1996 1996 ------------- ------------ ----------- Management fees $ 1 667 $ 20 376 $ 1 691 Accounting fees 150 1 800 150 ---------- ---------- ---------- $ 1 817 $ 22 176 $ 1 841 ========== ========== ========== B - Partnership Administrative Fee: For its services in overseeing the operations of the Partnership, the Partnership has agreed to pay its associate general partner a fee of $4,000 per annum. The Partnership administrative fee is payable from "surplus cash" as defined by HUD regulations. C - Other: During 1996, the Partnership also paid Triple S Management, Inc. $2,891 for an occupancy specialist. NOTE 5 - DISTRIBUTION The Partnership customarily makes a cash distribution of the maximum amount permitted by its Regulatory Agreement and other such restrictions under which it operates. In keeping with this custom, $50,124, including a Partnership administrative fee of $4,000, was distributed in the first quarter of 1996, and it is anticipated that $74,611 will be distributed in the first quarter of 1997. NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure About Fair Value of Financial Instruments" (SFAS 107), requires disclosure of fair value information about financial instruments, whether or not recognized on the balance sheet, for which it is practicable to estimate that value. Such instruments include cash and cash equivalents and long-term debt. 47 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) Cash and Cash Equivalents: The carrying amount approximates fair value due to the short-term nature of these instruments. Long-Term Debt: The fair value of long-term debt is based on current rates at which the company could borrow funds with similar remaining maturities. The carrying amounts and estimated fair values of Fuquay-Varina Homes for the Elderly, Ltd.'s financial instruments as of December 31, 1996 are as follows: Carrying Fair Value -------- ---------- Financial assets: Cash and cash equivalents $ 71 408 $ 71 408 =============== ============= Financial liabilities: Long-term debt $ 730 143 $ 730 143 =============== ============= 48 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 ACCOUNTS AND NOTES RECEIVABLE (OTHER THAN FROM REGULAR TENANTS) Name of Original Balance Debtor Date Terms Amount Due ---------- ------ ---------- --------- ----- None DELINQUENT TENANT ACCOUNTS RECEIVABLE Number of Tenants Amount --------- -------- Current Delinquent 30 days Delinquent 31-60 days NONE Delinquent 61-90 days Delinquent over 90 days MORTGAGE ESCROW DEPOSITS Estimated amounts required as of December 31, 1996 for future payment of: City and county property taxes $ 1 254 Property insurance 7 009 Mortgage insurance 3 681 ------------ 11 944 Total confirmed by mortgagee 14 667 ------------ Amount on deposit in excess of estimated requirements $ 2 723 ============ TENANT SECURITY DEPOSITS Tenant security deposits are held in a separate bank account(s) in the name of the project. (See Schedule of Funds in Financial Institutions for identification of these bank accounts.) 49 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued) RESERVE FOR REPLACEMENTS In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgagee to be used for replacement of property with the approval of HUD as follows: Balance at beginning of year $ 28 336 Monthly deposits: 8 @ $827.00 $ 6 616 1 @ $903.00 903 3 @ $846.00 2 538 10 057 ------------ Interest 777 Withdrawals: Approval Purpose of Authorized By Date Withdrawal HUD 11/21/95 Refrigerators $ (2 684) USCI, Inc. Various Investment service charge (200) HUD 12/24/96 Appliances, computer equipment and comprehensive needs assessment (11 243) (14 127) ---------- ------- Balance at end of year confirmed by mortgagee $ 25 043 ======== The mortgagee charged a fee of $200 for investing the reserve for replacements fund. ACCOUNTS PAYABLE (OTHER THAN TRADE CREDITORS) Payable within 30 days None ACCRUED TAXES (ACCOUNT 2150) Description Basis for Period Date Amount of Tax Accrual Covered Due Accrued ----------- ---------- ------- ---- -------- None COMPENSATION OF PARTNERS (FROM RENTAL INCOME) None UNAUTHORIZED DISTRIBUTION OF PROJECT INCOME TO PARTNERS None 50 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued) CHANGES IN PROPERTY, BUILDINGS, AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1996 Cost Accumulated Depreciation --------------------------------------------------- -------------------------------------------------- Balance Balance Balance Balance January 1, December January 1, Current December 1996 Additions Deletions 31, 1996 1996 Provisions Deletions 31, 1996 ------ --------- --------- ---------- ------ ---------- --------- -------- ASSETS Land $ 72 396 $ 72 396 Land improvements 6 880 6 880 $ 3 361 $ 689 $ 4 050 Buildings 1 335 745 1 335 745 500 342 44 550 544 892 Building equipment - portable 36 869 $ 7 866 $ 5 909 38 826 28 272 1 751 $ 5 909 24 114 Furniture for project administrative use 1 155 1 155 745 100 845 Computer equipment 3 829 3 829 558 558 Furnishings 26 566 26 566 26 499 67 26 566 Maintenance equipment 4 273 1 837 341 5 769 1 141 1 415 341 2 215 ---------- --------- ------- ---------- ---------- ---------- --------- ---------- $1 483 884 $ 13 532 $ 6 250 $1 491 166 $ 560 360 $ 49 130 $ 6 250 $ 603 240 ========== ========= ======= ========== ========== ========== ========= ========== NOTE: Additions to fixed assets were: Dispositions of fixed assets included: Item Cost Item Cost ----------------- ---------- --------------- ----------- 1 Storage Cabinet $ 1 030 1 Edger $ 341 1 Edger 383 11 Refrigerators 3 095 1 Blower 424 10 Ranges 2 814 ---------- 11 Refrigerators 4 929 $ 6 250 ========== 10 Ranges 2 937 Computer equipment 3 829 ---------- $ 13 532 ========== 51 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued) SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS AS OF DECEMBER 31, 1996 A. Funds Held by Mortgagor - Regular Operating Account 1. Lexington State Bank, Lexington, NC 1 a. Fuquay-Varina Homes for the Elderly Rental Trust Account $ 66 338 b. Fuquay-Varina Homes for the Elderly Rental Trust Account 3 120 2. The Fidelity Bank, Fuquay-Varina, NC 2 a. Fuquay-Varina Homes for the Elderly Rental Account 1 700 b. Fuquay-Varina Homes for the Elderly Petty Cash Account 250 ---------- Operating Accounts - Subtotal 71 408 ---------- B. Funds Held by Mortgagor in Trust - Tenant Security Deposit 1. Lexington State Bank, Lexington, NC 1 a. Fuquay-Varina Homes for the Elderly Security Deposit - Trust Account - Interest Bearing 6 859 2. The Fidelity Bank, Fuquay-Varina, NC 2 a. Fuquay-Varina Homes for the Elderly Security Account/Trust Account - Noninterest Bearing 2 226 ---------- Tenant Security Deposit Accounts - Subtotal 9 085 ---------- Funds Held By Mortgagor - Total 80 493 ---------- C. Funds Held By Mortgagee in Trust 3 1. Tax and Insurance Escrow a. Bankers' Trust of New York - Demand Deposit 14 667 2. Reserve Fund for Replacements a. Bankers' Trust of New York - Money Market 25 043 ---------- Funds Held by Mortgagee - Total 39 710 ---------- Total Funds in Financial Institutions $ 120 203 ========== 1 Balances Confirmed by Lexington State Bank - January 13, 1997 2 Balances Confirmed by The Fidelity Bank - January 2, 1997 3 Balances Confirmed by Reilly Mortgage Associates, L.P. - January 21, 1997 52 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD PROJECT NO. 053-35198-PM-WAH-L8 (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 (Continued) LISTING OF IDENTITY OF INTEREST COMPANIES AND ACTIVITIES DOING BUSINESS WITH OWNER/AGENT DURING THE YEAR ENDED DECEMBER 31, 1996: Company Name Type of Service Amount Paid ------------ --------------- ----------- Triple S Management, Inc. Management and accounting service $ 22 176 ========== Liberty LGP Limited Partnership Partnership administrative fee $ 4 000 ========== Triple S Management, Inc. Occupancy specialist $ 2 891 ========== 53 COMPUTATION OF SURPLUS CASH, U.S. DEPARTMENT OF HOUSING DISTRIBUTIONS AND RESIDUAL AND URBAN DEVELOPMENT RECEIPTS OFFICE OF HOUSING COMMISSIONER PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD 12/31/96 053-35198-PM-WAH-L8 PART A - COMPUTE SURPLUS CASH Cash 1. Cash (Accounts 1110,1120,1191,1192) $80,493 2. Tenant subsidiary vouchers due for period covered by financial statement $ 495 3. Other (describe) RESERVE REPLACEMENT $11,243 (a) Total Cash (Add Lines 1, 2, and 3) $92,231 Current Obligations 4. Accrued mortgage interest payable $ 4,563 5. Delinquent mortgage principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $ 4,404 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued expenses (not escrowed) $ 11. Prepaid Rents (Account 2210) $ 12. Tenant security deposits liability (Account 2191) $ 8,653 13. Other (Describe) Excess Income $ (b) Less Total Current Obligations (Add Lines 4 through 13) $17,620 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $74,611 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $74,611 Limited Dividend Projects 2a. Distribution Earned During Fiscal Period Covered by the Statement $ 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ 2c. Distributions Paid During Fiscal Period Covered by Statement $ 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $ 4. Amount Available for Distribution During Next Fiscal Period $74,611 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ 0 PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE 54 Independent Auditors' Report on the Internal Control Structure January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. We have also audited Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with requirements applicable to major HUD-assisted programs and have issued our reports thereon dated January 17, 1997. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General in July, 1993. Those standards and the Guide 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 Fuquay-Varina Homes for the Elderly, Ltd. complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Fuquay-Varina Homes for the Elderly, Ltd. is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that effectiveness of the design and operation of policies and procedures may deteriorate. 55 (Continued) In planning and performing our audit, we obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had 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 financial statements of Fuquay-Varina Homes for the Elderly, Ltd. and on its compliance with specific requirements applicable to its major HUD-assisted programs and to report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to Fuquay-Varina Homes for the Elderly, Ltd. 's major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control structure policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure policies and procedures used in administering HUD- assisted programs would not necessarily disclose all matters in the internal control structure that might constitute 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 structure elements does not reduce to a relatively low level the risk that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operations that we consider to be material weaknesses as defined above. This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. SHARRAD, McGEE & CO. P.A. 56 Independent Auditors' Report on Compliance Based on an Audit of Financial Statements January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. 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 Fuquay-Varina Homes for the Elderly, Ltd. is the responsibility of Fuquay-Varina Homes for the Elderly, Ltd. 's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with certain provisions of laws, regulations, and contracts. 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 for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. SHARRAD, McGEE & CO. P.A. 57 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Major HUD Programs January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. In addition, we have audited Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with specific program requirements governing Management, Maintenance and Replacement Reserve; Federal Financial Reports; Application, Eligibility, and Reexamination of Tenants; Security Deposits; Mortgage Status; Cash Receipts and Disbursements; and Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of Fuquay-Varina Homes for the Elderly, Ltd. is responsible for compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General in July, 1993. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, Fuquay-Varina Homes for the Elderly, Ltd. complied, in all material respects, with the requirements described above that are applicable to each of its major HUD-assisted programs for the year ended December 31, 1996. This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. SHARRAD, McGEE & CO. P.A. 58 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Programs January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. In connection with our audit of the 1996 financial statements of Fuquay-Varina Homes for the Elderly, Ltd. and with our consideration of Fuquay-Varina Homes for the Elderly, Ltd. 's internal control structure used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development in July, 1993, we selected certain transactions applicable to certain nonmajor HUD-assisted programs for the year ended December 31, 1996. As required by the Guide, we performed auditing procedures to test compliance with the requirements governing Federal Financial Reports; Management, Maintenance, and Replacement Reserve; Application, Eligibility, and Reexamination of Tenants; and Security Deposits that are applicable to those transactions. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with these 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 partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. SHARRAD, McGEE & CO. P.A. 59 Independent Auditors' Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing January 17, 1997 To the Partners Fuquay-Varina Homes for the Elderly, Ltd. We have audited the financial statements of Fuquay-Varina Homes for the Elderly, Ltd. , HUD Project No. 053-35198-PM-WAH-L8 (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 17, 1997. We have applied procedures to test Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996. Our procedures were limited to the applicable compliance requirements described in the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of Inspector General in July, 1993. Our procedures were substantially less in scope than an audit, the objective of which would be the expression of an opinion on Fuquay-Varina Homes for the Elderly, Ltd. 's compliance with the Affirmative Fair Housing 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 partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. SHARRAD, McGEE & CO. P.A. 60 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD Project No. 053-35198-PM-WAH-L8 (A Limited Partnership) SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 1996 NONE 61 FUQUAY-VARINA HOMES FOR THE ELDERLY, LTD. HUD Project No. 053-35198-PM-WAH-L8 (A Limited Partnership) AUDITORS' COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO THE HUD PROGRAMS For the Year Ended December 31, 1996 We performed a review of findings, if any, from previous HUD required annual audits, HUD-OIG audits, or HUD management reviews and determined that no significant findings remained uncorrected at the time of our review. 62 FIDDLERS CREEK APARTMENTS, LTD HUD PROJECT NO. 053-35163-PM (A Limited Partnership) INDEPENDENT AUDITORS' REPORTS FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION December 31, 1996 63 TABLE OF CONTENTS Page CERTIFICATE OF PARTNERS 1 MANAGEMENT AGENT'S CERTIFICATION 2 INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION 3 - 4 FINANCIAL STATEMENTS BALANCE SHEET 5 STATEMENT OF PARTNERS' EQUITY 6 STATEMENT OF PROFIT AND LOSS 7 - 8 STATEMENT OF CASH FLOWS 9 - 10 NOTES TO FINANCIAL STATEMENTS 11 - 14 SUPPLEMENTAL INFORMATION 15 - 21 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE 22 - 23 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS 24 SCHEDULE OF FINDINGS AND QUESTIONED COSTS 26 - 28 AUDITORS' COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO THE HUD PROGRAMS 29 64 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) December 31, 1996 CERTIFICATE OF PARTNERS We hereby certify that we have examined the accompanying financial statements and supplemental information of Fiddlers Creek Apartments, Ltd. and, to the best of our knowledge and belief, the same is complete and accurate. GENERAL PARTNERS /s/Bob R. Badgett 2-7-97 ---------------------------------------- Bob R. Badgett Date ---------------------------------------- Date Liberty LGP Limited Partnership Partnership Employer Identification Number: 56-1449286 65 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) December 31, 1996 MANAGEMENT AGENT'S CERTIFICATION I hereby certify that I have examined the accompanying financial statements and supplemental information of Fiddlers Creek Apartments, Ltd. and, to the best of my knowledge and belief, the same is complete and accurate. /s/Bob R. Badgett ---------------------------------------- Bob R. Badgett, President Housing Management, Inc. 2-7-97 ---------------------------------------- Date 66 [Turlington and Company, L.L.P. Letterhead] INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina We have audited the accompanying balance sheet of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of December 31, 1996, and the related statements of profit and loss, 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 Fiddlers Creek Apartments, Ltd. at December 31, 1996, and the results of its operations, and the changes in partners' equity, and cash flows for the year then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U. S. Department of Housing and Urban Development, we have also issued a report dated January 15, 1997 on our consideration of Fiddlers Creek Apartments, Ltd.'s internal control structure, and reports dated January 15, 1997 on its compliance with specific requirements applicable to major HUD programs, and specific requirements applicable to Affirmative Fair Housing. Our audit was made for the purpose of formulating the opinion stated above. The supplemental information identified in the Table of Contents is presented for purposes of additional analysis and is not a required part of the basic financial statements of Fiddlers Creek Apartments, Ltd. Such information has 67 INDEPENDENT AUDITORS' REPORT ON AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION (CONTINUED) 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/Turlington and Company, L.L.P. January 15, 1997 68 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) BALANCE SHEET December 31, 1996 ----------------- ASSETS Current Assets 1110 Petty cash $ 400 1120 Cash in bank 202,544 1130 Accounts receivable - tenants 2,010 1140 Accounts receivable - other (net of allowance of $14,687) 1,244 $ 206,198 ------------ Deposits Held in Trust - Funded 1191 Tenant security deposits (contra) 41,739 Prepaid Expenses 1250 Mortgage insurance 1,794 1252 Fidelity bond insurance 24 1,818 ------------ Restricted Deposits and Funded Reserves 1310 Mortgage escrow deposits 17,506 1320 Reserve for replacements 147,271 164,777 ------------ Property, Buildings, and Equipment - At Cost 1410 Land 275,147 1411 Land improvements 6,530 1420 Buildings 3,017,603 1440 Building equipment - portable 107,127 1450 Furniture for project administrative use 2,321 1452 Computer equipment 786 1460 Furnishings 50,953 1470 Maintenance equipment 7,066 1490 Miscellaneous fixed assets 5,375 ------------ 3,472,908 4100 Less, accumulated depreciation 1,392,211 2,080,697 ------------ Other Assets 1902 Loan costs, net of accumulated amortization 100,394 ------------ $ 2,595,623 ============ LIABILITIES AND PARTNERS' EQUITY Current Liabilities 2110 Accounts payable - trade $ 2,000 2111 Accounts payable - Housing Management, Inc. 18,111 2114 Accounts payable - surplus cash 15,000 2130 Accrued interest payable 14,276 2320 Mortgage payable - current maturities 40,337 $ 89,724 ------------ Deposit and Prepayment Liabilities 2191 Tenant security deposits (contra) 36,921 2210 Prepaid rents 1,408 38,329 ------------ Long-term Liabilities 2320 Mortgage payable 2,141,365 Less, current maturities 40,337 2,101,028 ------------ Partners' Equity 366,542 ------------ $ 2,595,623 ------------ The accompanying notes are an integral part of the financial statements 67 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) STATEMENT OF PARTNERS' EQUITY For the Year Ended December 31, 1996 ------------------------------------ Investor Associate Local Limited General General Total Partner Partner Partner (100%) (98%) (1%) (1%) ------------ ------------ -------------- -------------- Balances at beginning of year $ 363,723 $ 384,147 ($ 10,212) ($ 10,212) Net income for the year 92,546 90,696 925 925 Withdrawals ( 89,727) ( 87,933) ( 897) ( 897) ------------ ------------ ------------ ------------ Balances at end of year $ 366,542 $ 386,910 ($ 10,184) ($ 10,184) ============ ============ ============ ============ The accompanying notes are an integral part of the financial statements 70 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052(Exp. 1/31/95) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses. For Month/Period Ending: Project Project Name: Beginning Number: Fiddlers Creek January 1, 1996 December 31, 1996 053-35163-PM Apartments, Ltd. Part I Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 721,680 Tenant Assistant Payments 5121 $ Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $721,680 Vacancies 5200 Apartments 5220 $ (35,441) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies (35,441) Net Rental Revenue Rent Revenue Less Vacancies $686,239 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 5,134 Income from Investments--Residual Receipts 5430 $ Income from Investments--Reserve for Replacement 5440 $ 3,583 Income from Investments--Miscellaneous 5490 Total Financial Revenue $ 8,717 Other Revenue 5900 Laundry and Vending 5910 $ 3,597 NSF and Late Charges 5920 $ 2,472 Damages and Cleaning Fees 5930 $ 753 Forfeited Tenant Security Deposits 5940 $ 167 Other Revenue (specify) 5990 $ 2,620 Total Other Revenue $ 9,609 Total Revenue $704,565 Administrative Expenses Advertising 6210 $ 5,787 6200/6300 Other Administrative Expense 6250 $ 1,935 Office Salaries 6310 $ Office Supplies 6311 $ 3,021 Office or Model Apartment Rent 6312 $ 3,657 Management 6320 $ 47,766 Manager or Superintendent Salaries 6330 $ 25,652 Manager or Superintendent Rent Free Unit 6331 $ 5,700 Legal Expenses (Project) 6340 $ Auditing Expenses (Project) 6350 $ 4,450 Bookkeeping Fees/Accounting Services 6351 $ 5,200 Telephone and Answering Service 6360 $ 2,743 Bad Debts 6370 14,986 Miscellaneous Administrative Expenses (specify) 6390 $ 215 Total Administrative Expenses $121,112 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 12,180 Water 6451 $ 5,506 Gas 6452 $ Sewer 6453 $ Total Utilities Expense $ 17,686 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. The accompanying notes are an integral part of the financial statements. 71 FIDDLER CREEK APARTMENTS, LTD. 053-35163-PM Operating and Janitor and Cleaning Payroll 6510 $ Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 381 6500 Janitor and Cleaning Contract 6517 $ 5,537 Exterminating Payroll/Contract 6519 $ 2,333 Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 2,181 Security Payroll/Contract 6530 $ 1,200 Grounds Payroll 6535 $ 1,203 Grounds Supplies 6536 $ 3,850 Grounds Contract 6537 $ 6,618 Repairs Payroll 6540 $ 25,724 Repairs Material 6541 $ 14,470 Repairs Contract 6542 $ 10,819 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 4,257 Swimming Pool Maintenance/Contract 6547 $ 870 Snow Removal 6548 $ 472 Decorating Payroll/Contract 6560 $ 13,045 Decorating supplies 6561 $ 3,882 Other 6570 $ 240 Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $ 97,082 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 47,787 Payroll Taxes (FICA) 6711 $ 4,144 Miscellaneous Taxes, Licenses and Permits 6719 $ 5 Property and Liability Insurance (Hazard) 6720 $ 10,172 Fidelity Bond Insurance 6721 $ 269 Workmen's Compensation 6722 $ 2,398 Health Insurance and Other Employee Benefits 6723 $ 2,953 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ 67,728 Financial Expenses 6800 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 172,694 Interest on Notes Payable (Long-Term) 6830 $ Interest on Notes Payable (Short-Term) 6840 $ Mortgage Insurance Premium/Service Charge 6850 $ 10,792 Miscellaneous Financial Expenses Amort Fin Costs 6890 $ Total Financial Expenses $183,486 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $487,094 Profit (Loss) Before Depreciation $217,471 Depreciation (Total)--6600 (specify) 6600 $104,822 Operating Profit or (Loss) $112,649 Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) Ptrshp. Admin. Fee-$15,000 and 7190 $ 20,103 Total Corporate Expenses Amortization - $5,103 $ 20,103 Net Profit or (Loss) $ 92,546 Warning: HUD will prosecute false claims and statements. Conviction may result lin criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other income and expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 37,246 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 27,216 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ 3,571 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ 0 The accompanying notes are an integral part of the financial statements. 72 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) STATEMENT OF CASH FLOWS For the Year Ended December 31, 1996 ------------------------------------ Cash flows from operating activities: Rental receipts $ 677,872 Interest receipts 8,717 Insurance proceeds for loss of rents 33,493 Other receipts 9,609 Administrative ( 23,859) Management fees ( 43,618) Accounting fees ( 5,120) Operating and maintenance ( 70,425) Real estate taxes ( 47,787) Salaries and wages ( 52,579) Miscellaneous taxes ( 4,149) Insurance ( 6,902) Utilities ( 18,892) Interest on mortgage note ( 172,942) Mortgage insurance ( 10,762) ------------ Net cash provided by operating activities $ 272,656 Cash flows from investing activities: Purchase of property and equipment ( 3,240) Cash flows from financing activities: Partnership administrative fee ( 15,000) Mortgage principal payments ( 37,246) Reserve for replacements - deposits ( 30,799) Reserve for replacements - withdrawals 6,400 Mortgage escrow deposits ( 11,940) Tenant security deposits ( 1,165) Withdrawals by partners ( 89,727) ------------ Net cash used for financing activities ( 179,477) ------------ Net increase in cash and cash equivalents 89,939 Cash and cash equivalents - beginning of year 113,005 ------------ Cash and cash equivalents - end of year $ 202,944 ============ The accompanying notes are an integral part of the financial statements 73 STATEMENT OF CASH FLOWS (CONTINUED) ----------------------------------- Reconciliation of net income to net cash provided by (used for) operating activities: Net income $ 92,546 Nonoperating expense included in determining net income 15,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation $ 104,822 Amortization 5,103 109,925 ------------ Changes in assets and liabilities arising from operations: Accounts receivable 45,193 Prepaid expenses 10,178 Accounts payable 248 Accrued interest ( 248) Prepaid rents ( 186) 55,185 ------------ ------------ Net cash provided by operating activities $ 272,656 ============ The accompanying notes are an integral part of the financial statements 74 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS As of and for the Year Ended December 31, 1996 Note A - Summary of Accounting Policies A summary of the partnership's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 1. Depreciation Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method. 2. Amortization Loan costs are amortized by using the straight-line method over the life of the mortgage loan. 3. Statement of Cash Flows Cash and cash equivalents, as presented in the Statement of Cash Flows, consists entirely of interest and noninterest bearing cash accounts and petty cash. The partnership has no other assets that qualify as cash or cash equivalents. 4. Income Taxes No provision for income taxes has been included in these financial statements since the tax gains and losses pass through to and are reportable by the partners on their respective income tax returns. Taxable income or loss reported by the partners will differ from income or loss reflected in the financial statements, due to the different bases in certain assets (primarily property, buildings, and equipment) for financial reporting and income tax purposes. 5. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note B - Organization The partnership was organized as a North Carolina limited partnership on April 21, 1975 to construct, own, and operate a 160 unit apartment project located in Winston-Salem, North Carolina, known as Fiddlers Creek Apartments, under Section 221(d)(4) of the National Housing Act. The Regulatory Agreement limits distributions of net operating receipts to "surplus cash" available at the end of semi-annual periods. 75 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note B - Organization (Continued) On September 30, 1984, pursuant to an Amended and Restated Certificate of Limited Partnership dated as of that date, partners' ownership interests amounting to 99% of the existing partners' interests were transferred by the original partners to two new partners. As a result of the transfer of ownership interests, the partnership, as of September 30, 1984, retained one of the original general partners as a local general partner, admitted a new general partner as associate general partner, and admitted a sole investor limited partner. After the aforementioned transfer, the Amended and Restated Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner, and 98% to the investor limited partner. In the case of certain events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property), the allocation may be different than that described above for profits and losses from operations. Note C - Concentration of Credit Risk The partnership's policy is to maintain its cash balances in reputable financial institutions insured by the Federal Deposit Insurance Corporation which provides $100,000 of insurance coverage on each customer's cash balances. At times during the year, the partnership's cash balances exceeded $100,000. Management believes this policy will not cause any adverse effect to the partnership. Note D - Mortgage Payable The mortgage, originally in the amount of $2,519,100, is payable in monthly installments of $17,515.73, including interest at 8.0% per annum. The final payment is due in February 2018. The loan is secured by the land and buildings and is insured by the Federal Housing Administration. The maturities of this debt are as follows: 1997 $ 40,337 1998 43,685 1999 47,311 2000 51,238 2001 55,491 2002 and After 1,903,303 Note E - Related Party Transactions/Identity of Interest 1. Management of Project The partnership contracted with Housing Management, Inc. (HMI) to manage the project. The local general partner is an officer of HMI. The contract in effect through July 31, 1996 called for a management fee of 6.0% of gross revenue collections plus accounting fees of $2.50 per housing unit per month. Effective 76 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note E - Related Party Transactions/Identity of Interest (Continued) 1. Management of Project (Continued) Effective August 1, 1996, the management fee was increased to 7.5% of gross revenue collections and the accounting fees were increased to $3.00 per housing unit per month. Management and accounting fees are analyzed as follows: Charged to Unpaid at Operations Unpaid at January 1 During December 31 1996 1996 1996 ------------ ------------ ------------ Management fees $ 12,283 $ 47,766 $ 16,431 Accounting fees 1,600 5,200 1,680 ------------ ------------ ------------ $ 13,883 $ 52,966 $ 18,111 ============ ============ ============ 2. Partnership Administrative Fee For its services in overseeing the operations of the partnership, the partnership has agreed to pay its associate general partner a fee of $15,000 per annum. The partnership administrative fee is payable from surplus cash as defined by HUD regulations. 3. Other The partnership also paid $600 to HMI for a computer and printer during 1996. The partnership contracted with Housing Projects, Inc. (HPI) to repair the damages caused by a fire in one of the apartments. The local general partner is an officer of HPI. The partnership paid HPI $17,970 for these repairs. Note F - Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: 1. Cash and Security Deposits Funded The carrying amount approximates fair value because of the short maturity of these instruments. 2. Restricted Deposits and Funded Reserves The carrying amounts approximates fair value because of the short maturity of these instruments. 3. Long-term Debt The fair value of the partnership's long-term debt is estimated based on the quoted market prices for the same or similar issues. 77 NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note F - Disclosures About Fair Value of Financial Instruments (Continued) The estimated fair values of the partnership's financial instruments are as follows: Carrying Fair Amount Value ------------ ------------ Cash and security deposits funded $ 244,683 $ 244,683 Restricted deposits and funded reserves 164,777 164,777 Long-term debt 2,141,365 1,949,152 Note G - Fire Casualty 1. Property Damage On January 26, 1996, one of the apartments suffered a fire. During 1996, the partnership received insurance reimbursement in the amount of $20,288 for removal of debris and repairs at the sight of the fire. These proceeds were offset against the expenses on the partnership's 1996 financial statements. 2. Loss of Rents On May 19, 1995, one of the ten apartment buildings that comprise Fiddlers Creek Apartments suffered a fire. In January 1996, the partnership received $32,280 of insurance proceeds to cover lost rents for six months of 1995 due to the fire damage of May 19, 1995. In May 1996, the partnership received $1,213 of insurance proceeds to cover lost rents for the fire in the one apartment on January 26, 1996. Note H - Distribution The partnership customarily makes a cash distribution of the maximum amount permitted by its Regulatory Agreement and other such restrictions under which it operates. In keeping with this custom, $104,727, including a partnership administrative fee of $15,000, was distributed during 1996, and it is anticipated that $166,536 will be distributed in the first quarter of 1997. 78 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) SUPPLEMENTAL INFORMATION For the Year Ended December 31, 1996 Accounts and Notes Receivable (Other Than From Regular Tenants) Name of Original Balance Debtor Date Terms Amount Due ------------------- ----------- ----------- ------------ ------------ Calvin Wiley School February 28 Apartments 1993 Open $ 1,244 $ 1,244 Triple S Management, September 25 Inc. 1995 Open 14,687 14,687 ------------ 15,931 Less, allowance for doubtful accounts ( 14,687) ------------ $ 1,244 ============ Delinquent Tenant Accounts Receivable Number of Tenants Amount ------------ ------------- Delinquent 30 days 4 $ 1,520 Delinquent 31-60 days 1 350 Delinquent 61-90 days Delinquent over 90 days 1 140 ------------ ------------- 6 $ 2,010 ============ ============ Mortgage Escrow Deposits Estimated amounts required as of December 31, 1996 for future payment of: City and county property taxes $ 3,961 Property insurance 10,172 Mortgage insurance 8,804 $ 22,937 ------------ Total confirmed by mortgagee 17,506 ------------ Amount on deposit in excess (deficit) of estimated requirements ($ 5,431) ============ Tenant Security Deposits Tenant security deposits are held in a separate bank account(s) in the name of the project. (See Schedule of Funds in Financial Institutions for specific information on these accounts.) 79 SUPPLEMENTAL INFORMATION (CONTINUED) Reserve for Replacements In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgagee to be used for replacement of property with the approval of HUD as follows: Balance at beginning of year $ 122,872 Monthly deposits: 12 @ $2,268.00 27,216 Interest 3,583 Withdrawals: Approval Purpose of Authorized By Date Withdrawal ------------- --------- ---------- Department of September Appliances, HUD 1996 drapes, smoke alarms, and blinds $ 6,300 WMF/Huntoon Investment Paige Associates Various service charge 100 ( 6,400) ------------ ------------ Balance at end of year confirmed by mortgagee $ 147,271 ============ The mortgagee charged a fee of $100 for investing the reserve for replacements fund. Accounts Payable (Other Than Trade Creditors) Payable within 30 days None ============ Accrued Taxes (Account 2150) Description Basis Period Date Amount of Tax for Accrual Covered Due Accrued ---------------- ------------- ----------- ----------- ------------ None Loans and Notes Payable (Other Than Insured Mortgage) None 80 SUPPLEMENTAL INFORMATION (CONTINUED) Compensation of Partners (From Rental Income) None Unauthorized Distribution of Project Income to Partners None Changes in Partnership Interests None 81 SUPPLEMENTAL INFORMATION (CONTINUED) Changes in Property, Buildings, and Equipment For the Year Ended December 31, 1996 Cost Accumulated Depreciation ----------------------------------------------- ----------------------------------------------- Balance Balance Balance Balance January 1 December 31 January 1 Current December 31 1996 Additions Deletions 1996 1996 Provisions Deletions 1996 ---------- --------- --------- ---------- ---------- --------- --------- ---------- ASSETS Land $ 275,147 $ 275,147 Land improvements 6,530 6,530 $ 1,164 $ 218 $ 1,382 Buildings 3,017,603 3,017,603 1,131,081 100,587 1,231,668 Building equipment - portable 106,186 $ 2,454 $ 1,513 107,127 93,123 2,879 $ 1,513 94,489 Furniture for project administrative use 2,321 2,321 1,552 185 1,737 Computer equipment 786 786 78 78 Furnishings 50,953 50,953 50,953 50,953 Maintenance equipment 7,066 7,066 6,294 619 6,913 Miscellaneous fixed assets 5,375 5,375 4,735 256 4,991 ---------- --------- --------- ---------- ---------- --------- --------- ---------- $3,471,181 $ 3,240 $ 1,513 $3,472,908 $1,288,902 $ 104,822 $ 1,513 $1,392,211 ========== ========= ========= ========== ========== ========= ========= ========== <FN> Note: Additions to fixed assets were: Item Cost --------- 3 ranges $ 960 3 refrigerators 1,494 1 computer with printer 786 --------- $ 3,240 ========= Disposition of fixed assets included: Item Cost --------- 3 ranges $ 757 3 refrigerators 756 --------- $ 1,513 ========= </FN> 82 SUPPLEMENTAL INFORMATION (CONTINUED) Schedule of Funds in Financial Institutions As of December 31, 1996 A. Funds Held by Mortgagor - Regular Operating Account 1. Lexington State Bank, Lexington, NC 1 a. Fiddlers Creek Apartments Petty Cash Fund $ 400 b. Fiddlers Creek Apartments Rental Agency Trust Account 12,877 c. Fiddlers Creek Apartments Rental Agency Trust Account 189,667 ------------ Operating Accounts - Subtotal 202,944 ------------ B. Funds Held by Mortgagor in Trust - Tenant Security Deposit 1. Lexington State Bank, Lexington, NC 1 a. Fiddlers Creek Apartments Security Deposit Trust Account - Noninterest Bearing 2,294 b. Fiddlers Creek Apts. Security Deposit Trust Account - Interest Bearing 39,445 ------------ Tenant Security Deposit Accounts - Subtotal 41,739 ------------ Funds Held by Mortgagor - Total 244,683 ------------ C. Funds Held by Mortgagee in Trust 2 1. Tax and Insurance Escrow a. Bank United of Texas - Custodial Escrow Fund 17,506 ------------ 2. Reserve Fund for Replacements a. Prudential Bank and Trust Company - Money Market Account 117,607 b. Prudential Savings Bank - Money Market Account 29,664 ------------ Reserve Fund for Replacements - Subtotal 147,271 ------------ Funds Held by Mortgagee - Total 164,777 ------------ Total Funds in Financial Institutions $ 409,460 ============ <FN> 1 Balances Confirmed by Lexington State Bank - January 21, 1997 2 Balances Confirmed by WMF/Huntoon Paige Associates - January 10, 1997 </FN> 83 SUPPLEMENTAL INFORMATION (CONTINUED) Listing of Identity of Interest Companies and Activities Doing Business With Owner/Agent During the Year Ended December 31, 1996 Amount Company Name Type of Service Paid ------------------------------ ---------------------------------- ------------ Housing Management, Inc. Management and Accounting Services $ 48,738 ============ Liberty LGP Limited Partnership Partnership Administrative Fee $ 15,000 ============ Housing Management, Inc. Computer and Printer $ 600 ============ Housing Projects, Inc. Fire Damage Repairs $ 17,970 ============ 84 COMPUTATION OF SURPLUS CASH, U.S. DEPARTMENT OF HOUSING DISTRIBUTIONS AND RESIDUAL AND URBAN DEVELOPMENT RECEIPTS OFFICE OF HOUSING FEDERAL HOUSING COMMISSIONER PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER Fiddlers Creek Apartments, Ltd. December 31, 1996 053-35163-PM ELDERLY, LTD PART A - COMPUTE SURPLUS CASH Cash 1. Cash (Accounts 1110,1120,1191,1192) $244,683 2. Tenant subsidiary vouchers due for period covered by financial statement $ 3. Other (describe) RESERVE REPLACEMENT $ (a) Total Cash (Add Lines 1, 2, and 3) $244,683 Current Obligations 4. Accrued mortgage interest payable $ 14,276 5. Delinquent mortgage principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $ 20,111 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 5,431 10. Accrued expenses (not escrowed) $ 11. Prepaid Rents (Account 2210) $ 1,408 12. Tenant security deposits liability (Account 2191) $ 36,921 13. Other (Describe) Excess Income $ (b) Less Total Current Obligations (Add Lines 4 through 13) $ 78,147 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $166,536 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $166,536 Limited Dividend Projects 2a. Distribution Earned During Fiscal Period Covered by the Statement $ 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $ 2c. Distributions Paid During Fiscal Period Covered by Statement $ 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $ 4. Amount Available for Distribution During Next Fiscal Period $ 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE 85 Turlington and Company L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL STRUCTURE To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997. We have also audited Fiddlers Creek Apartments, Ltd.'s compliance with requirements applicable to major HUD-assisted programs and have issued our reports thereon dated January 15, 1997. We conducted our audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U. S. Department of Housing and Urban Development, Office of the Inspector General, in July 1995. Those standards and the Guide 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 Fiddlers Creek Apartments, Ltd. complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Fiddlers Creek Apartments, Ltd. is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. In planning and performing our audits, we obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had 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 basic financial statements of Fiddlers Creek Apartments, Ltd. and on its compliance with specific requirements applicable to 86 its major HUD-assisted programs and to report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to Fiddlers Creek Apartments, Ltd.'s major HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on such internal control structure policies and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure 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 structure elements does not reduce to a relatively low level the risk that errors or irregularities 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 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 the internal control structure and its operations that we consider to be material weaknesses as defined above. This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. Turlington and Company, L.L.P. January 15, 1997 87 Turlington and Company, L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997. We have also audited Fiddlers Creek Apartments, Ltd. 's compliance with the specific program requirements governing Federal Financial Reports; Mortgage Status; Replacement Reserve; Security Deposits; Cash Receipts and Disbursements; Distributions to Owners; Tenant Application, Eligibility, and Reexamination; and Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of Fiddlers Creek Apartments, Ltd. 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 those requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1995. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about Fiddlers Creek Apartments, Ltd.'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, Fiddlers Creek Apartments, Ltd. complied, in all material respects, with the requirements described above that are applicable to each of its major HUD-assisted programs for the year ended December 31, 1996. This report is intended for the information of the partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. Turlington and Company, L.L.P. January 15, 1997 88 Turlington and Company, L.L.P. 509 East Center Street Certified Public Accountants Post Office Box 1697 Lexington, North Carolina 27293-1697 Office 910-249-6856 Facsimile 910-248-8697 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING To the Partners HUD Field Office Director Fiddlers Creek Apartments, Ltd. Greensboro, North Carolina We have audited the financial statements of Fiddlers Creek Apartments, Ltd., HUD Project No. 053-35163-PM (a North Carolina limited partnership), as of and for the year ended December 31, 1996, and have issued our report thereon dated January 15, 1997. We have also applied procedures to test Fiddlers Creek Apartments, Ltd.'s compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996. Our procedures were limited to the applicable compliance requirements described by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U. S. Department of Housing and Urban Development, Office of Inspector General, in July 1995. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Fiddlers Creek Apartments, Ltd.'s compliance with the Affirmative Fair Housing 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 partners, management, and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. Turlington and Company, L.L.P. January 15, 1997 89 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 1996 Program Finding/Noncompliance Cost - -------------- ---------------------- ----- Finding 1 Section 221(d)(4) Criteria $ -0- HUD-insured ========== In accordance with HUD Handbook 4370.2 REV-1, the requirement applicable in this case, owners must ensure that security deposit balances are fully insured Condition Of the 5 bank accounts held by the mortgagor, we examined 5 and noted that the balance in aggregate for the bank involved exceeded Federal Deposit Insurance Corporation limits by $148,238 Effect Noncompliance with HUD Handbook 4370.2 REV-l and risk of loss of funds in excess of insurance limits Cause Human error Recommendation We recommend that, in the future, if there is surplus cash available, a June 30 distribution be made to partners Auditee's Summary Comments on Finding and Recommendation We concur. We will make every effort to distribute surplus cash to partners semi- annually to reduce the risk of loss 90 Program Finding/Noncompliance Cost - -------------- ---------------------- ----- Finding 2 Section 221(d)(4) Criteria $ -0- HUD-insured ========== In accordance with HUD Handbook 4350.3, the requirement applicable in this case, owners must retain move-in inspections in the tenant's file Condition Of the 6 tenant files tested, 1 did not contain a move-in inspection Effect Noncompliance with HUD Handbook 4350.3 Cause Human error Recommendation We recommend that, in the future, more care be exercised when preparing tenant files Auditee's Summary Comments on Findings and Recommendation We concur. We will make every effort to exercise more care when preparing tenant files 91 Program Finding/Noncompliance Cost - -------------- ---------------------- ----- Finding 3 Section 221(d)(4) Criteria $ 14,687 HUD-insured ========= In accordance with HUD Handbook 4381.5 REV-2, the requirement applicable in this case, the managing agent must obtain a HUD- approved management certification Condition During the course of 1995, specifically during the months of June through September, the project paid Triple S Management, Inc. for management services and, at that time, Triple S Management, Inc. was not certified to manage the project. Effect Noncompliance with HUD Handbook 4381.5 REV-2 Cause Change in management of managing agent Recommendation We recommend that the project be reimbursed for these expenses Auditee's Summary Comments on Findings and Recommendation We concur. Steps will be taken to obtain reimbursement for these expenses 92 FIDDLERS CREEK APARTMENTS, LTD. HUD PROJECT NO. 053-35163-PM (A Limited Partnership) AUDITORS' COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO THE HUD PROGRAMS For the Year Ended December 31, 1996 We performed a review of findings, if any, from previous HUD required annual audits, HUD-OIG audits, or HUD management reviews and determined that three findings remained uncorrected at the time of our review. 1. The security deposit cash balances are not fully insured. 2. The move-in inspections are not being retained in the tenants' files. 3. Triple S Management, Inc. did not reimburse the project for the management and accounting fees paid to them in error. 93 AUSTINTOWN ASSOCIATES FHA PROJECT NO. 042-44213 -------------------- FINANCIAL STATEMENTS and SUPPLEMENTARY INFORMATION with INDEPENDENT AUDITOR'S REPORT FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 94 1. LEAD AUDITOR ON ENGAGEMENT: Mary Ann Gehringer Audit Partner Bick Fredman & Co. 1228 Euclid Avenue 880 Halle Building Cleveland, Ohio 44115 (216) 696-9860 2. INFORMATION ON LICENSING FOR AN OUT-OF-STATE CPA: n/a 3. CPA'S FEDERAL EMPLOYER ID NUMBER: 34-1285712 95 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS: Balance sheets 2 Statement of operations 3 Statement of changes in partners' equity 4 Statement of cash flows 5-6 Notes to financial statements 7-11 SUPPLEMENTARY INFORMATION: INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION 12 Statement of profit and loss (HUD Form 92410) 13-14 Computation of surplus cash, distributions and residual receipts (HUD Form 93486) 15 Changes in fixed asset accounts 16 Other supporting data required by HUD 17-20 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD-ASSISTED PROGRAMS 21-22 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING 23 INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE 24-25 Schedule of findings and questioned costs 26 Auditor's comments on audit resolution matters 27 MORTGAGOR'S CERTIFICATION 28 MANAGING AGENT'S CERTIFICATION 29 96 [Bick Fredman & Co Letterhead] Independent Auditor's Report Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the accompanying balance sheets of Austintown Associates, HUD Project No. 042-44213 as of December 31, 1996 and 1995, and the related statements of operations, changes in 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 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 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 Austintown Associates as of December 31, 1996 and 1995 and the results of its operations and cash flows for the years then ended, in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated January 9, 1997 on our consideration of Austintown Associates' internal control structure and a report dated January 9, 1997 on its compliance with laws and regulations. /s/Bick Fredman & Co Cleveland, Ohio January 9, 1997 97 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 ---------- ---------- CURRENT ASSETS: 1120 Cash and cash equivalents $ 87,531 $ 18,899 1130 Accounts receivable - tenants 2,158 7,834 1144 Accounts receivable - HUD 155 1,200 1210 Inventory supplies 5,381 3,967 ---------- ---------- 95,225 31,900 ---------- ---------- DEPOSITS HELD IN TRUST - FUNDED: 1191 Tenant security deposits 35,573 33,352 ---------- ---------- RESTRICTED DEPOSITS AND FUNDED RESERVES: 1320 Reserve for Replacements 181,814 242,293 1310 Mortgage escrow deposits 49,116 34,718 ---------- ---------- 230,930 277,011 ---------- ---------- FIXED ASSETS, AT COST: 1410 Land 397,105 397,105 1420 Buildings 4,999,696 4,987,520 1440 Equipment 150,485 150,485 ---------- ---------- 5,547,286 5,535,110 4120 Less: accumulated depreciation 2,145,754 1,968,599 ---------- ---------- 3,401,532 3,566,511 ---------- ---------- OTHER ASSETS: 1810 Unamortized loan costs - net 14,693 15,351 1900 Deposit 433 433 ---------- ---------- 15,126 15,784 ---------- ---------- TOTAL ASSETS $3,778,386 $3,924,558 ========== ========== The accompanying notes are an integral part of these financial statements. 98 LIABILITIES AND PARTNERS' EQUITY 1996 1995 ---------- ------- CURRENT LIABILITIES: 2110 Accounts payable - trade $ 51,646 $ 80,983 - insurance 14,957 - 2210 Deferred rent 117 - 2140 Distribution payable - management fee 7,500 7,500 2141 Distribution payable 33,308 200 2150 Accrued real estate taxes 87,213 77,544 2130 Accrued interest payable 2,367 2,787 2320 Current portion of long-term debt 82,690 77,052 ---------- ---------- 279,798 246,066 ---------- ---------- DEPOSIT LIABILITIES: 2191 Tenant security deposits 26,491 26,020 ---------- ---------- LONG-TERM LIABILITIES: 2320 Mortgage payable 2,954,665 3,033,945 2390 Operating loss loan 19,507 22,917 ---------- ---------- 2,974,172 3,056,862 ---------- ---------- TOTAL LIABILITIES 3,280,461 3,328,948 ---------- ---------- PARTNERS' EQUITY 3130 Partners' equity 497,925 595,610 ---------- ---------- TOTAL LIABILITIES AND PARTNERS' EQUITY $3,778,386 $3,924,558 ========== ========== The accompanying notes are an integral part of these financial statements. 99 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 ---------- ---------- REVENUE: Rental $ 806,224 $ 811,637 Interest 13,390 13,391 Other 16,499 14,664 ---------- ---------- 836,113 839,692 ---------- ---------- EXPENSES: Administrative 163,887 154,588 Utilities 120,618 117,070 Operating and maintenance 243,485 288,002 Taxes and insurance 134,064 123,573 Interest and mortgage insurance 45,752 51,299 Depreciation and amortization 192,884 191,406 Entity expense 7,500 7,500 ---------- ---------- 908,190 933,438 ---------- ---------- NET (LOSS) $ (72,077) $ (93,746) ========== ========== The accompanying notes are an integral part of these financial statements. 100 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 General Limited Partners Partner Total --------- ---------- ---------- Balance, December 31, 1994 $ (2,465) $ 692,021 $ 689,556 Net loss - (93,746) (93,746) Earned distribution currently payable (4) (196) (200) --------- ---------- ---------- Balance, December 31, 1995 (2,469) 598,079 595,610 Net loss - (72,077) (72,077) Return of prior year distribution 7,700 - 7,700 Earned distribution currently payable (8,212) (25,096) (33,308) --------- ---------- ---------- Balance, December 31, 1996 $ (2,981) $ 500,906 $ 497,925 ========= ========== ========== The accompanying notes are an integral part of these financial statements. 101 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 --------- --------- CASH FLOWS FROM: OPERATING ACTIVITIES: Rental receipts $ 811,929 $ 805,531 Interest receipts 13,390 13,391 Other receipts 19,639 14,120 --------- --------- 844,958 833,042 --------- --------- Administrative 35,047 29,827 Management fees 76,800 76,800 Utilities 120,356 110,757 Payroll and related expenses 173,415 149,170 Operating and maintenance 189,156 175,016 Taxes - real estate 77,544 75,932 Property insurance 12,369 15,517 Miscellaneous taxes and insurance 456 228 Interest on mortgage 30,975 36,350 Mortgage insurance 240 15,341 Entity expense 7,500 7,500 --------- --------- 723,858 692,438 --------- --------- Net cash provided by operating activities 121,100 140,604 --------- --------- INVESTING ACTIVITIES: Decrease (increase) in Reserve for Replacements 60,479 (21,869) (Increase) decrease in mortgage escrow deposits (14,398) 987 Fixed asset purchases (27,247) (29,708) Security deposits funded (2,221) (3,417) Proceeds from sale of fixed asset -- 100 --------- --------- Net cash provided (used) by investing activities 16,613 (53,907) --------- --------- FINANCING ACTIVITIES: Mortgage principal payments (77,052) (71,801) Net security deposits collected 471 2,133 Partnership distributions (200) (30,526) Return of partnership distribution 7,700 -- --------- --------- Net cash (used) by financing activities (69,081) (100,194) --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 68,632 (13,497) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,899 32,396 --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 87,531 $ 18,899 ========= ========= The accompanying notes are an integral part of these financial statements. 102 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 1996 1995 --------- ------- RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net loss $ (72,077) $ (93,746) --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 192,884 191,406 Gain on fixed asset sold - (16) Decrease (increase) in accounts receivable 6,721 (1,671) (Increase) decrease in inventory supplies (1,414) 1,200 (Decrease) increase in accounts payable (14,380) 45,121 Increase in deferred rent 117 - Increase in payable to federal programs - (2,913) Increase in accrued real estate taxes 9,669 1,615 Decrease in accrued interest payable (420) (392) --------- --------- Total adjustments 193,177 234,350 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 121,100 $ 140,604 ========= ========= The accompanying notes are an integral part of these financial statements. 103 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1995 1. ORGANIZATION, BASIS OF PREPARATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Austintown Associates, a partnership, was formed as a limited partnership on February 15, 1973 pursuant to the provisions of the laws of the State of Ohio. The Partnership operates a 200 unit apartment project, Compass West, (the Project) located in Youngstown, Ohio. The Project is operated under the terms of a Federal Housing Administration (FHA) Regulatory Agreement for Limited Distribution Mortgages under Section 236 of the National Housing Act dated February 22, 1973. Distributions to partners are allowable only from surplus cash and are limited in any one fiscal year to six percent of the initial equity investment, on a cumulative basis. The FHA, under commitment to the Partnership, makes interest subsidiary payments to the mortgage lender. On October 30, 1984, ownership interests for the partners amounting to 99% of the interests of the existing partners were transferred by the original partners to new partners. As a result of the transfer, the Partnership retained one of the original General Partners as a Local General Partner, admitted a new General Partner as Associate General Partner, and admitted a Sole Investor Limited Partner. During 1995, there was a substitution of the Associate General Partner. The Partnership accounted for this transfer of ownership interests by the goodwill method whereby assets and liabilities are adjusted to reflect the value of Partnership assets based on the cost to the new partners of their interests in the Partnership. Profit of loss and cash distributions: Pursuant to Article X of the Amended and Restated Certificate of Formation and Agreement of Limited Partnership, profits and losses are allocated 1% to the Local General Partner, 1% to the Associate General Partner and 98% to the Investor Limited Partner, provided all partners individually have only positive balances or only negative balances. The agreement requires that all losses be allocated to the Investor Limited Partner if any General Partner has a negative balance at a time when any Limited Partner has a positive capital balance. The agreement also specifies the order of allocations in such instances as gain from a sale or refinancing and loss from a sale. These allocations may differ from those for operating profits and losses. BASIS OF PREPARATION The financial statements of the Project have been prepared in accordance with accounting principles applicable to a U.S. Department of Housing and Urban Development (HUD) project, in conformity with generally accepted accounting principles and the disclosure requirements as outlined in HUD Handbook 4370.2 REV 1. 104 BASIS OF PREPARATION, CONTINUED PART I - Funds of the Project: Under the conditions of the Regulatory Agreement, the "borrower" is obligated to create a Revenue Fund account into which all operating income of the Project is deposited and a Reserve Fund for Replacements for application toward the cost of unusual or extraordinary maintenance or repairs, renewals or replacements with the prior permission of HUD. PART II - Investment restrictions: The Regulatory Agreement and Section 236 place certain restrictions on the investment of funds set aside in the required Reserve. In essence, investment is restricted to direct obligations of, or obligations the principal of and the interest on which are guaranteed to include both securities issued by the United States Government and its agencies, and those insured by the United States Government and its agencies, and those insured under the Federal Deposit Insurance Corporation. In addition, any interest earned on the investment of such funds must be retained in the required Reserve. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies have been followed in the preparation of the financial statements: Cash equivalents For purposes of the statement of cash flows, the Partnership considers all highly-liquid, debt instruments purchased with a maturity of three months or less, not invested in a Reserve required under the terms of its Regulatory Agreement, to be "cash equivalents." Fair values of financial instruments The following methods and assumptions were used by the Partnership in estimating its fair values for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates their fair value. Restricted and Trust deposits and Funded Reserves: The fair value of these investments, principally U.S. Treasury securities, is based on the quoted market prices. The carrying amount of money market funds approximates fair value. Management believes it is not practicable to estimate the fair value of the mortgage insured by the U.S. Department of Housing and Urban Development (HUD) because programs with similar characteristics are not currently available to the Partnership. Under the Section 236 program of the National Housing Act, which program no longer exists, insured mortgages have a below market rate of interest over the 40 year original term. The Partnership is a party to an off-balance sheet financial instrument with the FHA to reduce its mortgage interest note. The Interest Reduction Contract provides for monthly payments to the mortgagee on behalf of the Partnership in the amount of $14,291.14 plus an additional amount representing the monthly mortgage insurance premium. Such payments commenced with the amortization of the insured mortgage and continue to its maturity in December 2015. 105 Fair values of financial instruments, continued The carrying value of the operating loss loan payable approximates its fair value. The Partnership does not hold or issue financial instruments for trading purposes. Property and equipment Property and equipment is recorded on the basis of cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets range from 3 to 30 years. Management continually reviews property and equipment to determine that the carrying values have not been impaired. Maintenance Routine maintenance is charged to maintenance expense. Expenditures which materially increase the value or extend the useful lives of the assets are capitalized. Unamortized loan costs Loan costs are being amortized over the appropriate loan period on a straight-line basis. Inventory, supplies Supplies consist of various maintenance and cleaning products carried at cost. Income taxes For income tax purposes, each partner is required to take into account his share of the Partnership's income or loss and, accordingly, no provision or benefit for income taxes is included in the financial statements. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. MORTGAGE PAYABLE The mortgage is insured by the FHA and secured by the property and equipment of the Project. The mortgagee's recourse on the debt is limited to such security. The mortgage, which bears interest at 7% per annum, requires monthly principal and interest payments of $24,095 less monthly interest subsidy ($15,538 for 1996 and $15,570 for 1995) thru December, 2015. Annual principal payments for the next five years are as follows: 1997 -- $79,280; 1998 -- $85,011; 1999 -- $91,157; 2000 -- $97,746; 2001 - $104,812 and thereafter -- $2,575,939. 106 2. MORTGAGE PAYABLE, CONTINUED Under Section 236 of the National Housing Act, developers are given an interest reduction, in that the interest rate to develop and build the Project is subsidized to an effective rate of 1%. 1996 1995 -------- -------- Expense $214,778 $219,792 Subsidy 186,417 186,803 -------- -------- Net interest $ 28,361 $ 32,989 ======== ======== Under agreements with the mortgage lender and the FHA, the Project is required to make escrow deposits for taxes, insurance and replacement of Project assets. The Project is also subject to restrictions as to operating policies, rental charges, operating expenditures and distributions to partners. 3. OPERATING LOSS LOAN The operating loss loan is an FHA-secured note with interest payable at 9%, due in monthly installments of $444, including principal and interest through January, 2002. Annual principal payments for the next five years, are as follows: 1997 - $3,410; 1998 -- $3,729; 1999 -- $4,079; 2000 -- $4,461; 2001 -- $4,880; and thereafter - $2,358. 4. TRANSACTIONS WITH RELATED PARTIES Distribution payable consists of administrative fees to the Associate General Partner for services in overseeing the operations of the Partnership. The $7,500 per annum fee is payable only out of surplus cash reserves. The fee owed at December 31, 1996 and 1995 was $7,500. Pursuant to a management agreement dated July 1, 1994, management fees of 9.9% of gross rental collections are payable to Federal Management Company, an affiliate of the Local General Partner. On October 12, 1990, HUD approved a monthly management fee of $32 per unit. Management fees were $76,800 per annum for the years ended December 31, 1996 and 1995. Included in operating expenses are reimbursements to Federal Management Company for payroll, payroll taxes, medical insurance, accounting fees, and office supplies. Payments for such reimbursements were $169,630 and $161,000 for the years 1996 and 1995, respectively. Miscellaneous revenue includes commissions for the collection of monthly fees for equipment provided by B & M Professional Services, an affiliate of the Local General Partner. Receipts for the fiscal years ending December 31, 1996 and 1995 were $2,105 and $2,163, respectively. Included in operating expenses are payments of $27,260 and $103,197 for 1996 and 1995, respectively, to B & M Professional Services for window replacement, painting and drywall repairs. Payables to related parties as of December 31 are as follows: 1996 1995 -------- -------- Federal Management Company $ 16,656 $ 20,445 B & M Professional Services $ 9,809 $ 31,266 107 5. HOUSING ASSISTANCE PAYMENTS The Federal Housing Authority (FHA) has contracted with the Partnership pursuant to Section 8 of the Housing and Community Development Act of 1974 to make housing assistance payments to the Partnership on behalf of qualified tenants. The Partnership has extended the original five-year agreements of November, 1983 and May, 1984 to additional five-year terms ending November, 1998 and May, 1999, respectively. As of December 31, 1996, the housing assistance payments are contractually limited to annual amounts totalling $559,980. This contract limit does not include increases in the contract authority for HUD-approved rent increases and prior years' unused contract authority, as provided in the Project's HAP contracts. 108 SUPPLEMENTARY INFORMATION 109 [Bick Fredman & Co Letterhead] Independent Auditor's Report on Supplementary Information Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio Our report on our audit of the basic financial statements of Austintown Associates, HUD Project No. 042-44213, for December 31, 1996 appears on page 1. That audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information on pages 13 to 20 is presented for the purpose of additional analysis and is not a required part of the basic financial statements of Austintown Associates, HUD Project No. 042-44213. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/Bick Fredman & Co Cleveland, Ohio January 9, 1997 110 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052 (Exp. 1/31/95) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses. For Month/Period Ending: Project Project Name: Beginning Number: January 1, 1996 December 31, 1996 042-44213 Austintown Associates Part 1 Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 155,877 Tenant Assistant Payments 5121 $ 661,203 Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $817,080 Vacancies 5200 Apartments 5220 $ (10,856) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies (10,856) Net Rental Revenue Rent Revenue Less Vacancies $806,224 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 4,165 Income from Investments--Residual Receipts 5430 $ Income from Investments--Reserve for Replacement 5440 $ 9,225 Income from Investments--Miscellaneous 5490 Total Financial Revenue $ 13,390 Other Revenue 5900 Laundry and Vending 5910 $ 1,523 NSF and Late Charges 5920 $ 1,333 Damages and Cleaning Fees 5930 $ 4,348 Forfeited Tenant Security Deposits 5940 $ 366 Other Revenue (specify) 5990 $ 8,929 Total Other Revenue $ 16,499 Total Revenue $836,113 Administrative Expenses Advertising 6210 $ 1,162 6200/6300 Other Administrative Expense 6250 $ 414 Office Salaries 6310 $ 33,923 Office Supplies 6311 $ 12,131 Office or Model Apartment Rent 6312 $ Management 6320 $ 76,800 Manager or Superintendent Salaries 6330 $ 17,186 Manager or Superintendent Rent Free Unit 6331 $ Legal Expenses (Project) 6340 $ 1,068 Auditing Expenses (Project) 6350 $ 7,000 Bookkeeping Fees/Accounting Services 6351 $ Telephone and Answering Service 6360 $ 4,955 Bad Debts 6370 $ 7,517 Miscellaneous Administrative Expenses (specify) 6390 $ 1,731 Total Administrative Expenses $163,887 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 56,219 Water 6451 $ 64,399 Gas 6452 $ Sewer 6453 $ Total Utilities Expense $120,618 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. 111 AUSTINTOWN ASSOCIATES 042-44213 Operating and Janitor and Cleaning Payroll 6510 $ 25,836 Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 4,987 6500 Janitor and Cleaning Contract 6517 $ 2,408 Exterminating Payroll/Contract 6519 $ 675 Exterminating Supplies 6520 $ 262 Garbage and Trash Removal 6525 $ 18,469 Security Payroll/Contract 6530 $ 1,349 Grounds Payroll 6535 $ 9,262 Grounds Supplies 6536 $ 3,433 Grounds Contract 6537 $ 1,397 Repairs Payroll 6540 $ 46,828 Repairs Material 6541 $ 84,519 Repairs Contract 6542 $ 5,400 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 1,575 Swimming Pool Maintenance/Contract 6547 $ 3,836 Snow Removal 6548 $ 1,500 Decorating Payroll/Contract 6560 $ 19,980 Decorating supplies 6561 $ 6,238 Other 6570 $ 4,487 Miscellaneous Operating and Maintenance Expenses 6590 $ 1,044 Total Operating and Maintenance Expenses $243,485 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 87,213 Payroll Taxes (FICA) 6711 $ 21,046 Miscellaneous Taxes, Licenses and Permits 6719 $ 456 Property and Liability Insurance (Hazard) 6720 $ 11,859 Fidelity Bond Insurance 6721 $ 371 Workmen's Compensation 6722 $ 1,008 Health Insurance and Other Employee Benefits 6723 $ 11,972 Other Insurance (specify) 6729 $ 139 Total Taxes and Insurance $134,064 Financial Expenses 6800 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 28,361 Interest on Notes Payable (Long-Term) 6830 $ 2,193 Interest on Notes Payable (Short-Term) 6840 $ Mortgage Insurance Premium/Service Charge 6850 $ 15,198 Miscellaneous Financial Expenses 6890 $ Total Financial Expenses $ 45,752 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $707,806 Profit (Loss) Before Depreciation $128,307 Depreciation (Total)--6600 (specify) 6600 $192,884 Operating Profit or (Loss) $(64,577) Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) 7190 $ 7,500 Total Corporate Expenses $ 7,500 Net Profit or (Loss) $(72,077) Warning: HUD will prosecute false claims and statements. Conviction may result lin criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other income and expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 73,935 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 54,000 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ 34,203 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ 0 112 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING - FEDERAL HOUSING COMMISSIONER OFFICE OF MULTIFAMILY HOUSING MANAGEMENT AND OCCUPANCY COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER Austintown Associates December 31, 1996 042-44213 PART A - COMPUTE SURPLUS CASH 1. Cash (Accounts 1110,1120,1191,1192) $123,104 2. Tenant subsidiary vouchers due for period covered by financial statement $ 155 3. Other (describe) RESERVE REPLACEMENT $ (a) Total Cash (Add Lines 1, 2, and 3) $123,259 4. Accrued mortgage interest payable $ 2,367 5. Delinquent mortgage principal payments $ 6. Delinquent deposits to reserve for replacements $ 7. Accounts payable (due within 30 days) $ 51,646 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 1,830 10. Accrued expenses (not escrowed) $ 11. Prepaid Rents (Account 2210) $ 117 12. Tenant security deposits liability (Account 2191) $ 26,491 13. Other (Describe) Excess Income $ (b) Less Total Current Obligations (Add Lines 4 through 13) $ 82,451 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $ 40,808 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $ 40,808 2a. Distribution Earned During Fiscal Period Covered by the Statement $ 25,850 Ltd. 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $127,946 Div. 2c. Distributions Paid During Fiscal Period Covered by Statement $ Proj. 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $153,796 4. Amount Available for Distribution During Next Fiscal Period $ 40,808 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $ 0 PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE 113 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 CHANGES IN FIXED ASSET ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996 ASSETS ACCUMULATED DEPRECIATION Net -------------------------------------------- -------------------------------------------- Carrying Balance Balance Balance Balance Amount Fixed Assets 12/31/95 Additions Disposals 12/31/96 12/31/95 Additions Disposals 12/31/96 12/31/96 - ----------------- ---------- --------- --------- ---------- ---------- --------- --------- ---------- --------- Land $ 397,105 $ - $ - $ 397,105 $ - $ - $ - $ - $ 397,105 Building 4,987,520 27,247 15,071 4,999,696 1,832,247 187,666 15,071 2,004,842 2,994,854 Equipment: Furniture & fixtures 120,618 - - 120,618 109,861 3,283 - 113,144 7,474 Maintenance equipment 29,867 - - 29,867 26,491 1,277 - 27,768 2,099 ---------- ------- -------- ---------- ---------- -------- -------- ---------- ---------- TOTAL $5,535,110 $27,247 $ 15,071 $5,547,286 $1,968,599 192,226 $ 15,071 $2,145,754 $3,401,532 ========== ======= ======== ========== ========== ======== ========== ========== Amortization 658 ------- Total $192,884 ======== Fixed asset additions/disposals: Roof $12,705 $ - Refrigerators 5,639 4,211 Carpeting 8,903 10,860 ------- -------- $27,247 $ 15,071 ======= ======== 114 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD DECEMBER 31, 1996 1. ACCOUNTS OR NOTES RECEIVABLE OTHER THAN REGULAR TENANT ACCOUNTS None. 2. DELINQUENT TENANT ACCOUNTS Amount Past Due 0 to 30 days $ 686 31 to 60 days 84 61 to 90 days 52 Over 90 days 1,336 -------- $ 2,158 ======== 3. ACCOUNTS PAYABLE OTHER THAN TRADE CREDITORS Federal Management Co. $ 16,656 B & M Professional Services 9,809 -------- $ 26,465 ======== 4. LOANS OR NOTES PAYABLE OTHER THAN THE INSURED MORTGAGE 9% operating loss loan dated March 24, 1978 in the original amount of $57,300. Balance at December 31, 1996: Current $ 3,410 Long-term 19,507 -------- $ 22,917 ======== 5. COMPENSATION OF PARTNERS None. 6. CHANGES IN CAPITAL INTERESTS, PROFIT AND LOSS INTERESTS, AND CASH FLOW INTERESTS None. 7. TRANSACTIONS WITH PARTIES-AT-INTEREST Amount Company Description Paid --------------------------- -------------------- -------- Liberty LGP Administrative fee $ 7,500 B & M Professional Services Painting and drywall services $ 16,917 B & M Professional Services Window replacement $ 31,860 Federal Management Co. Management fee $ 76,800 8. UNAUTHORIZED DISTRIBUTIONS Distributions of $7,700 made in 1996 were returned by one of the General Partners on December 6, 1996. 115 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996 9. MORTGAGE ESCROW DEPOSITS Estimated amount required as of December 31, 1996 for future payment of: Mortgage insurance premium $ 14,957 Property insurance 6,918 Real estate taxes 29,071 -------- 50,946 Amount on deposit deficient of estimated requirements 1,830 -------- Total confirmed $ 49,116 ======== 10. ACCRUED TAXES Description Basis for Period Date Amount of tax Accrual Covered Due Accrued Real Estate 1996 effective 01/01/96 to Semi-Annual tax rate 12/31/96 1997 $ 87,213 ======== 11. RESERVE FOR REPLACEMENTS In accordance with the provisions of the Regulatory Agreement, restricted cash is held by the mortgage servicing agent, Manufacturers and Traders Trust, and is used for replacement of property with the approval of HUD. Balance at January 1, 1996 $ 242,293 Monthly deposits 54,000 Authorized releases: December 18, 1995 $(40,000) Various 1996 (83,704) (123,704) -------- --------- Interest income 9,225 --------- Balance at December 31, 1996, confirmed by mortgagee $ 181,814 ========= Invested in: Money Market $ 54,890 Treasury Bill, due March 6, 1997 126,924 --------- Balance at December 31, 1996 $ 181,814 ========= The following information pertains to Reserve for Replacement Reimbursement requests approved during December 31, 1996: Amount Purpose Account Fiscal Year Affected of Request of Request Charged 1995 1996 ---------- -------------------------- ---------- -------- ------- $ 3,148 Refrigerators Building $ 3,148 $ - 2,518 Hot water tanks 6541 2,518 - 680 Garbage disposals 6541 680 - 1,835 Tiles 6541 1,835 - 2,329 Kitchen cabinets 6541 2,329 - 116 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996 11. RESERVE FOR REPLACEMENTS, CONTINUED Amount Purpose Account Fiscal Year Affected of Request of Request Charged 1995 1996 ---------- -------------------------- ---------- -------- ------- $ 12,852 Carpeting Building $ 12,852 $ - 332 Freight - carpeting 6541 332 - 345 Dumpster 6542 345 - -------- -------- ------- $ 24,039 Form HUD 9250 approved January 8, 1996 $ 24,039 $ - ======== ======== ======= $ 4,370 Parking Lot 6541 $ - $ 4,370 2,308 Kitchen cupboards 6541, 6542 - 2,308 3,759 Refrigerators Building - 3,759 807 Exterior paint 6561 - 807 8,161 Drainage for building 1031 6541 ,6542 - 8,161 578 Door 6541 - 578 10,957 Floors 6541, 6542 980 9,977 7,687 Carpeting Building 630 7,057 5,400 Windows 6542 - 5,400 13,665 Roofs Building - 12,705 6541, 6542 - 960 567 Exterior panels 6542 - 567 579 Disposals 6541 - 579 827 Hot water tanks 6541 331 496 -------- ------- -------- $ 59,665 Form HUD 9250 approved October 31, 1996 $ 1,941 $ 57,724 ======== ======= ======== 12. SCHEDULE OF FUNDS IN FINANCIAL INSTITUTIONS AS OF DECEMBER 31, 1996 Funds held by mortgagor: Mahoning National Bank (confirmed 1/6/97): Operating - investment account, 4.40% $ 87,256 Security deposit - savings, 2.5% 4,637 -------- $ 91,893 Metropolitan Savings (confirmed 1/3/97): Security deposit - CD, due 12/30/97, 5.20% 30,936 -------- Total funds held by mortgagor 122,829 -------- Funds held by mortgagee (confirmed 1/21/97): Reserve for Replacements: Money Market 54,890 U.S. Treasury Bill, due 3/6/97 126,924 181,814 -------- Mortgage escrow 49,116 -------- Total funds held by mortgagee 230,930 -------- Total funds in financial institutions $353,759 ======== 117 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 OTHER SUPPORTING DATA REQUIRED BY HUD (CONTINUED) DECEMBER 31, 1996 13. TENANT SECURITY DEPOSITS Tenant security deposits in the total amount of $35,573, which is sufficient to fund the related liability, are held in the following bank accounts at December 31, 1996: Metropolitan Savings Certificate of Deposit (5.20% due 12/30/97) $ 30,936 Mahoning National Bank Savings 4,637 -------- $ 35,573 ======== 14. DETAIL OF STATEMENT OF PROFIT AND LOSS SELECTED ACCOUNTS Account 5990 Other Revenue Community room/office rentals $ 1,092 Air conditioning fee 2,105 Cable 4,733 Pool 692 Miscellaneous 307 -------- $ 8,929 ======== Account 6390 Miscellaneous Administration Expenses Computer services $ 1,117 Seminars 157 Travel 357 Miscellaneous 100 -------- $ 1,731 ======== 15. NON-REVENUE PRODUCING UNITS None. 118 [Bick Fredman & Co Letterhead] Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD-Assisted Programs Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. In addition, we have audited Austintown Associates' compliance with the following specific program requirements: Specific Compliance Requirements o Federal Financial Reports o Mortgage Status o Replacement Reserve o Residual Receipts o Security Deposits o Cash Receipts and Disbursements o Distributions to Owners o Tenant Application, Eligibility and Recertification o Management Functions that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. The management of the Project 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 those requirements in accordance with generally accepted auditing standards, and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. Those standards and The Guide require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Project'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. 119 In our opinion, Austintown Associates complied, in all material respects, with the specific compliance requirements described above, that are applicable to each of its major HUD-assisted programs, for the year ended December 31, 1996. This report is intended for the information of management and the U.S. Department of Housing and Urban Development. This restriction is not intended to limit the distribution of this report, which is a matter of public record. /s/Bick Fredman & Co Cleveland, Ohio January 9, 1997 120 [Bick Fredman & Co Letterhead] Independent Auditor's Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. We have applied procedures to test the Project's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted programs, for the year ended December 31, 1996. Our procedures were limited to the applicable compliance requirement 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 Inspector General, in July 1993. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Project's compliance with the Affirmative Fair Housing requirements. Accordingly, we do not express such an opinion. The results of those procedures disclosed no instances of noncompliance with the Affirmative Fair Housing requirements that are required to be reported herein under Government Auditing Standards. This report is intended for the information of management and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/Bick Fredman & Co Cleveland, Ohio January 9, 1997 121 [Bick Fredman & Co Letterhead] Independent Auditor's Report on The Internal Control Structure Austintown Associates HUD Field Office Director Youngstown, Ohio Cleveland, Ohio We have audited the financial statements of Austintown Associates, HUD Project No. 042-44213, as of and for the year ended December 31, 1996, and have issued our report thereon dated January 9, 1997. We have also audited the Project's compliance with requirements applicable to major HUD- assisted programs and have issued our reports thereon dated January 9, 1997. 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 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, in July 1993. Those standards, and the Guide, require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Project complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Austintown Associates is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities, or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. 122 In planning and performing our audits for the year ended December 31, 1996, we obtained an understanding of the internal control structure. With respect to the internal control structure, we obtained an understanding of the design of relevant policies and procedures and 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 opinion on the Project's financial statements and its compliance with specific requirements applicable to its major HUD-assisted programs and not to provide an opinion on the internal control structure. Accordingly, we do not express such an opinion. We performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Project's HUD-assisted programs. Our procedures were less in scope than would be necessary to render an opinion on internal control structure policy and procedures. Accordingly, we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited or that noncompliance with laws and regulations that would be material to a HUD-assisted program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. This report is intended for the information of management and the U.S. Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/Bick Fredman & Co Cleveland, Ohio January 9, 1997 123 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 SCHEDULE OF FINDINGS AND QUESTIONED COSTS DECEMBER 31, 1996 1. RESERVE FOR TAXES AND INSURANCE At December 31, 1996, the Reserve for Taxes and Insurance was deficient by $1,830. 2. SURPLUS CASH CALCULATION/CURRENT YEAR DISTRIBUTIONS On November 22, 1996, HUD informed the Project owner that the surplus cash calculation as of December 31, 1995 was in error in that Line 3 included a pending release from the Reserve for Replacements which was not authorized until 1996. As a consequence of eliminating this item, the Project had no surplus cash at December 31, 1995. In 1996, the Project distributed $7,700 to the partners based on the original surplus cash calculation. In order to comply with HUD's instructions, on December 6, 1996, one of the general partners returned the entire distribution of $7,700. This amount is repayable to him out of surplus cash that exists as of December 31, 1996. No additional action is needed. 124 AUSTINTOWN ASSOCIATES PROJECT NO. 042-44213 AUDIT RESOLUTION MATTERS DECEMBER 31, 1996 The findings noted on the prior year's audit report and their depositions are reported below: 1. TENANT CERTIFICATIONS HUD Handbook 4350.3 requires that the average six month checking account balance be used when computing net family assets. Three exceptions were noted in our 1995 testing (exception rate - 13%). Action taken No exceptions were noted during the current year audit. 2. TENANT LEASES Three instances were noted where the tenant file did not contain a copy of the signed lease (exception rate - 13%). Action taken A copy of the signed lease has been inserted in the tenant's file. 125 MORTGAGOR'S CERTIFICATION We hereby certify that we have examined the accompanying financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate. /s/ James P. Manchi Feb 24 , 1997 ------------------------------- Date EIN: 74-2343727 126 MANAGING AGENT'S CERTIFICATION We hereby certify that we have examined the accompanying 1996 financial statements and supplemental data of Austintown Associates and, to the best of our knowledge and belief, the same is complete and accurate. Federal Management Company, Inc. By /s/ James P. Manchi James Manchi Feb 24, 1997 Date Federal I.D. #34-1527725 127 OSUNA APARTMENTS COMPANY HUD Project No. 116-44052-LDP (A Limited Partnership) Financial Statements and Supplemental Data For the Year Ended December 31, 1996 128 OSUNA APARTMENTS COMPANY HUD Project No. 116-44052-LDP (A Limited Partnership) Table of Contents Independent Auditor's Report Financial Statements: Balance Sheet Exhibit A Statement of Profit and Loss Exhibit B Statement of Changes in Partners' Equity Exhibit C Statement of Cash Flows Exhibit D Notes to Financial Statements Supplemental Data: Supporting Data Required by HUD Schedule 1 Schedule of Funds in Financial Institutions Schedule 2 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD Programs Schedule 3 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Nonmajor HUD Transactions Schedule 4 Independent Auditor's Report on the Internal Control Structure Schedule 5 Independent Auditor's Report on Compliance with Specific Requirements Applicable to Affirmative Fair Housing Schedule 6 Schedule of Findings and Questioned Costs Schedule 7 Auditor's Comments on Audit Resolution Matters Schedule 8 Auditee's Corrective Action Plan Schedule 9 Partners' Certification Schedule 10 Managing Agent's Certification Schedule 11 129 INDEPENDENT AUDITOR'S REPORT To the Partners of Osuna Apartments Company I have audited the accompanying balance sheet of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP, as of December 31, 1996, and the related statements of profit and loss, changes in partners' equity 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 and Government Auditing Standards issued by the Comptroller General of the United States. 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 Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of December 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, I have also issued a report dated February 8, 1997, on my consideration of Osuna Apartments Company's internal control structure and reports dated February 8, 1997, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Affirmative Fair Housing, and specific requirements applicable to nonmajor HUD program transactions. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental data required by HUD included in Schedules 1 and 2 provides additional analysis which is not a required part of the basic financial statements of the Partnership. The information in such schedules has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ James M. Klein, P.C. February 8, 1997 130 OSUNA APARTMENTS COMPANY (A Limited Partnership) Exhibit A Balance Sheet December 31, 1996 Assets Current assets: 1110 Petty cash $ 100 1120 Cash in bank - operations (Note 1) (Schedules 1 and 2) 59,914 1130 Accounts receivable - tenants (Schedule 1) 957 1143 - Accounts receivable - HUD (Schedule 1) 111 Prepaid expenses: 1240 Property insurance 4,631 1250 Mortgage insurance 3,654 8,285 ---------- ----------- Total current assets 69,367 Deposits held in trust - funded: 1191 Tenant security deposits (contra) (Schedules 1 and 2) 11,105 Restricted deposits and funded reserves: 1310 Mortgage escrow deposits (Schedules 1 and 2) 10,974 1320 Reserve for replacements (Note 2 and Schedules 1 and 2) 140,540 1330 Reserve for exterior painting (Schedules 1 and 2) 31,676 1340 Reserve for residual receipts (Note 2 and Schedules 1 and 2) 220,898 404,088 ---------- Fixed assets (at cost) (Notes 1 and 3) (Schedule 1): 1410 Land 255,230 1420 Buildings 1,854,035 1430 Building equipment 7,487 1460 Furnishings 157,276 ---------- 2,274,028 Less accumulated depreciation 899,829 1,374,199 ---------- Other asset: 1900 Unamortized deferred expenses (Note 1) 19,667 ----------- $ 1,878,426 =========== Liabilities and Partners' Equity Current liabilities: 2110 Accounts payable - trade (Schedule 1) $ 18,964 2115 Accounts payable - HUD (Schedule 1) 3,107 2120 Payroll taxes payable 277 2130 Accrued interest payable 865 2140 Other accrued expenses (Note 4 and Schedule 1) 2,500 2210 Prepaid rent 375 2320 Current maturities of long-term debt (Note 3) 34,759 ----------- Total current liabilities 60,847 Deposit liabilities: 2191 Tenant security deposits (contra) (Schedules 1 11,105 and 2) Long-term debt (Note 3): 2320 Mortgage payable, 7 percent, less current maturities of $34,759 1,248,886 3130 Partners' equity (Notes 1 and 5) 557,588 ----------- $ 1,878,426 =========== The accompanying notes are an integral part of the financial statements. 131 Statement of Profit and Loss U.S. Department of Housing and Urban Development Office of Housing Federal Housing Commissioner OMB Approval No. 2502-0052(Exp. 8/31/92) Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses. For Month/Period Ending: Project Project Name: Beginning Number: 1/96 12/96 116-44052-LDP Osuna Apartments Part I Description of Account Acct. No. Amount* Rental Income 5100 Apartments or Member Carrying Charges (Coops) 5120 $ 380,701 Tenant Assistant Payments 5121 $ 32,747 Furniture and Equipment 5130 $ Stores and Commercial 5140 $ Garage and Parking Spaces 5170 $ Flexible Subsidy Income 5180 $ Miscellaneous (specify) 5190 $ Total Rent Revenues Potential at 100% Occupancy $413,448 Vacancies 5200 Apartments 5220 $ (4,469) Furniture and Equipment 5230 Stores and Commercial 5240 Garage and Parking Spaces 5270 Miscellaneous (specify) 5290 Total Vacancies (4,469) Net Rental Revenue Rent Revenue Less Vacancies $408,979 Elderly and Congregate Service Income --5300 Total Service Income (Schedule Attached) 5300 $ Financial Revenue 5400 Interest Income--Project Operations 5410 $ 3,075 Income from Investments--Residual Receipts 5430 $ 9,648 Income from Investments--Reserve for Replacement 5440 $ 6,164 Income from Investments--Miscellaneous 5490 Total Financial Revenue $ 18,887 Other Revenue 5900 Laundry and Vending 5910 $ 5,309 NSF and Late Charges 5920 $ 1,634 Damages and Cleaning Fees 5930 $ 221 Forfeited Tenant Security Deposits 5940 $ Other Revenue (specify) 5990 $ 430 Total Other Revenue $ 7,594 Total Revenue $435,460 Administrative Expenses Advertising 6210 $ 6200/6300 Other Administrative Expense 6250 $ 176 Office Salaries 6310 $ 5,533 Office Supplies 6311 $ 6,085 Office or Model Apartment Rent 6312 $ Management 6320 $ 38,683 Manager or Superintendent Salaries 6330 $ 15,180 Manager or Superintendent Rent Free Unit 6331 $ 3,336 Legal Expenses (Project) 6340 $ 1,074 Auditing Expenses (Project) 6350 $ 5,565 Bookkeeping Fees/Accounting Services 6351 $ 5,280 Telephone and Answering Service 6360 $ 1,417 Bad Debts 6370 Miscellaneous Administrative Expenses (specify) 6390 $ 3,916 Total Administrative Expenses $ 86,245 Utilities Expense 6400 Fuel Oil/Coal 6420 $ Electricity (Light and Misc. Power) 6450 $ 50,048 Water 6451 $ 15,936 Gas 6452 $ 23,953 Sewer 6453 $ 6,905 Total Utilities Expense $ 96,842 *All amounts must be rounded to the nearest dollar; $.50 and over, round up--$.49 and below, round down. The accompanying notes are an integral part of the financial statements. 132 OSUNA APARTMENTS 116-44052-LDP Operating and Janitor and Cleaning Payroll 6510 $ Maintenance Expenses Janitor and Cleaning Supplies 6515 $ 169 6500 Janitor and Cleaning Contract 6517 $ 2,378 Exterminating Payroll/Contract 6519 $ 2,544 Exterminating Supplies 6520 $ Garbage and Trash Removal 6525 $ 7,726 Security Payroll/Contract 6530 $ Grounds Payroll 6535 $ Grounds Supplies 6536 $ Grounds Contract 6537 $ 13,948 Repairs Payroll 6540 $ 20,639 Repairs Material 6541 $ 12,443 Repairs Contract 6542 $ 70,030 Elevator Maintenance/Contract 6545 $ Heating/Cooling Repairs and Maintenance 6546 $ 710 Swimming Pool Maintenance/Contract 6547 $ Snow Removal 6548 $ Decorating Payroll/Contract 6560 $ 45,916 Decorating supplies 6561 $ 6,053 Other 6570 $ 576 Miscellaneous Operating and Maintenance Expenses 6590 $ Total Operating and Maintenance Expenses $183,132 Taxes and Insurance 6700 Real Estate Taxes 6710 $ 26,410 Payroll Taxes (FICA) 6711 $ 3,876 Miscellaneous Taxes, Licenses and Permits 6719 $ 5 Property and Liability Insurance (Hazard) 6720 $ 10,777 Fidelity Bond Insurance 6721 $ 533 Workmen's Compensation 6722 $ 1,552 Health Insurance and Other Employee Benefits 6723 $ 132 Other Insurance (specify) 6729 $ Total Taxes and Insurance $ 43,285 Financial Expenses 6800 Interest on Bonds Payable 6810 $ Interest on Mortgage Payable 6820 $ 11,334 Interest on Notes Payable (Long-Term) 6830 $ Interest on Notes Payable (Short-Term) 6840 $ Mortgage Insurance Premium/Service Charge 6850 $ 6,580 Miscellaneous Financial Expenses Amort Fin Costs 6890 $ 1,054 Total Financial Expenses $ 18,968 Elderly & Congregate Total Service Expenses--Schedule Attached 6900 $ Service Expenses 6900 Total Cost of Operations Before Depreciation $428,472 Profit (Loss) Before Depreciation $ 6,988 Depreciation (Total)--6600 (specify) 6600 64,518 $ 64,518 Operating Profit or (Loss) $(57,530) Corporate or Mortgagor Office Salaries 7110 $ Entity Expenses 7100 Legal Expenses (Entity) 7120 $ Taxes (Federal-State-Entity) 7130-32 $ Other Expenses (Entity) Admin. Fee - Note 4 7190 $ 2,500 Total Corporate Expenses $ 2,500 Net Profit or (Loss) $(60,030) Warning: HUD will prosecute false claims and statements. Conviction may result lin criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other income and expense Sub-account Groups. If miscellaneous or other income and/or expense sub- accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate schedule describing or explaining the miscellaneous income or expense. Part II 1. Total principal payments required under the mortgage, even if payments under a Workout Agreement are less or more than those required under t he mortgage. $ 32,416 2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if payments may be temporarily suspended or waived. $ 6,072 3. Replacement or Painting Reserve releases which are included as expense items on this Profit and Loss statement $ 30,000 4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as expense items on this Profit and Loss Statement. $ - The accompanying notes are an integral part of the financial statements. 133 OSUNA APARTMENTS COMPANY (A Limited Partnership) Exhibit C Statement of Changes in Partners' Equity For the Year Ended December 31, 1996 Associate Local General General Limited Total Partner Partner Partner ---------------- ---------------- ----------------- ------------------ Balance, January 1, 1996 $ 626,930 $ 3,183 $ 3,323 $ 620,424 Distributions to partners (9,312) (93) (118) (9,101) Net income (loss) for the year (60,030) (150) (150) (59,730) --------- --------- --------- --------- Balance, December 31, 1996 $ 557,588 $ 2,940 $ 3,055 $ 551,593 ========= ========= ========= ========= The accompanyingnotes are an integral part of the financial statements. 134 Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership) Statement of Cash Flows For the Year Ended December 31, 1996 Cash flows from operating activities: Rental receipts $ 401,868 Interest receipts 533 Other receipts 7,594 $ 409,995 --------- Administrative expenses 26,013 Management fees 38,683 Utilities 91,188 Salaries and wages 37,700 Maintenance expenses 156,713 Real estate taxes and escrow deposits 33,472 Taxes - other 4,034 Insurance 13,110 Mortgage interest 11,509 Mortgage insurance premium 6,382 418,804 --------- --------- Net cash used in operating activities (8,809) Cash flows from investing activities: Deposit to residual receipts (19,030) Deposits to reserve for replacements (6,068) Deposits to reserve for exterior painting (3,600) Transferred to operations 31,332 Purchase of fixed assets (2,826) --------- Net cash used in investing activities (192) Cash flows from financing activities: Mortgage principal payments (32,415) Distribution to partners (9,312) --------- Net cash used in financing activities (41,727) --------- Decrease in cash (50,728) Cash, beginning of year 110,742 --------- Cash, end of year $ 60,014 ========= The accompanying notes are an integral part of the financial statements. 135 Exhibit D OSUNA APARTMENTS COMPANY (A Limited Partnership) Statement of Cash Flows (Continued) For the Year Ended December 31, 1996 Cash flows from operating activities: Net loss $(60,030) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $ 65,572 Increase in accounts receivable - tenants (892) Increase in accounts receivable - HUD (111) Decrease in prepaid expenses 82 Increase in mortgage escrow account (7,062) Increase in accounts payable - trade 11,434 Increase in accounts payable - HUD 515 Decrease in accrued interest payable (175) Increase in prepaid rent 365 Decrease in accrued payroll taxes (153) Interest earned on reserve accounts (18,354) 51,221 ------- ------- Net cash used in by operating activities $ (8,809) ======== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 11,509 ======== Interest earned on restricted reserve accounts and maintained in the respective reserve accounts $ 18,354 ======== The accompanying notes are an integral part of the financial statements 136 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1996 Note 1 - Organization and Summary of Significant Accounting Policies The Partnership was organized as a limited partnership on February 25, 1974, to acquire an interest in real property located in Albuquerque, New Mexico and to construct and operate thereon an apartment complex of 110 units, under Section 236 of the National Housing Act. Such projects are regulated by HUD as to rent charges and operating methods. The project's major program is its insured loan under Section 236. The project's nonmajor program results from its participation in the Section 8 housing assistance program. The Certificate of Limited Partnership provides that profits and losses from operations be allocated 1% to the local general partner, 1% to the associate general partner and 98% to the investor limited partner. However, the allocation of deductions in respect to depreciation on property contributed to the Partnership is to be allocated according to the basis contributed by respective partners. In the case of certain other events which are specified in the Partnership Agreement (for example, a sale or refinancing of the property) the allocation may be different than as described above for profits and losses from operations. The partnership does business under the assumed name of "Osuna Apartments ". The regulatory agreement limits annual distributions of net operating receipts to "surplus cash" available at the end of the year. The maximum distributable amount for the year ended December 31, 1996 was $11,812 and "surplus cash" amounted to $36,537. Undistributed amounts are cumulative and may be distributed in subsequent years if future operations provide "surplus cash" in excess of current requirements. The cumulative amount distributable at December 31, 1996 was $11,812. The following significant accounting policies have been followed in the preparation of the financial statements: Basis of accounting The Partnership's policy is to prepare its financial statements on the basis of accounting practices prescribed by the Department of Housing and Urban Development. Assets and liabilities are classified as current based on the instructions provided in the Consolidated Audit Guide for Audits of HUD Programs, (July 1993) (Handbook IG 2000.04 REV-1). For purposes of the statement of cash flows, cash does not include tenant security deposits or restricted deposits. Depreciation Depreciation is provided using the accelerated and straight-line methods over the estimated useful lives of the assets which range from five to 40 years. 137 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1996 Note 1 - Organization and Summary of Significant Accounting Policies (Continued) Deferred expenses Unamortized deferred expenses consist of fees for obtaining the HUD insured mortgage loan which are being amortized on the straight-line method over the life of the mortgage loan. Income taxes No income tax provision has been included in the financial statements since income or loss of the partnership is required to be reported by the respective partners on their income tax returns. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Rental revenue Gross rental revenue earned (accounts 5120 and 5121) was based on the approved rental rate structure (revenue and non-revenue units) of the project. Two non-revenue apartments (a 1BR and a 2BR) were occupied by the resident manager and maintenance person during the year. Concentration of credit risk The Partnership maintains its cash in various insured bank accounts which, at times, may exceed Federally insured limits. At December 31, 1996 the uninsured cash balances approximated $3,000. The partnership has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash. Management is aware of the limitation and attempts to minimize any risk. Note 2 - Replacement Reserves and Residual Receipts Replacement reserve funds are held in cash ($45,192) and U.S. Treasury bills ($95,348) due April 1997. Residual receipts are held in cash ($63,575) and U.S. Treasury bills ($157,323) due April 1997. The Treasury bills bear interest at approximately 5.22% per annum. The amounts reported approximate fair value and are based on quoted market prices. 138 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1996 Note 3 - Long-term Debt The seven percent mortgage note payable is insured by HUD and is payable in monthly installments of $10,293 (before any interest supplement) through August, 2015. A portion of the interest is paid by HUD under its 236 Program. The apartment project is pledged as collateral for the note. Current maturities of long-term debt over the next five years ending December 31, are as follows: 1997 $34,759 1998 $37,272 1999 $39,966 2000 $42,856 2001 $45,954 It is impractical to estimate, with any precision, the fair value of the outstanding debt without incurring excessive cost. Note 4- Related Party Transactions During 1996, the general partners earned $2,500 in local partnership administrative fees. This amount is reflected as an accrued expense at December 31, 1996. These fees are treated as a portion of the limited dividend payable and can only be paid as part of the allowable distribution from surplus cash. Note 5 - Restricted Equity Under the terms of the Regulatory Agreement, the Partnership is required to set aside specified amounts for the replacement of property and other project expenditures as approved by HUD. Restricted funds, which approximate $361,000 at December 31, 1996, are held in separate accounts and generally are not available for operating purposes without HUD's prior written approval. Note 6 - Rent Increases Under the regulatory agreement, the partnership may not increase rents charged to tenants without HUD approval. 139 OSUNA APARTMENTS COMPANY (A Limited Partnership) Notes to Financial Statements December 31, 1996 Note 7 - Management Fees Management fees of $38,683 were earned under a HUD approved 9.4% management contract. Management fees are based on collections of rentals, commercial (laundry and vending), late and NSF fees and forfeited security deposits. In addition, accounting fees of four dollars per unit per month ($5,280) were paid to the management company. Note 8: Contingency The Partnership has been named in a lawsuit which is being handled by the Partnership's insurance carrier. The ultimate outcome of this litigation is unknown at the present time. Accordingly, no provision for any liability (if any) that might result has been made in the accompanying financial statements. 140 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD Accounts and Notes Receivable (Other Than Tenants) Accounts receivable - HUD represent an adjustment of Section 8 funds received in January 1997. Accounts Receivable - Tenants Tenant accounts receivable at December 31, 1996 were comprised primarily of unpaid rents. Number of Tenants Aging Amount Due --------- ------------ ---------- 3 0 - 30 Days $957 ==== Mortgage Escrow Deposits Estimated amount required for future payment of: City, state and county taxes $ 2,201 Property insurance 5,219 Mortgage insurance 2,127 ---------- 9,547 Amount in excess of estimated requirements 1,427 ---------- Total held by mortgagee $ 10,974 ========== This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 141 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Reserve for Replacements In accordance with the provisions of the regulatory agreement, restricted cash and securities are held by GMAC Commercial Mortgage at December 31, 1996 to be used for replacement of property with the approval of HUD as follows: Balance, January 1, 1996 $ 127,778 Monthly deposits ($506 x 12) 6,068 Interest earned 6,694 --------- Balance, December 31, 1996 $ 140,540 ========= Reserve for Residual Receipts In accordance with the provisions of the regulatory agreement, residual receipts cash and securities are held by GMAC Commercial Mortgage. Use of these funds is contingent upon HUD's prior written approval. The following is an analysis of 1996 transactions. Balance, January 1, 1996 $ 178,305 Interest earned 9,774 1994 residual receipts transferred 19,030 Transfer from another property to correct prior year mortgagee error 13,789 --------- Balance, December 31, 1996 $ 220,898 ========= Reserve for Exterior Painting Restricted cash is held by a bank to be used for exterior painting as follows: Balance, January 1, 1996 $ 58,076 Deposits for 1996 ($300 x 12) 3,600 Interest earned 1,332 Interest transferred to operating (1,332) Transfer to operating (30,000) --------- Balance, December 31, 1996 $ 31,676 ========= This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 142 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Accounts Payable (Other Than Trade Creditors) None Accounts Payable - Trade Accounts payable trade represent current obligations of the Partnership due in 30 days. Accounts Payable - HUD Accounts payable HUD represents excess income collected and remitted in January 1997. Accrued Taxes Basis Amount Description of Tax of Accrual Period Covered Date Due Accrued - ------------------ ---------- -------------- -------- ------- Payroll Monthly December 1996 January 1997 $227 ==== Tenant Security Deposits Tenant security deposits are fully funded and are held in a separate interest bearing account in the name of the project in an account insured by the Federal government at Norwest Bank Texas, Waco, N.A. Interest earned on the account does not inure to the tenants and is transferred into the operating account. At December 31, 1996 and 1995 the account consisted of $11,105 and $10,805, respectively, in cash. Partnership Changes There were no changes in the partners' ownership during 1996. Distributions to Partners In March 1996, $11,812 in limited dividends, earned in 1995, were paid to the partners. At December 31, 1996 an equal amount ($11,812) was earned and is expected to be paid in 1997. This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 143 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule 1 Supporting Data Required by HUD (Continued) Unauthorized Distributions to Partners There were no unauthorized distributions to partners during 1996. Compensation of Partners There was no compensation paid to partners. Identity of Interest Companies During 1996, the general partners earned $2,500 in local partnership administrative fees. These fees are treated as part of the limited dividend and are only paid out of surplus cash. Loans (Other Than Insured Mortgages) and Notes Payable None Comments on Other Balance Sheet Items None Miscellaneous Information The lead auditor of the engagement was James M. Klein, the shareholder in the firm of James M. Klein, P.C. (EIN: 75-2465724), located at 4901 LBJ Freeway, Suite 120, Dallas, Texas 75244. This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 144 OSUNA APARTMENTS COMPANY (A Limited Partnership) Supporting Data Required By HUD (Continued) December 31, 1996 Changes in the Apartment Project Assets Accumulated Depreciation Net -------------------------------------------------- ---------------------------------------------- Carrying Balance Balance, Balance, Balance, Amount Jan. 1, Dec. 31, Jan. 1, Dec. 31, Dec. 31, 1996 Additions Deductions 1996 1996 Provision Deductions 1996 1996 ------------ --------- ---------- --------- --------- ----------- ----------- --------- ---------- Land $ 255,230 $ - $ - $ 255,230 $ - $ - $ - $ - $ 255,230 Buildings 1,854,035 - - 1,854,035 681,201 61,848 - 743,049 1,110,986 Building equipment fixed 4,974 2,513 - 7,487 2,596 1,069 - 3,665 3,822 Furnishings 156,963 313 - 157,276 151,514 1,601 - 153,115 4,161 ---------- -------- --------- ---------- --------- -------- ---------- -------- ---------- Totals $2,271,202 $ 2,826 $ - $2,274,028 $ 835,311 $ 64,518 $ - $899,829 $1,374,199 ========== ======== ========= ========== ========= ======== ========== ======== ========== This supporting data is presented for purposes of additional analysis and is not a required part of the financial statements. 145 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT HOUSING - FEDERAL HOUSING COMMISSIONER OFFICE OF MULTIFAMILY HOUSING MANAGEMENT AND OCCUPANCY COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND SCHEDULE 1 RESIDUAL RECEIPTS PROJECT NAME FISCAL PERIOD ENDED: PROJECT NUMBER OSUNA APARTMENTS 12/31/96 116-44052-LDP PART A - COMPUTE SURPLUS CASH 1. Cash $71,119 2. Tenant subsidiary vouchers due for period covered by financial statement $ 111 3. Other (describe) $ - (a) Total Cash (Add Lines 1, 2, and 3) $71,230 4. Accrued mortgage interest payable $ 865 5. Delinquent mortgage principal payments $ - 6. Delinquent deposits to reserve for replacements $ - 7. Accounts payable (due within 30 days) $18,964 8. Loans and notes payable (due within 30 days) $ 9. Deficient Tax Insurance or MIP Escrow Deposits $ 10. Accrued expenses (not escrowed) $ 277 11. Prepaid Rents (Account 2210) $ 375 12. Tenant security deposits liability (Account 2191) $11,105 13. Other (Describe) Excess Income $ 3,107 (b) Less Total Current Obligations (Add Lines 4 through 13) $34,693 (c) Surplus Cash (Deficiency) (Line (a) minus Line (b)) $36,537 PART B - COMPUTE DISTRIBUTIONS TO OWNERS AND REQUIRED DEPOSIT TO RESIDUAL RECEIPTS 1. Surplus Cash $36,537 2a. Distribution Earned During Fiscal Period Covered by the Statement $11,812 2b. Distribution Accrued and Unpaid as of the End of the Prior Fiscal Period $11,812 2c. Distributions Paid During Fiscal Period Covered by Statement $11,812 3. Distributions Earned but Unpaid as of the End of the Fiscal Period Under Review (Line 2a + 2b - 2c) $11,812 4. Amount Available for Distribution During Next Fiscal Period $11,812 5. Deposit Due Residual Receipts (Must be deposited with Mortgagee within 60 days after Fiscal Period ends) $24,725 PREPARED BY REVIEWED BY LOAN TECHNICIAN LOAN SERVICERIAN DATE DATE See Reverse for Instructions) HUD-93486 This supporting data is presented for additional analysis and is not a required part of the basic financial statements. 146 Schedule 2 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule of Funds In Financial Institutions December 31, 1996 A. Funds held by mortgagor, regular operating account: 1. Norwest Bank Texas (checking) $ 26,259 2. Norwest Bank Texas (money market, 2.5%) 33,138 3. First Security Bank New Mexico (checking) 517 -------- Total operating funds 59,914 B. Funds held by mortgagor in trust, tenant security deposit: 1. Norwest Bank Texas (money market, 2.5%) 11,105 C. Funds held by mortgagor, exterior painting reserve: 1. Norwest Bank Texas (money market, 2.5%) 31,676 -------- Total funds held by mortgagor $102,695 ======== D. Funds held by mortgagee (in trust): 1. Tax and insurance escrow $ 10,974 -------- 2. Reserve fund for replacements a. 1-year Treasury Bill, 5.22%, maturing April 1997 95,348 b. GMAC Commercial Mortgage (Corestates Bank, N.A.) 45,192 -------- 140,540 -------- 3. Reserve for residual receipts a. 1-year Treasury Bill, 5.22%, maturing April 1997 157,323 b. GMAC Commercial Mortgage (Corestates Bank, N.A.) 63,575 -------- 220,898 -------- Total funds held by mortgagee $372,412 ======== Total funds in financial institutions $475,107 ======== NOTE: All funds held by mortgagor were verified as of December 31, 1996. All funds held by mortgagee servicing agent (GMAC) were confirmed as of December 31, 1996. This supporting data is presented for purposes of additional analysis and is not a required part of the basic financial statements. 147 Schedule 3 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), Project No. 116-44052-LDP, as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. I have also audited Osuna Apartments Company's compliance with the specific program requirements governing federal financial reports, mortgage status, the replacement reserve, the residual receipts, tenant security deposits, cash receipts and disbursements, distributions to owners, tenant application, tenant eligibility, tenant recertification, and management functions, that are applicable to its major HUD-assisted program for the year ended December 31, 1996. The management of the Partnership is responsible for compliance with those requirements. My responsibility is to express an opinion on compliance with those requirements based on my audit. I conducted my audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. Those standards and the Guide require that I plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the Partnership's compliance with those requirements. I believe that my audit provides a reasonable basis for my opinion. In my opinion, Osuna Apartments Company complied, in all material respects, with the requirements described above that are applicable to its major HUD-assisted program for the year ended December 31, 1996. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas February 8, 1997 148 Schedule 4 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR HUD TRANSACTIONS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. In connection with my audit of the 1996 financial statements of Osuna Apartments Company and with my consideration of the Partnership's internal control structure used to administer HUD programs, as required by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993, I selected certain transactions applicable to certain nonmajor HUD-assisted programs for the year ended December 31, 1996. As required by the Guide, I performed auditing procedures to test compliance with the requirements governing affirmative fair housing, management, maintenance, the replacement reserve, federal financial reports, tenant application, tenant eligibility, tenant recertification, and tenant security deposits that are applicable to those transactions. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion of the Partnership's compliance with those requirements. Accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas February 8, 1997 149 Schedule 5 INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership), HUD Project No. 116-44052-LDP as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. I have also audited the Partnership's compliance with requirements applicable to its major HUD-assisted program and have issued my report thereon dated February 8, 1997. I conducted my audits in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the "Guide"), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, in July 1993. Those standards and the Guide require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Partnership complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. The management of Osuna Apartments Company is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that HUD-assisted programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors, irregularities or instances of noncompliance may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. In planning and performing my audits, I obtained an understanding of the design of relevant internal control structure policies and procedures and determined whether they had been placed in operation, and I assessed control risk, in order to determine my auditing procedures for the purpose of expressing my opinions on Osuna Apartments Company's financial statements and on its compliance with specific requirements applicable to its major HUD-assisted program and the report on the internal control structure in accordance with the provisions of the Guide and not to provide any assurance on the internal control structure. 150 I performed tests of controls, as required by the Guide, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that I considered relevant to preventing or detecting material noncompliance with specific requirements applicable to the Partnership's major HUD-assisted program. My procedures were less in scope than would be necessary to render an opinion on such internal control structure policies and procedures. Accordingly, I do not express such an opinion. My consideration of the internal control structure would not necessarily disclose all matters in the internal control structure 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 structure elements does not reduce to a relatively low level the risk that errors or irregularities 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 program may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. I noted no matters involving the internal control structure and its operations that I consider to be material weaknesses as defined above. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas February 8, 1997 151 Schedule 6 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO AFFIRMATIVE FAIR HOUSING To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. I have also applied procedures to test Osuna Apartments Company's compliance with the Affirmative Fair Housing requirements applicable to its HUD-assisted program for the year ended December 31, 1996. My procedures were limited to the applicable compliance requirements described by the Consolidated Audit Guide for Audits of HUD Programs (the "Guide") issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in July 1993. My procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on Osuna Apartments Company's compliance with the Affirmative Fair Housing requirements. Accordingly, I do not express such an opinion. The results of my tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended for the information of management and the Department of Housing and Urban Development. However, this report is a matter of public record and its distribution is not limited. /s/ James M. Klein, P.C. Dallas, Texas February 8, 1997 152 Schedule 7 OSUNA APARTMENTS COMPANY (A Limited Partnership) Schedule of Findings and Questioned Costs December 31, 1996 There were no findings, including material questioned costs, noted during the audit. 153 Schedule 8 AUDITOR'S COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO HUD PROGRAMS To the Partners of Osuna Apartments Company I have audited the financial statements of Osuna Apartments Company (a limited partnership) as of and for the year ended December 31, 1996, and have issued my report thereon dated February 8, 1997. During the 1995 audit, no material matters involving the internal control structure and its operation or compliance with specific requirements applicable to its major HUD program were noted. Accordingly corrective action was not required during 1996. Further, based on the auditor's discussions with management, there were no HUD OIG audits or program reviews during 1996. In March and August, 1996, the mortgagee conducted physical inspections of the project with the overall physical condition and maintenance policies and practices ultimately receiving a "superior" rating. Based on discussions with management and review of correspondence, items noted in the physical inspection reports have been corrected or are being addressed. /s/ James M. Klein, P.C. Dallas, Texas February 8, 1997 154 Schedule 9 OSUNA APARTMENTS COMPANY (A Limited Partnership) Auditee's Corrective Action Plan December 31, 1996 Section I - Internal Control Structure Review There were no findings or recommendations listed in the 1995 report. Section II - Compliance Review There were no instances of noncompliance with laws and regulations listed in the 1995 report. NOTE: As a result of the above, there is no need for a separate mortgagor letter proposing a corrective action plan. 155 Schedule 10 OSUNA APARTMENTS COMPANY (A Limited Partnership) Partners' Certification We hereby certify that we have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1996, and, to the best of our knowledge and belief, the same is complete and accurate. Personal Economics Development Corporation By: /s/ Samuel R. Cambell 2-25-97 Samuel R. Cambell, President DATE GENERAL PARTNER (Printed Name) By: ____________________________ DATE GENERAL PARTNER (Printed Name) Employer Identification No. 74-2347236 156 Schedule 11 OSUNA APARTMENTS COMPANY (A Limited Partnership) Managing Agent's Certification I hereby certify that I have examined the accompanying financial statements and supplemental data of Osuna Apartments Company for the year ended December 31, 1996, and, to the best of my knowledge and belief, the same is complete and accurate. 2-25-97 The Sovereign Management Corporation DATE MANAGING AGENT BY: /s/ Joyce Brow Joyce Brow (Printed Name) TITLE: Director of Management 157 INDEPENDENT AUDITORS' REPORT To the Partners Liberty Housing Partners Limited Partnership Our report on the 1996 and 1995 financial statements of Liberty Housing Partners Limited Partnership is included on page 31 of this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ REZNICK FEDDER & SILVERMAN Boston, Massachusetts REZNICK FEDDER & SILVERMAN March 18, 1997 158 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH REGISTRANT HAS INVESTED at December 31, 1996 Cost At Interest Net Gross Amount At Which Carried Life on Acquisition Date Improvements At December 31, 1996 Which ---------------------- Capitalized ------------------------------ Accumu- Depreci- Number Total Buildings Subsequent Buildings lated ation is Of Encum- And to And Depre- Date Computed Property Units brances Land Improvements Acquisition Land Improvements Total ciation Built (Years) - --------------------------- ------- ------- ------------ ------------ ---- ------------ -------- -------- ------ -------- Garden Apartment Complexes - Elderly Housing: Surry Manor Apartments, 44 $934,598 $50,239 $1,259,177 $22,387 $50,239 $1,281,564 $1,331,803 $550,592 1981 3-30 Dobson, NC Glendale Manor 50 855,216 53,652 1,187,181 9,681 53,652 1,196,862 1,250,514 519,611 1980 3-30 Apartments, Clinton, SC Fuquay-Varina Homes, 60 743,122 72,396 1,401,073 17,697 72,396 1,418,770 1,491,166 603,240 1977 3-30 Fuquay, NC Williamston Homes, 50 586,767 60,967 1,096,520 9,019 60,967 1,105,539 1,166,506 476,684 1978 3-30 Williamston, NC Oxford Homes, Oxford, NC 50 590,460 64,360 1,085,939 22,682 64,360 1,108,621 1,172,981 473,514 1978 3-30 Garden Apartment Complexes - Low and Moderate Income Housing Compass West 200 3,110,997 397,105 4,822,593 327,588 397,105 5,150,181 5,547,286 2,145,754 1974 7-30 Apartments, Austintown, OH Meadowwood 80 788,895 90,146 1,337,358 39,379 90,146 1,376,737 1,466,883 691,943 1977 10-25 Apartments, Tifton, GA Brierwood Apartments, 56 856,358 76,325 1,024,970 (26,931) 76,325 998,039 1,074,364 478,129 1979 10-25 Bainbridge, GA Pine Forest Apartments, 64 1,229,691 44,588 1,491,921 1,380 44,588 1,493,301 1,537,889 748,624 1980 10-25 Cairo, GA Osuna Apartments, 110 1,316,060 255,230 1,987,767 31,031 255,230 2,018,798 2,274,028 899,829 1975 5-30 Albuquerque, NM Linden Park Apartments 198 4,261,517 357,236 4,544,514 1,570,235 456,828 6,015,157 6,471,985 2,132,647 1975 5-30 Triangle, VA Brierwood II Apartments 18 369,139 27,288 423,387 - 27,288 423,387 450,675 216,579 1984 10-25 Bainbridge, GA Garden Apartment Complexes - Other Assisted Housing: Fiddlers Creek 160 2,178,611 275,147 3,156,533 41,228 275,147 3,197,761 3,472,908 1,392,211 1977 5-30 Apartments, ----- ----------- ---------- ----------- ---------- --------- ----------- ----------- ----------- Winston Salem, NC Total Local Limited Partnership Real Estate 1,140 $17,821,431 $1,824,679 $24,818,933 $2,065,376 $1,924,27 $26,784,717 $28,708,988 $11,329,357 ===== =========== ========== =========== ========== ========= =========== =========== =========== The aggregate cost of the above properties for Federal income tax purposes at December 31, 1996 is $35,758,051. A reconciliation of summarized carrying value of the above properties for the years ended December 31, 1996, 1995 and 1994 is a follows : 1996 1995 1994 ---- ---- ---- Balance at beginning of year $27,292,762 $27,237,957 $27,230,829 Additions during the period - Improvements subse- equent to acquisition, net of dispositions 1,416,226 54,805 7,128 ----------- ----------- ----------- Balance at end of year $28,708,988 $27,292,762 $27,237,957 =========== =========== =========== A reconciliation of summarized accumulated depreciation on the above properties for the years ended December 31, 1996, 1995 and 1994 is as follows : 1996 1995 1994 ---- ---- ---- Balance at beginning of year $10,381,105) ($9,492,160) ($8,636,168) Current provision for depreciation (948,252) (888,945) (855,992) ------------ ------------ ----------- Balance at end of year ($11,329,357) ($10,381,105) ($9,492,160) ============ ============ =========== 159 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Partnership (a-b) Identification of Directors and Executive Officers The Partnership has no directors or officers. As indicated in Item 1 of this report, the Managing General Partner of the Partnership, as of December 27, 1995, is TNG Properties Inc., a Massachusetts corporation. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. The names and ages of the directors and executive officers of the Managing General Partner, TNG Properties Inc., are as follows as of March 18, 1997: Name Title Age - ---- ----- --- Michael A. Stoller President, Chief Executive Officer and Director 40 Wilma R. Brooks Vice President, Treasurer and Director 39 Barbara A. Gilman Vice President and Director of Management 47 Stephen D. Puliafico Director 41 Clyde W. Sylvia Director 41 The directors of the Managing General Partner generally are elected at the annual meeting of stockholders of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. The executive officers the Managing General Partner generally are elected at the annual meeting of directors of the Managing General Partner, to serve until the next such annual meeting, and until their successors are duly elected and qualified, or until their earlier death, resignation or removal. (c) Identification of certain significant persons. None. (d) Family relationship Mr. Stoller and Ms. Brooks are husband and wife. 160 Item 10. Directors and Executive Officers of the Partnership, continued (e) Business experience Michael A. Stoller is President, CEO, and a Director of the Managing General Partner and The Newton Group, LLC. From 1992 to 1994, Mr. Stoller was President and Director of MBMC, Inc. of Boston, and the Managing General Partner of MB Management Company Limited Partnership, of Boston, a property management company. From 1983 to 1992, Mr. Stoller was employed by REMAS, Inc. and was a Partner and Chief Operating Officer of MB Associates, which companies engaged in the development and management of government assisted housing properties. Mr. Stoller holds a B.S. from Babson College and is a Certified Public Accountant. Stephen D. Puliafico is Director of the Managing General Partner. Since August 1995 Mr. Puliafico has been Executive Vice President of The Newton Group, LLC. From 1994 to 1995 Mr. Puliafico was a Regional Sales Manager for Staples, a seller of office supplies. From 1982 to 1994, Mr. Puliafico was a General Manager for Lechmere, a discount department store chain. Mr. Puliafico holds a B.S. from Southeastern Massachusetts University. Clyde W. Sylvia is Director of the Managing General Partner. Since 1994, Mr. Sylvia has been the Chief Financial Officer of Imaging Technology, of Bedford, Massachusetts, a manufacturer of electronic imaging products. From 1989 to 1993 Mr. Sylvia was a Director at NADCO, of Lowell, Massachusetts, a manufacturer of reference directories. Mr. Sylvia holds a B.S. from the University of Massachusetts at Amherst., an M.B.A. from Suffolk University and is a Certified Public Accountant. Wilma R. Brooks is Vice President, Treasurer and a Director of the Managing General Partner and Vice President and Treasurer of The Newton Group, LLC. From 1987 to 1993, Ms. Brooks was Chief Financial Officer and Treasurer of Congress Group Ventures, Inc., of Cambridge, Massachusetts, a commercial real estate developer. Ms. Brooks holds a B.S. from the University of Vermont and is a Certified Public Accountant. Barbara A. Gilman is Vice President and Director of Management of the Managing General Partner. For the seven years prior to joining the Managing General Partner in 1994, Ms. Gilman was Director of Management of Beacon Management Company, of Boston, Massachusetts, a property management company. Ms. Gilman holds a B.S. from Stonehill College. (f-g) Involvement in certain legal proceedings The Partnership is not aware of any legal proceedings during the past five years which may be material to the evaluation of the ability and integrity of any director or executive officer of the Managing General Partner. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Partnership's officers and directors, and persons who own more than ten percent of a registered class of the Partnership's equity securities, to file reports of ownership on Form 3 and changes in ownership on 161 Item 10. Directors and Executive Officers of the Partnership, continued Form 4 or 5 with the Securities and Exchange Commission. Such officers, directors and ten-percent security holders are also required by applicable rules to furnish the Partnership with copies of all Section 16(a) reports they file. Although the Partnership has no directors or officers, the rules promulgated under ss. 16(a) provide that, for purposes of ss. 16, officers of the Managing General Partner are considered to be officers of the Partnership. Based solely on its review of the copies of such forms received by it, or written representation from certain reporting persons that no Forms 3, 4 or 5 were required for such persons. The Partnership believes that, during the fiscal year ended December 31, 1996, its officers and ten percent security holders complied with all Section 16(a) filing requirements applicable to such individuals. Item 11. Executive Compensation (a), (b), (c), (d), and (e): The officers and directors of the Managing General Partner are compensated as employees of the Managing General Partner, but receive no compensation from the Partnership. The Managing General Partner and its affiliates receive compensation and expense reimbursement from the Partnership, as more fully described in Note 6 of the Notes to Financial Statements of the Partnership included in Item 8 of this report. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security ownership of certain beneficial owners and management. Because it is organized as a limited partnership, the Partnership has issued no securities possessing traditional voting rights. However, the Partnership Agreement provides that certain matters require the approval of a majority in interest of the Limited Partners. Such matters include: (1) Amendment of the Limited Partnership Agreement; (2) Termination of the Partnership; (3) Removal of any General Partner; and (4) Sale of substantially all the assets of the Partnership. Under the Partnership Agreement, the Managing General Partner is solely responsible for the operation of the Partnership's properties, and the Limited Partners have no right to participate in the control of such operations. On December 27, 1995, the Former Managing General Partner and Former Associate General Partner withdrew from the Partnership and TNG Properties Inc. was admitted in their place as Successor General Partner and became Managing General Partner of the Partnership. No person or group is known by the Managing General Partner to own beneficially more than 5% of the Partnership's 21,576 Units outstanding as of December 31, 1996. (b) Security ownership of management. 162 Item 12. Security Ownership of Certain Beneficial Owners and Management, continued By virtue of its organization as a limited partnership, the Partnership has no officers or directors. The Former Associate General Partner owns 10 Units which are to be assigned to the current Managing General Partner. (c) Changes in Control. None. Item 13. Certain Relationships and Related Transactions (a), (b), and (c): The managing general partner of the Partnership is TNG Properties, Inc., a Massachusetts corporation. See Note 6 to the Financial Statements of the Partnership contained in Item 8 of this report for a description of the fees and expense reimbursement paid by the Partnership to the current or former Managing General Partner and its affiliates. Directors and executive officers of TNG Properties, Inc. are identified in Item 10 of this report. During 1996, the Partnership was not involved in any transaction involving any of these directors or officers of the Corporation or any member of the immediate family of these individuals, nor did any of these persons provide services to the Partnership for which they received direct or indirect remuneration. Similarly, there exists no business relationship between the Partnership and any of the directors or officers of the Managing General Partner, nor were any of the individuals indebted to the Partnership. Liberty LGP, formerly an affiliate of the predecessor general partners and now an affiliate of the Managing General Partner is entitled to receive certain administrative fees from the Local Limited Partnerships. At January 1, 1996 an aggregate of $104,917 in accrued and unpaid administrative fees were due to Liberty LGP from the Local Limited Partnerships. During 1996, Liberty LGP accrued $68,500 in administrative fees due from the Local Limited Partnership and received payment aggregating $67,000. At December 31, 1996 accrued and unpaid administrative fees aggregated $106,417. Liberty LGP is not entitled to interest on the accrued and unpaid amount. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements See Index included in Item 8, on page 15 of this Report. 2. Financial Statement Schedules See Index included in Item 8 on page 15 of this Report for schedules applicable to registrant. 3. Exhibits 163 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (continued) See (c) below (b) Reports on Form 8-K None (c) Index to Exhibits Except as set forth below, all Exhibits to Form 10-K, as set forth in Item 601 of Regulation S-K, are not applicable. 164 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- 4. Instruments defining the rights of security holders: 4.1 The Amended and Restated Certificate of Limited Exhibit 4.1 to the registrants Partnership Annual Report on Form 10-K, for the period ended December 31, 1995. 4.2 First Amendment to Second Amended and Exhibit 4.2 to the registrants Restated Certificate of Limited Partnership Annual Report on Form 10-K, for the period ended December 31, 1995. *4.39 Amended Agreement of Limited Partnership Exhibit A to the prospectus contained in Form S-11 Registration Statement (File 2-90617) 4.4 Amendment to the Amended Agreement of Exhibit 4.4 to the registrants Limited Partnership (withdrawal of Liberty Real Annual Report on Form Estate Corporation and Admission of TNG 10-K, for the period ended Properties Inc. December 31, 1995. 4.5 Amendment to the Amended Agreement of Exhibit 4.5 to the registrants Limited Partnership (withdrawal of LHP Associates Annual Report on Form Limited Partnership) 10-K, for the period ended December 31, 1995. 10. Material Contracts and Other Documents 10.4 Documents Relating to Partnership Interest in Surry Manor, Ltd. *10.4 (a) Escrow Agreement dated August 31, 1984 between Exhibit 10.4 (a) Effective to Billy P. Shadrick, Bobby Ray Badgett, Housing Post-Amendment No. 1 to Projects, Inc. and Liberty Housing Partners Limited Form S-11 Registration Partnership. Statement (File 2-90617) *10.4 (b) Amended and Restated Certificate and Agreement Exhibit 10.4 (b) to Post- of Limited Partnership of Surry Manor, Ltd. Effective Amendment No. 1 to Form S-11 Registration Statement (File 2-90617) *10.4 (c) Promissory Notes dated August 31, 1984 from Exhibit 10.4 (c) to Post- Liberty Housing Partners Limited Partnership to Effective Amendment No. 1 Billy P. Shadrick and from Liberty Housing to Form S-11 Registration Partners Limited Partnership to Bobby Joe Davis. Statement (File 2-90617) 165 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.4 (d) Purchase Money Notes dated August 31, 1984 from Exhibit 10.4 (d) to Post- Liberty Housing Partners to Billy P. Shadrick and Effective Amendment No. 1 from Liberty Housing Partners Limited Partnership to Form S-11 Registration to Bobby Joe Davis. Statement (File 2-90617) *10.4 (e) Pledge Agreements dated August 31, 1984 between Exhibit 10.4 (e) to Post- Billy P. Shadrick and Liberty Housing Partners Effective Amendment No. 1 Limited Partnership and between Bobby Joe Davis to Form S-11 Registration and Liberty Housing Partners Limited Partnership. Statement (File 2-90617) *10.4 (f) Deed of Trust Note dated July 11, 1980 from Surry Exhibit 10.4 (f) to Post- Manor, Ltd. to Highland Mortgage Company and Effective Amendment No. 1 related Deed of Trust dated July 11, 1980 among to Form S-11 Registration Surry Manor, Ltd., James M. Tanner, and Highland Statement (File 2-90617) Mortgage Company. *10.4 (g) Regulatory Agreement dated July 11, 1980 between Exhibit 10.4 (g) to Post- Surry Manor, Ltd. and the Secretary of Housing Effective Amendment No. 1 and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.4 (h) Housing Assistance Payments Contract dated April Exhibit 10.4 (h) to Post- 9, 1981 between Surry Manor, Ltd. and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) 10.5 Documents Relating to Partnership Interest in Glendale Manor Apartments *10.5 (a) Escrow Agreement dated August 31, 1984 between Exhibit 10.5 (a) to Post- Billy P. Shadrick, Bobby Ray Badgett, Housing Effective Amendment No. 1 Projects, Inc. and Liberty Housing Partners Limited to Form S-11 Registration Partnership. Statement (File 2-90617) *10.5 (b) Amended and Restated Certificate and Agreement Exhibit 10.5 (b) to Post- of Limited Partnership of Glendale Manor Effective Amendment No. 1 Apartments. to Form S-11 Registration Statement (File 2-90617) 166 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.5 (c) Promissory Notes dated August 31, 1984 from Exhibit 10.5 (c) to Post- Liberty Housing Partners Limited Partnership to Effective Amendment No. 1 Billy P. Shadrick, from Liberty Housing Partners to Form S-11 Regis-tration Limited Partnership to Bobby Joe Davis and from Statement (File 2-90617) Liberty Housing Partners Limited Partnership to Bobby R. Badgett. *10.5 (d) Purchase Money Notes dated August 31, 1984 from Exhibit 10.5 (d) to Post- Liberty Housing Partners Limited Partnership to Effective Amendment No. 1 Billy P. Shadrick and from Liberty Housing to Form S-11 Regis-tration Partners Limited Partnership to Bobby Joe Davis. Statement (File 2-90617) *10.5 (e) Pledge Agreements dated August 31, 1984 between Exhibit 10.5 (e) to Post- Billy P. Shadrick and Liberty Housing Partners Effective Amendment No. 1 Limited Partnership, between Bobby Joe Davis and to Form S-11 Regis-tration Liberty Housing Partners Limited Partnership and Statement (File 2-90617) between Bobby R. Badgett and Liberty Housing Partners Limited Partnership. *10.5 (f) Mortgage Note dated April 11, 1979 from Glendale Exhibit 10.5 (f) to Post- Manor Apartments to Cincinnati Mortgage Effective Amendment No. 1 Corporation and related Mortgage dated April 11, to Form S-11 Regis-tration 1979 between Glendale Manor Apartments and Statement (File 2-90617) Cincinnati Mortgage Corporation. *10.5 (g) Regulatory Agreement dated April 11, 1979 Exhibit 10.5 (g) to Post- between Glendale Manor Apartments and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Regis-tration Statement (File 2-90617) *10.5 (h) Housing Assistance Payments Contract dated May Exhibit 10.5 (h) to Post- 30, 1980 between Glendale Manor Apartments and Effective Amendment No. 1 the Secretary of Housing and Urban Development to Form S-11 Regis-tration Statement (File 2-90617) 10.6 Documents Relating to Partnership Interest in Fiddlers Creek Apartments *10.6 (a) Escrow Agreement dated September 28, 1984 Exhibit 10.6 (a) To Post- between Billy P. Shadrick, Bobby Ray Badgett, J. Effective Amendment No. 1 Thomas Dotson and Liberty Housing Partners to Form S-11 Regis-tration Limited Partnership. Statement (File 2-90617) 167 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.6 (b) Amended and Restated Certificate and Agreement Exhibit 10.6 (b) to Post- of Limited Partnership of Fiddlers Creek Effective Amendment No. 1 Apartments. to Form S-11 Regstration Statement (File 2-90617) *10.6 (c) Promissory Note form dated September 28, 1984, Exhibit 10.6 (c) to Post Purchase Money Note form dated September 28, Effective Amendment No. 1 1984, Pledge Agreement form dated September 28, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Fiddlers Creek Apartments. *10.6 (d) Deed of Trust Note dated September 1, 1975 from Exhibit 10.6 (d) to Post- Fiddlers Creek Apartments to Guaranty Mortgage Effective Amendment No. 1 Company of Nashville and related Deed of Trust to Form S-11 Regis-tration dated September 1, 1975 between Fiddlers Creek Statement (File 2-90617) Apartments and Guaranty Mortgage Company of Nashville. *10.6 (e) Regulatory Agreement dated September 1, 1975 Exhibit 10.6 (e) to Post- between Fiddlers Creek Apartments and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) 10.7 Documents Relating to Partnership Interest Fuquay-Varina Homes for the Elderly, Ltd. *10.7 (a) Escrow Agreement dated September 28, 1984 Exhibit 10.7 (a) to Post- between Billy P. Shadrick, Bobby Ray Badgett and Effective Amendment No. 1 Liberty Housing Partners Limited Partnership. to Form S-11 Registration Statement (File 2-90617) 168 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.7 (b) Amended and Restated Certificate and Agreement Exhibit 10.7 (b) to Post- of Limited Partnership of Fuquay-Varina Homes Effective Amendment No. 1 for the Elderly, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.7 (c) Promissory Note form dated September 28, 1984, Exhibit 10.7 (c) to Post- Purchase Money Note form dated September 28, Effective Amendment No. 1 1984, Pledge Agreement form dated September 28, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Fuquay-Varina Apartments. *10.7 (d) Deed of Trust Note dated May 23, 1977 from Exhibit 10.7 (d) to Post- Fuquay-Varina Homes for Elderly, Ltd. to Effective Amendment No. 1 Cincinnati Mortgage Corporation and related Deed to Form S-11 Registration of Trust dated May 23, 1977 between Fuquay- Statement (File 2-90617) Varina Homes for the Elderly, Ltd. and Cincinnati Mortgage Corporation. *10.7 (e) Regulatory Agreement dated May 23, 1977 between Exhibit 10.7 (e) to Post- Fuquay-Varina Homes for the Elderly, Ltd. and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.7 (f) Housing Assistance Payments Contract dated May Exhibit 10.7 to 3, 1978 between Fuquay-Varina Homes for the Post-Effective Elderly, Ltd. and the Secretary of Housing and Amendment No. 1 to Urban Development. Form S-11 Registration (File 2-90617) 10.8 Documents Relating to Partnership Interest in Oxford Homes for the Elderly, Ltd. 169 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.8 (a) Escrow Agreement dated September 28, 1984 Exhibit 10.8 (a) to Post- between Billy P. Shadrick, Bobby Ray Badgett and Effective Amendment No. 1 Liberty Housing Partners Limited Partnership. to Form S-11 Registration Statement (File 2-90617) *10.8 (b) Amended and Restated Certificate and Agreement Exhibit 10.8 (b) to Post- of Limited Partnership of Oxford Homes for the Effective Amendment No. 1 Elderly, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.8 (c) Promissory Note form dated September 28, 1984, Exhibit 10.8 (c) to Post- Purchase Money Note form dated September 28, Effective Amendment No. 1 1984, Pledge Agreement form dated September 28, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Oxford Homes for the Elderly, Ltd. *10.8 (d) Mortgage Note dated May 23, 1977 from Oxford Exhibit 10.8 (d) to Post- Homes for the Elderly, Ltd. to Cincinnati Mortgage Effective Amendment No. 1 Corporation and related Mortgage dated May 23, to Form S-11 Registration 1977 between Oxford Homes for the Elderly, Ltd. Statement (File 2-90617) and Cincinnati Mortgage Corporation. *10.8 (e) Regulatory Agreement dated May 23, 1977 between Exhibit 10.8 (e) to Post- Oxford Homes for the Elderly, Ltd. and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.8 (f) Housing Assistance Payments Contract dated July Exhibit 10.8 (f) to Post- 3, 1978 between Oxford Homes for the Elderly, Effective Amendment No. 1 Ltd. and the Secretary of Housing and Urban to Form S-11 Registration Development. Statement (File 2-90617) 170 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- 10.9 Documents Relating to Partnership Interest in Williamston Homes for the Elderly, Ltd. *10.9 (a) Escrow Agreement dated September 28, 1984 Exhibit 10.9 (a) to Post- between Billy P. Shadrick, Bobby Ray Badgett and Effective Amendment No. 1 Liberty Housing Partners Limited Partnership. to Form S-11 Registration Statement (File 2-90617) *10.9 (b) Amended and Restated Certificate and Agreement Exhibit 10.9 (b) to Post- of Limited Partnership of Williamston Homes for Effective Amendment No. 1 the Elderly, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.9 (c) Promissory Note form dated September 28, 1984, Exhibit 10.9 (c) to Post- Purchase Money Note form dated September 28, Effective Amendment No. 1 1984, Pledge Agreement form dated September 28, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Williamston Homes for the Elderly, Ltd. *10.9 (d) Deed of Trust Note dated May 24, 1977 from Exhibit 10.9 (d) to Post- Williamston Homes for the Elderly, Ltd. and Effective Amendment No. 1 Cincinnati Mortgage Corporation and related Deed to Form S-11 Registration of Trust between Williamston Homes for the Statement (File 2-90617) Elderly, Ltd. and Cincinnati Mortgage Corporation. *10.9 (e) Regulatory Agreement dated May 24, 1977 between Exhibit 10.9 (e) to Post- Williamston Homes for the Elderly, Ltd. and the Effective Amendment No. 1 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.9 (f) Housing Assistance Payments Contract dated Exhibit 10.9 (f) to Post- September 19, 1978 between Williamston Homes Effective Amendment No. 1 for the Elderly, Ltd. and the Secretary of Housing to Form S-11 Registration and Urban Development. Statement (File 2-90617) 171 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- 10.10 Documents Relating to Partnership Interest in Austintown Associates *10.10 (a) Escrow Agreement dated October 30, 1984 Exhibit 10.10 (a) to Post- between James P. Manchi, Robert P. Baker, First Effective Amendment No. 1 March Realty Corporation and Liberty Housing to Form S-11 Registration Partners Limited Partnership. Statement (File 2-90617) *10.10 (b) Amended and Restated Certificate of Formation Exhibit 10.10 (b) to Post- and Agreement of Limited Partnership of Effective Amendment No. 1 Austintown Associates. to Form S-11 Registration Statement (File 2-90617) *10.10 (c) Promissory Note form dated October 30, 1984, Exhibit 10.10 (c) to Post- Purchase Money Note form dated October 30, Effective Amendment No. 1 1984, Pledge Agreement form dated October 30, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Austintown Associates. *10.10 (d) Mortgage Note dated February 22, 1973 from Exhibit 10.10 (d) to Post- Austintown Associates to Metropolitan Mortgage Effective Amendment No. 1 Corporation of Ohio, Supplementary Mortgage to Form S-11 Registration Note dated November, 1975 from Austintown Statement (File 2-90617) Associates to The Cleveland Trust Company, Supplementary Mortgage Note dated March 24, 1978 from Austintown Associates to Diversified Financial & Mortgage Services, Inc. and the related Mortgage dated February 22, 1973 between Austintown Associates and Metropolitan Mortgage Corporation of Ohio. 172 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.10 (e) Regulatory Agreement dated February 22, 1973 Exhibit 10.10 (e) to Post- between Austintown Associates and the Secretary Effective Amendment No. 1 of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.10 (f) Housing Assistance Payments Contracts dated Exhibit 10.10 (f) to Post- December 1, 1983 and June 1, 1984 between Effective Amendment No. 1 Austintown Associates and the Secretary of to Form S-11 Registration Housing and Urban Development. Statement (File 2-90617) 10.11 Documents Relating to Partnership Interest in Meadowwood, Ltd. *10.11 (a) Second Amended and Restated Certificate and Exhibit 10.11 (a) to Post- Agreement of Limited Partnership of Effective Amendment No. 1 Meadowwood, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.11 (b) Promissory Note form dated October 30, 1984, Exhibit 10.11 (b) to Post- Purchase Money Note form dated October 30, Effective Amendment No. 1 1984, Pledge Agreement form dated October 30, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Meadowwood, Ltd. *10.11 (c) Promissory Notes dated October 3, 1977 and Exhibit 10.11 (c) to Post- October 25, 1978 from Meadowwood, Ltd. to Effective Amendment No. 1 Farmers Home Administration and related Deed to Form S-11 Registration to Secure Debt dated October 25, 1978 between Statement (File 2-90617) Meadowwood, Ltd. and Farmers Home Administration. *10.11 (d) Farmers Home Administration Loan Agreement Exhibit 10.11 (d) to Post- between Meadowwood, Ltd. and Farmers Home Effective Amendment No. 1 Administration. to Form S-11 Registration Statement (File 2-90617) 173 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.11 (e) Interest Credit and Rental Assistance Agreement Exhibit 10.11 (e) to Post- dated October 1, 1983 between Meadowwood, Effective Amendment No. 1 Ltd. and the Farmers Home Administration. to Form S-11 Registration Statement (File 2-90617) *10.12 Documents Relating to Partnership Interest in Brierwood, Ltd. *10.12 (a) Second Amended and Restated Certificate and Exhibit 10.12 (a) to Post- Agreement of Limited Partnership of Brierwood, Effective Amendment No. 1 Ltd. to Form S-11 Registration Statement (File 2-90617) *10.12 (b) Promissory Note form dated October 30, 1984, Exhibit 10.12 (b) to Post- Purchase Money Note form dated October 30, Effective Amendment No. 1 1984, Pledge Agreement form dated October 30, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Brierwood, Ltd. *10.12 (c) Promissory Note dated May 4, 1979 from Exhibit 10.12 (c) to Post- Brierwood, Ltd. to Farmers Home Administration Effective Amendment No. 1 and related Deed to Secure Debt dated May 4, to Form S-11 Registration 1979 between Brierwood, Ltd. and Farmers Home Statement (File 2-90617) Administration. *10.12 (d) Farmers Home Administration Loan Agreement Exhibit 10.12 (d) to Post- dated June 15, 1978 between Brierwood, Ltd. and Effective Amendment No. 1 Farmers Home Administration. to Form S-11 Registration Statement (File 2-90617) *10.12 (e) Interest Credit and Rental Assistance Agreement Exhibit 10.12 (e) to Post- dated October 1, 1980 between Brierwood, Ltd. Effective Amendment No. 1 and the Farmers Home Administration. to Form S-11 Registration Statement (File 2-90617) 174 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- 10.13 Documents Relating to Partnership Interest in Pine Forest Apartments, Ltd. *10.13 (a) Second Amended and Restated Certificate and Exhibit 10.13 (a) to Post- Agreement of Limited Partnership of Pine Forest Effective Amendment No. 1 Apartments, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.13 (b) Promissory Note form dated October 30, 1984, Exhibit 10.13 (b) to Post- Purchase Money Note form dated October 30, Effective Amendment No. 1 1984, Pledge Agreement form dated October 30, to Form S-11 Registration 1984 and Schedule of Promissory Notes, Purchase Statement (File 2-90617) Money Notes and Pledge Agreements between Liberty Housing Partners Limited Partnership and the partners of Pine Forest Apartments, Ltd. *10.13 (c) Promissory Note dated August 6, 1980 from Pine Exhibit 10.13 (c) to Post- Forest Apartments, Ltd. to Farmers Home Effective Amendment No. 1 Administration and related Deed to Secure Debt to Form S-11 Registration dated August 6, 1980 between Pine Forest Statement (File 2-90617) Apartments, Ltd. and Farmers Home Administration. *10.13 (d) Farmers Home Administration Loan Agreement Exhibit 10.13 (d) to Post- dated May 10, 1979 between Pine Forest Effective Amendment No. 1 Apartments, Ltd. and Farmers Home to Form S-11 Registration Administration. Statement (File 2-90617) *10.13 (e) Interest Credit and Rental Assistance Agreement Exhibit 10.13 (e) to Post- dated June 1, 1982 between Pine Forest Effective Amendment No. 1 Apartments, Ltd. and the Secretary of Housing to Form S-11 Registration and Urban Development. Statement (File 2-90617) 10.14 Documents Relating to Partnership Interest in Osuna Apartments Company 175 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.14 (a) Amended and Restated Certificate of Formation Exhibit 10.14 (a) to Post- and Agreement of Limited Partnership of Osuna Effective Amendment No. 2 Apartments Company. To Form S-11 Registration Statement (File 2-90617) *10.14 (b) Promissory Note form dated November 27, 1984, Exhibit 10.14 (b) to Post- Purchase Money Note form dated November 27, Effective Amendment No. 2 1984, Pledge Agreement dated November 27, 1984 to Form S-11 Registration between Liberty Housing Partners Limited Statement (File 2-90617) Partnership, Liberty LGP Limited Partnership and the Sovereign Corporation, and Schedule of Promissory Notes and Purchase Money Notes between Liberty Housing Partners Limited Partnership and the partners of Osuna Apartments Company. *10.14 (c) Mortgage Note dated March 5, 1974 from Osuna Exhibit 10.14 (c) to Post- Apartments Company to Housing America Effective Amendment No. 2 Mortgage Co., Inc. and related Mortgage dated to Form S-11 Registration March 5, 1974 from Osuna Apartments Company Statement (File 2-90617) to Housing Mortgage Co., Inc. *10.14 (d) Regulatory Agreement dated March 5, 1974 Exhibit 10.14 (d) to Post between Osuna Apartments Company and the Effective Amendment No. 2 Secretary of Housing and Urban Development. to Form S-11 Registration Statement (File 2-90617) *10.14 (e) Housing Assistance Payments Contracts dated Exhibit 10.14 (e) to Post- August 7, 1984 between Osuna Apartments Effective Amendment No. 2 Company and the Secretary of Housing and to Form S-11 Registration Urban Development. Statement (File 2-90617) 10.15 Documents Relating to Partnership Interest in Linden Park Associates Limited Partnership 176 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.15 (a) Certificate and Agreement of Limited Partnership Exhibit 10.15 (a) to Post- of Linden Park Associates Limited Partnership. Effective Amendment No. 2 to Form S-11 Registration Statement (File 2-90617) *10.15 (b) Promissory Note form dated December 11, 1984, Exhibit 10.15 (b) to Post- Purchase Money Note form dated December 11, Effective Amendment No. 2 1984, Pledge Agreement dated December 11, 1984 to Form S-11 Registration by and between Liberty LGP Limited Partnership, Statement (File 2-90617) John L. Wagner, Liberty Housing Partners Limited Partnership and Graham Park Venture, and Schedule of Promissory Notes and Purchase Money Notes between Linden Park Associates Limited Partnership and Graham Park Venture. *10.15 (c) Deed of Trust Note and related Deed of Trust Exhibit 10.15 (c) to Post- both dated December 5, 1972 and Allonge of Effective Amendment No. 2 January 29, 1976, Supplemental Deed of Trust to Form S-11 Regis- tration both dated December 17, 1974 and Allonge of Statement (File 2-90617) January 29, 1976, and Second Supplemental Deed of Trust Note and related Second Supplemental Deed of Trust both dated January 29, 1976 all documents between Graham Park Venture and Loyola Federal Savings and Loan Association. *10.15 (d) Loan Assumption Agreement dated March 23, Exhibit 10.15 (d) to Post- 1976 between Pennamco, Inc. and Virginia Effective Amendment No. 2 Housing Development Authority. to Form S-11 Registration Statement (File 2-90617) *10.15 (e) Regulatory Agreement dated December 12, 1984 Exhibit 10.15 (e) to Post- between Linden Park Associates Limited Effective Amendment No. 2 Partnership and the Secretary of Housing and to Form S-11 Registration Urban Development. Statement (File 2-90617) 177 Exhibit Description Page Number or Filing from Numbers ----------- which Incorporated by - ------- Reference -------------------------- *10.15 (f) Regulatory Agreement dated January 31, 1976 Exhibit 10.15 (f) to Post- between Graham Park Venture and Virginia Effective Amendment No. 2 Housing Development Authority. to Form S-11 Registration Statement (File 2-90617) 10.16 Documents Relating to Partnership Interest Brierwood II, Ltd. *10.16 (a) Amended and Restated Certificate and Exhibit 10.16 (a) to Post- Agreement of Limited Partnership of Brierwood Effective Amendment No. 2 II, Ltd. to Form S-11 Registration Statement (File 2-90617) *10.16 (b) Promissory Note form dated January 4, 1985, Exhibit 10.16 (b) to Post- Pledge Agreement form dated January 4, 1985 Effective Amendment No. 2 and Schedule of Promissory Notes and Pledge to Form S-11 Registration Agreements between Liberty Housing Partners Statement (File 2-90617) Limited Partnership and the partners of Brierwood II, Ltd. *10.16 (c) Promissory Note dated January 4, 1985 from Exhibit 10.16 (c) to Post- Brierwood II, Ltd. to Farmers Home Effective Amendment No. 2 Administration and related Deed to Secure Debt to Form S-11 Registration dated January 4, 1985 between Brierwood II, Ltd. Statement (File 2-90617) and Farmers Home Administration. *10.16 (d) Farmers Home Administration Loan Agreement Exhibit 10.16 (d) to Post- dated June 30, 1983 between Brierwood II, Ltd. Effective Amendment No. 2 and Farmers Home Administration. to Form S-11 Registration Statement (File 2-90617) *10.16 (e) Interest Credit and Rental Assistance Agreement Exhibit 10.16 (e) to Post- dated January 4, 1985 between Brierwood II, Ltd. Effective Amendment No. 2 and the Farmers Home Administration. to Form S-11 Registration Statement (File 2-90617) *Incorporated by Reference as noted 178 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (Registrant) By: TNG Properties, Inc., Managing General Partner Date: 3-31-97 By: /s/ Michael A. Stoller Michael A. Stoller President, CEO, and Director of TNG Properties, Inc. Managing General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Vice President, Treasurer and Director (principal financial and accounting officer) of TNG Properties, Inc. Managing General Partner /s/ Wilma R. Brooks 3-31-97 Wilma R. Brooks 179 Signatures, continued SSignature Title Date President, CEO and Director of TNG Properties, Inc. Managing General Partner /s/ Michael A. Stoller 3-31-97 Michael A. Stoller Director of TNG Properties, Inc. Managing General Partner /s/ Stephen D. Puliafico 3-31-97 Stephen D. Puliafico Director of TNG Properties, Inc. Managing General Partner ______________ Clyde W. Sylvia 180