SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Year Ended December 31, 1997 Commission File Number 2-39494 AMERICAN HOUSING PARTNERS A California Limited Partnership I.R.S. Employer Identification No. 95-6345278 12100 Wilshire Boulevard, Suite 1400, Los Angeles, California 90025 Registrant's Telephone Number, Including Area Code (310) 207-0704 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___ No X --- The registrant is a limited partnership and therefore has no voting stock. As of December 31, 1997, 7,005 limited partnership interests ("Interests") were outstanding, which had been issued originally in 1971. The Interests are not currently traded on any market. Therefore, no market selling price and no average bid or asked prices exist for the 60 days prior to the date of filing. TABLE OF CONTENTS Page PART I. Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 4 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II. Item 5. Market for the Registrant's Partnership Interests 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of 8 Financial Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 10 Item 9. Changes in and Disagreements with Accountants 10 on Accounting and Financial Disclosure PART III. Item 10. Directors and Executive Officers of the Registrant 11 Item 11. Executive Compensation 12 Item 12. Partnership Interest Ownership of Certain 12 Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions 12 PART IV. Item 14. Exhibits, Financial Statement Schedules 13 and Reports on Form 8-K PART I ITEM 1. BUSINESS American Housing Partners ("AHP"), a California limited partnership, was formed on June 7, 1971, to invest through local limited partnerships in government assisted multi-family housing developments ("Projects" or "Government-Assisted Properties"). Each local limited partnership owns, individually, a single low to moderate income multi-family housing project which is subsidized and/or mortgage-insured by the federal government. During 1997, and as of December 31, 1997, AHP held interests in five local limited partnerships which own and operate a Project. The general partner of AHP is NIDC Managers, Inc., a Delaware corporation ("NIDMI" or "the General Partner"). See Item 12 "Partnership Interest Ownership of Certain Beneficial Owners and Management". In order to stimulate private investment in low and moderate income housing of the types in which AHP has invested, the federal government has provided investors with significant ownership incentives, including interest subsidies, rent supplements, mortgage insurance and other measures, with the intent of reducing the risks and providing the investors/owners with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. However, there are significant risks inherent in this type of housing. Long- term investments in real estate limit the ability of AHP to vary its portfolio in response to changing economic, financial and investment conditions, and such investments are subject to changes in economic circumstances and housing patterns, rising operating costs and vacancies, rent controls and collection difficulties, costs and availability of energy, as well as other factors which normally affect real estate values. In addition, these projects usually involve greater management burdens and operating expenses than conventional housing projects. AHP's Projects were typically initiated by private developers who optioned or acquired the sites and applied for Federal Housing Administration (FHA) mortgage insurance and subsidies. AHP became the sole limited partner in local limited partnerships formed to become the owners of such Projects. As a limited partner, AHP's liability for obligations of the local limited partnership is limited to its investment. The developer typically became the managing general partner of the local limited partnership, with responsibility for developing, constructing, maintaining, operating and managing the Project. Generally, NIDC Housing Corporation, a Delaware corporation ("NIDHC"), or NIDC Asset Management, Inc., a Delaware corporation ("NIDAM"), is a co-general partner of each local limited partnership. As such, NIDHC or NIDAM has the right to participate in certain decisions that affect AHP's investment in the local limited partnership. NIDHC and NIDAM also have the right to replace the developer as the managing general partner of the local limited partnership and to assume day-to-day operational control of the local limited partnership's affairs upon the occurrence of certain events considered adverse to AHP's investment. NIDHC and NIDAM are affiliates of NIDMI. See Item 12 "Partnership Interest Ownership of Certain Beneficial Owners and Management". Although each of the Projects in which AHP holds an indirect interest must compete in the marketplace for tenants, the receipt of interest subsidies and rent supplements from the federal government make it possible to offer these dwelling units to tenants with low and moderate income at prices below the market rate for comparable dwelling units in the area. During 1997, the Projects operated, in the aggregate, with positive cash flow. The distributions from the local limited partnerships are limited by the Projects' regulatory agreements with HUD or other similar state agencies, to 6% per annum of the original equity provided to the Project (as determined by HUD), payable only when cash is available as determined by a formula provided by HUD. Of the distributions payable to AHP and the general partners of the local limited partnerships at December 31, 1997, a portion is currently payable and the remainder is deferred until there is available cash. In 1983, AHP adopted a policy of selling the Projects in which it holds an interest (through the local limited partnership) when such sale can be made on satisfactory terms and deemed in the best interest of the partners of AHP. This policy resulted in two Project sales in 1983, four Project sales in 1984, one Project sale in 1985 and three Project sales in 1989. Of the 20 Projects in which AHP held an interest through its ownership of local limited partnerships (19 originally and one acquired), five remain and one, Woodbrook Apartments, which was sold in 1985, still has not had a final closing. See Item 2. Properties and Item 3. Legal Proceedings. Due to certain partnership amendments approved by the limited partners in December 1984, NIDMI has been granted additional discretion to consummate the sale of the remaining Projects in which AHP holds an interest. In addition the term of AHP under its original Partnership Agreement expired on December 31, 1993, and has not been renewed. AHP, has, therefore been operating since January 1, 1994 as a partnership in dissolution. As such, AHP cannot acquire new properties or other assets and NIDMI has been obliged to bring about the orderly liquidation of the Partnership, and the distribution of its assets to its Partners. Consequently, NIDMI has continued in its efforts to finalize the sale of the remaining Projects in which AHP holds an interest. NIDMI has been unable to find buyers for interests which continue to be controlled by others at prices sufficient to justify their disposition. Sale of any Project is subject to the approval of all general partners of the local limited partnership as well as approval of any such transfer by HUD. Because either such approval, if not forthcoming, could (as has previously happened) delay or block the sale of any Project owned by that partnership, any attempt to sell an investment has had to be limited to sale of AHP's interest in a local limited partnership. NIDMI has, nevertheless, taken steps to determine the liquidation value of the portfolio. NIDMI has tried to (a) evaluate each property, and (b) assign a value to the Partnership's interest in such property or the debt secured directly or indirectly by such property utilizing a variety of means including an expert review of the evaluation methodologies used. The General Partner has asked the managing general partners of those local limited partnerships still owning properties to make offers to the Partnership and have similarly sought offers from the managing general -2- partners of the partnerships owing money to the remaining local limited partnerships to purchase the wraparound notes and partnership interest. While some properties have sufficient value and marketability to create the possibility, at least that AHP's interest therein could be sold for a reasonable price, other assets may not be readily marketable. For some properties, there may be no buyer whatsoever. While NIDMI has delayed liquidation of AHP because of the difficulty in disposing of assets it does not believe that it can or should delay further, since the Partnership's term has expired. The General Partner will, therefore, sell AHP's assets for the best price available and distribute the proceeds of the sale to the partners. If some sales cannot be completed by that date or some properties cannot be disposed of at all, NIDMI will acquire the unsold assets in order to permit the liquidation and termination of before the beginning of the 1999 tax year. ITEM 2. PROPERTIES AHP holds interests as a limited partner in local limited partnerships that have developed, own, and operate government-assisted multi-family housing developments. See Item 1. Business. The properties were developed from the proceeds of mortgage loans obtained by the local limited partnerships to provide affordable housing to the low and moderate income groups. The five Projects are composed primarily of garden and townhouse type apartments representing 518 units located in four states. The typical Project includes a mix of 1, 2, and 3 bedroom units, laundry facilities and parking areas, with some projects containing a playground and/or swimming pool. The individual units include all normal amenities with most including automatic dishwasher and air conditioning. In 1983, AHP adopted a policy of selling the Projects in which it holds an interest (through the local limited partnership) when such sale can be made on satisfactory terms and deemed in the best interest of the partners of AHP. See Item 1. Business. AHP sold its Partnership interest in 3 Projects in 1989. Set forth below is a schedule as of December 31, 1997 of Projects owned by local limited partnerships in which AHP is a limited partner, together with the current occupancy status of each Project. -3- =========================================================================================================== SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS IN WHICH AHP HAS AN INVESTMENT Name & Location No. Project Type Insured and/or Units Units Units Subsidized Under Authorized Occupied/ For Rental Percentage Assistance Total Units Section 8 =========================================================================================================== Jennifer Apts. 50 Garden FHA Sec. 236 30 50 100% Columbus, OH Milham Meadows I 102 Garden FHA Sec. 236 45 149 99% Portage, MI 48 Townhouse Michigan State Housing Devel Auth Pine Villa 50 Garden FHA Sec.236 40 49 98% Spokane, WA Tanglewood Terrace 196 Garden FHA Sec. 221(d)(4) * 178 91% Texarkana, TX Woodhaven Apts. 72 Garden FHA Sec. 221(d)(4) * 70 97% Spokane, WA * RENTS DECONTROLLED IN 1984. ITEM 3. LEGAL PROCEEDINGS The 1991 Report contained a description of a series of administrative and legal proceedings relating to disputes between the Department of Housing and Urban Development ("HUD") and Associated Financial Corporation ("AFC") and its affiliates (collectively, the "AFC Group"). Members of the AFC Group include both General Partners of the Partnership and general partners of the Operating Partnerships. The information relating to such proceedings, contained on pages 4 through 30 of the 1991 Report, is incorporated herein by this reference. In April, 1994, members of the AFC Group entered into a comprehensive settlement agreement with HUD (the "Settlement Agreement") on terms which the General Partners believe are decisively favorable to the AFC Group. Under the Settlement Agreement, all of HUD's administrative proceedings against members of the AFC Group, including those relating to the dispute regarding Westport Housing Corporation, were dismissed on terms which do not permit HUD to reinstitute any of the proceedings, and HUD agreed to refrain from using any of the facts it alleged in the administrative proceedings or other facts relating to the current condition of the properties owned by members of the AFC Group in any future administrative proceedings. HUD also terminated the 1992 suspension and proposed debarment of the members of the AFC Group, including the General Partners. Under the Settlement Agreement, members of the AFC Group will regain the unrestricted right to participate in HUD programs and otherwise do business with HUD with respect to Government Assisted Properties. -4- As described on pages 6-9 of the 1991 Report, which pages are incorporated herein by this reference, the various partnerships affiliated with the AFC Group and others initiated an action against HUD officials in United States District Court in January, 1993. In one case involving the Germano Partnership, the District Court judge granted to the plaintiffs substantially all the relief they had requested, including requiring HUD to renew its Section 8 Housing Assistance Payments Contract ("HAP Contract") with the Germano Partnership. The plaintiffs in three similar District Court actions, described or referred to on pages 9-12 of the 1991 Report and each involving a property owned by a member of the AFC Group, also obtained substantially all the relief they sought, including in each case renewing an existing HAP Contract or entering into a new HAP Contract. After obtaining the relief they sought, the plaintiffs in the District Court actions consented to dismissals of the actions. In view of the favorable results they had obtained in the District Court actions, plaintiffs in the four actions filed petitions for attorney's fees against HUD. Under the Settlement Agreement, HUD agreed to pay a total of approximately $167,500 to plaintiffs in the District Court actions, and the plaintiffs agreed to move for dismissal of their petitions for attorney's fees. The 1991 Report contained a description of a civil action relating to Tyler House, a Government-Assisted Property in which affiliates of the General Partners had invested. See pages 24 and 29 of the 1991 Report, which information is incorporated herein by this reference. As indicated therein, the defendants appealed the judgments based upon the verdict against them. The appellate court subsequently denied the defendants' appeal, and the defendants then duly satisfied the judgment. The General Partners' prediction that the judgment would not interfere with the performance by the General Partner of its duties to the Partnership and that the Partnership would not be adversely affected by the result in the litigation proved to be correct. On May 8, 1997, the United States filed an action against Associated Financial Corporation, certain members of the AFC Group, including Messrs. Ross and Rozet, and others, in the United States District Court for the Northern District of California charging that the defendants were wrongfully participating in the fees earned by the management agent for several properties (not including any of the properties invested in by the Partnership) and had not disclosed this arrangement and, thus, were violating provisions of the applicable regulatory agreements and other agreements governing the subject properties. The Complaint did, however, allege that the defendants made certain false claims regarding the condition of the Sierra Nevada property. Defendants filed an answer on August 11, 1997, denying the material allegations of the Complaint, and asserting various separate and additional defenses. The government filed an amended complaint on March 2, 1998, adding additional defendants none of whom are part of the AFC Group and added a claim that the defendants, including the new defendants made false claims in connection with the obtaining of insurance for various HUD-insured properties. The defendants have filed answers to the First Amended Complaint, again denying the material allegations of the Complaint and asserting various separate and additional defenses. While substantial document discovery has been completed, the defendants intend to move to compel significant delivery from the government of substantial additional documentation. -5- Deposition discovery is in its early stages. Given the defendants need to obtain significant additional discovery, counsel can offer no opinion as to the outcome of the litigation at this time. The General Partner believes that when all of the facts are presented to an impartial judge, the defendants will be exonerated. However, the complaint contains serious allegations against the defendants and every effort will be made to show that the government is wrong in bringing the lawsuit. At this time, the general partner does not believe that there will be any material adverse affect to the Partnership and the operation of its investments, much like the previous litigation with HUD described above. Woodbrook Apartments A suit was commenced in January, 1976, in the New York Supreme Court by Woodbrook Houses Associates against Hercoform Marketing (the general contractor), Tiffany-Armstrong (the architect), Beardsley and Beardsley (site engineers) and Seaboard Surety Company (the general contractor's insurer) to recover damages for construction deficiencies. The cost of correcting these deficiencies and the additional expenses caused by these deficiencies is estimated to exceed $700,000. The general contractor has interposed counterclaims in the amount of $58,000. Because of the complexity of this lawsuit, legal counsel cannot express an opinion on its probable outcome. As a condition of the sale of Woodbrook Apartments, primary responsibility to pursue this matter shifted to the new owners, CPY Partnership. However, the Registrant continues to be involved in the case and will share in the case and will share in any ultimate award or settlement obtained by Woodbrook Houses Associates. A suit involving Woodbrook Apartments was commenced on January 11, 1983 in the New York Supreme Court by K-Line Windows, Inc. against Mayzan Management Corporation (the on-site management company for Woodbrook Apartments) and NIDAM. The action is based upon a claim for an unpaid contract sum for the installation of storm windows at the project. On September 4, 1984, a summary judgment was granted to the plaintiff in the amount of $56,877. The defendants have interposed various motions to delay execution of this judgment. Settlement negotiations are presently underway to resolve this judgment. As a condition of the sale of Woodbrook Apartments, CPY Partnership agreed to assume full financial responsibility for the settlement of this suit although NIDAM remains a defendant in this action. At this time, it appears that neither of the two foregoing lawsuits is being actively pursued by any party to either suit. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year ending December 31, 1997 to a vote of security holders. -6- PART II ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AHP partnership interests are not actively traded and no public trading market exists. From time to time, a sale of the partnership interests is made at a price negotiated between the buyer and seller. The transactions are handled through a limited number of broker-dealers. As of December 31, 1997 there were 5 general partner interests held by NIDMI and 7,005 limited partner interests held by 508 limited partners. This figure is based upon the number of record holders as reported by the Registrant's transfer agent. During 1993 no cash distributions were made. During 1994 no cash distributions were made. During 1995 no cash distributions were made. During 1996 no cash distributions were made. During 1997 no cash distributions were made. -7- ITEM 6. SELECTED FINANCIAL DATA The following summary of selected financial data should be read in conjunction with Item 14, herein, which also includes a summary of AHP's significant accounting policies. - ------------------------------------------------------------------------------- FOR THE YEAR 1997 1996 1995 1994 1993 ENDED DEC. 31:- Interest and other income 48,455 5,705 3,625 2,533 -0- Distributions in 122,705 20,513 103,400 559,041 62,409 excess of investment Income (Loss) 33,600 (45,549) 30,334 369,769 (10,878) from operations NET EARNINGS 33,600 (45,549) 30,334 369,769 (10,878) (Loss) Net earnings 4.79 (6.50) 4.33 52.75 (1.55) (loss) per partnership interest AT YEAR END: Total Assets 4,834,990 4,778,600 9,768,431 9,851,368 9,725,524 Long-term debt 5,768,489 5,781,499 10,769,092 10,874,083 11,026,594 Partners' deficit(1,045,813) (1,079,413) (1,033,864) (1,064,198) (1,433,967) Deficit per (149.19) (153.98) (147.48) (151.81) (204.56) partnership interest Distributions -0- -0- -0- -0- -0- per partnership Interest Number of 508 519 513 517 509 limited partners ------------------------------------------------------------------------------------------------------ ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. RESULTS OF OPERATIONS: Payments received in 1997, 1996 and 1995 on notes receivable resulting from project sales in prior years were limited to the amounts required to service the underlying HUD mortgages on these projects. The Partnership also received surplus cash distributions of -8- $122,705, $20,513 and $103,400 for 1997, 1996, and 1995, respectively. For income tax purposes, AHP's share of net interest income recognized on the notes receivable was $79,077 for 1997, compared with $112,578 and $104,991 for 1996 and 1995, respectively. For financial statement purposes, as the sales are accounted for under the cost recovery method, all interest income is deferred until the cost of the respective property is recovered. HUD took possession of one project owned by one of the purchaser partnerships effective November 1, 1994 and commenced foreclosure proceedings. The foreclosure was completed in January, 1996 and, as a result, the Partnership lost its interest in the assets acquired and liabilities assumed in connection with the original sale. Based on the accounting policy of the Partnership as described in Note A.(3) to the Financial Statements, there was no net effect on the financial statements as a result of the foreclosure. The assets and liabilities written off as a result of the foreclosure are as follows: Deferred cash payment receivable $ (338,778) All-inclusive residual not receivable (6,549,300) Accrued interest receivable (2,846,145) Underlying mortgage payable 4,875,015 Deferred income 4,909,804 Reclassification of deferred income to allowance for uncollectibility of amounts due from affiliates (50,596) ------------- Net Effect $ - 0 - Total revenue generated in 1997 was $171,160 compared with $26,218 and $107,025 for 1996 and 1995, respectively. For all three years, distributions received from partnerships in which AHP holds interests represent more than 71% of total revenue. For income tax purposes, cash distributions received are treated as offsets to investment. Total expenses for 1997 were $137,560, compared with $71,767 and $76,691 for 1996 and 1995, respectively, an increase of 92% from 1996 to 1997 and a decrease of 6% from 1995 to 1996. The increase in 1997 compared to 1996 is mainly due to an increase in professional fees. Net income for 1997 was $33,600 compared to net loss of $45,549 and net income of $30,334 for 1996 and 1995 respectively. LIQUIDITY AND CAPITAL RESOURCES: Although the Partnership is actively seeking to divest itself of projects in which it has investments, the financial health and operating prospects of the remaining projects is still viable. Distributions of cash are still being received from the remaining projects, and the Partnership continues to receive proceeds from the prior sales. There are currently no appreciable problems with projects owned by partnerships in which AHP holds interests. -9- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements together with the auditors' report thereon are set forth at the pages indicated in Item 14 (a)(1) and (2). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None -10- PART III ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT AHP has no officers or directors. The officers and directors of NIDMI (the General Partner) are as follows: NAME POSITION Deane Earl Ross Director, President and Treasurer A. Bruce Rozet Director and Chief Executive Officer Suzanne Magnuson Secretary The following biographical information is presented for the officers and directors of NIDMI. Mr. Ross has been a principal officer of the Associated Financial Corporation ("AFC") group of companies, including affiliates of the General Partner, since the inception of a predecessor corporation, Oakdale Corporation, a California corporation (which is now a wholly-owned subsidiary), in 1973. The AFC organization, including certain predecessors, has been continuously engaged in the field of government-assisted low to moderate income housing developments since its inception. Mr. Ross is a real estate executive with more than 35 years' experience in the field of government-assisted housing. In 1987, he testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs on matters relating to housing legislation. Mr. Ross earned a Bachelor's Degree in Real Estate & Finance from the Wharton School of Finance & Commerce of the University of Pennsylvania. Mr. Rozet has been Chairman of the Board of Associated Financial Corporation and certain of its Affiliates, including AFC Capital Corporation, since 1984, except for a brief period from August 1985 to February 1986. Concurrently, from 1975 until 1987, he was also Chairman of the Board of National Development Services Corporation, a California corporation engaged in providing consulting services principally relating to the financial structuring of government-assisted, low to moderate income housing developments. Mr. Rozet has been a financier for more than 25 years with substantial experience in the field of real estate, most significantly relating to government subsidized multi-family residential housing. Since 1972, Mr. Rozet has been involved in the equity financing of approximately 500 government- assisted apartment developments relating to approximately 50,000 apartment units. Mr. Rozet has served on a task force for the U.S. Department of Housing and Urban Development formed to aid HUD personnel in the development and implementation of advanced processing procedures. Mr. Rozet has also provided consulting services to Congressional staff personnel with respect to housing legislation. In 1988, Mr. Rozet testified before the U.S. House of Representatives Committee on Ways and Means on matters relating to the Low Income Housing Tax Credit. -11- Mr. Rozet earned a Bachelor of Science Degree in Industrial Engineering from Pennsylvania State University and completed graduate studies in Corporate Finance and Strategic Planning at the University of California at Los Angeles (UCLA). Ms. Magnuson is Secretary of National Palisades Corporation and has been an executive officer to certain of its affiliates and predecessors since 1977. In June, 1987, Ms. Magnuson became Secretary of NIDMI. ITEM 11. EXECUTIVE COMPENSATION AHP has no executive officers. No person acting in such capacity received compensation in 1997 directly or indirectly from AHP. ITEM 12. PARTNERSHIP INTEREST OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No person is known to own beneficially in excess of five percent of the outstanding partnership interests of AHP. NIDMI, the General Partner, holds five non-voting General Partnership Interests and five voting Limited Partnership Interests. NIDMI is beneficially owned by A. Bruce Rozet and Deane Earl Ross, who are the Directors and executive officers of NIDMI. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS NIDAM earned management fees of $50,000 during 1997 from AHP, which represents 18.3% of NIDAM's total revenue during 1997. NIDAM and NIDHC are general partners in the local limited partnerships in which AHP has invested. A. Bruce Rozet and Deane Earl Ross, the Directors of NIDMI, beneficially own and are executive officers of NIDAM and NIDHC. -12- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K: (a)The following documents are filed as part of this report: (1) Financial Statements: PAGE Report of Independent Certified Public Accountants F-1 Balance Sheets - December 31, 1997 and 1996 F-2 Statements of Operations for the Three Years Ended December 31, 1997 F-3 Statements of Partners' Deficit for the Three Years Ended December 31, 1997 F-4 Statements of Cash Flows for the Three Years Ended December 31, 1997 F-5 Notes to the Financial Statements F-6 (2) Financial Statement Schedules: Report of Independent Certified Public Accountants S-1 Schedule IV Amounts Due from Related Parties S-2 Schedule XI Real Estate and Accumulated Depreciation of Limited Partnerships in which the Partnership has an Investment S-5 Schedule XII Mortgage Loans on Real Estate S-8 Schedule XIII Investments in and Advances to Limited Partnerships S-11 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K No reports on Form 8-K were filed by AHP during the last quarter of fiscal year 1997. -13- 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. AMERICAN HOUSING PARTNERS a California limited partnership By: NIDC Managers, Inc. General Partner Date: July 16, 1998 By: /s/ Deane Earl Ross ----------------------------- Deane Earl Ross President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: July 16, 1998 By: /s/ A. Bruce Rozet -------------------------------------- A. Bruce Rozet, Chairman of the Board and Chief Executive Officer of NIDC Managers, Inc. Date: July 16, 1998 By: /s/ Deane Earl Ross -------------------------------------- Deane Earl Ross, Director, President and Treasurer (Chief Financial Officer and Chief Accounting Officer) of NIDC Managers, Inc. -14- [LETTERHEAD OF BAY SHERMAN CRAIG & GOLDSTEIN, LLP APPEARS HERE] Report of Independent Certified Public Accountants -------------------------------------------------- To the Partners American Housing Partners We have audited the accompanying balance sheets of American Housing Partners (a California limited partnership) as of December 31, 1997 and 1996 and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain limited partnerships in which the Partnership has an investment, the statements of which reflect total assets and revenues constituting 100% of the combined totals of the limited partnerships in the years presented. These statements were audited by other auditors, whose reports thereon have been furnished to us and our opinion, insofar as it relates to the amounts included in Note C for those limited partnerships, is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of American Housing Partners as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Bay Sherman Craig & Goldstein, LLP Los Angeles, California June 19, 1998, except for Note H, as to which the date is July 7, 1998 F-1 AMERICAN HOUSING PARTNERS BALANCE SHEETS DECEMBER 31, ASSETS 1997 1996 ------------ ------------ Cash $ 9,948 $ 14,753 Notes receivable, deferred cash payments and accrued interest from related parties - Net of deferred gain and deferred interest income (Notes A, B and D) 4,475,523 4,488,533 Due from affiliates (Note G) 349,519 275,314 Investments in and advances to limited partnerships (Notes A and C) - - ---------- ---------- $ 4,834,990 $ 4,778,600 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Accounts payable $ 63,094 $ 27,294 Due to asset management company 49,220 49,220 Mortgages payable (Note D) 5,224,724 5,237,734 Loans payable (Note D) 543,765 543,765 ----------- ----------- 5,880,803 5,858,013 ----------- ----------- Contingent liability (Note H) Partners' deficit (Note I): Limited partners (1,045,069) (1,078,645) General partner (744) (768) ----------- ----------- (1,045,813) 1,079,413) ----------- ----------- $ 4,834,990 $ 4,778,600 =========== =========== See notes to the financial statements. F-2 AMERICAN HOUSING PARTNERS STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 1996 1995 -------- --------- --------- REVENUES: Distributions in excess of investment (Note C) $122,705 $ 20,513 $ 103,400 Interest 48,455 5,705 3,625 -------- -------- --------- 171,160 26,218 107,025 -------- -------- --------- EXPENSES: Management fees (Note E) 50,000 50,000 50,000 Professional fees 84,000 17,402 23,250 Communication with partners 3,209 4,115 3,441 Miscellaneous 351 250 - -------- -------- --------- 137,560 71,767 76,691 -------- -------- --------- NET INCOME (LOSS) (Notes A and F) $ 33,600 $(45,549) $ 30,334 ======== ======== ========= Net income (loss) per partnership unit (based upon 7,010 units) $ 4.79 $ (6.50) $ 4.33 ======== ======== ========= See notes to the financial statements. F-3 AMERICAN HOUSING PARTNERS STATEMENTS OF PARTNERS' DEFICIT YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 Limited General Total Partners Partner --------- ----------- ------- Partnership units throughout the period 7,010 7,005 5 ===== ===== = Balance, January 1, 1995 $(1,064,198) $(1,063,440) $(758) Net income 30,334 30,312 22 ----------- ----------- ----- Balance, December 31, 1995 (1,033,864) (1,033,128) (736) Net loss (45,549) (45,517) (32) ----------- ----------- ----- Balance, December 31, 1996 (1,079,413) (1,078,645) (768) Net income 33,600 33,576 24 ----------- ----------- ----- Balance, December 31, 1997 $(1,045,813) $(1,045,069) $(744) =========== =========== ===== See notes to the financial statements. F-4 AMERICAN HOUSING PARTNERS STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 33,600 $(45,549) $ 30,334 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: (Increase) decrease in: Due from asset management company - - (1,560) Accrued interest receivable (5,705) (5,705) - Increase (decrease) in: Accounts payable 35,800 (5,909) (7,500) Management fee payable - 50,000 - -------- -------- -------- Net cash provided (used) by operating activities 63,695 (7,163) 21,274 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans to affiliates (68,500) - (16,625) -------- -------- -------- Net cash used in investing activities (68,500) - (16,625) -------- -------- -------- NET INCREASE (DECREASE) IN CASH (4,805) (7,163) 4,649 Cash at beginning of year 14,753 21,916 17,267 -------- -------- -------- Cash at end of year $ 9,948 $ 14,753 $ 21,916 ======== ======== ======== Noncash investing and financing activities: 1. Net principal payments on mortgages payable were made by buyers on behalf of the Partnership totaling $13,010, $112,578 and $104,991 during the years ended December 31, 1997, 1996 and 1995, respectively. 2. Noncash amounts related to the foreclosure of the Sierra Nevada project in 1996 (see Note B): Write off deferred cash payment receivable $ (338,778) Write off all-inclusive residual note receivable (6,549,300) Write off accrued interest receivable (2,846,145) Write off deferred income 4,859,208 Write off mortgage payable 4,875,015 ----------- $ - =========== See notes to the financial statements. F-5 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. (1) Organization and Line of Business American Housing Partners (the Partnership) was formed as a limited partnership on June 7, 1971 under the laws of the State of California, with its general partner, NIDC Managers, Inc. (NIDMI), owning five partnership interests and the initial limited partner owning five partnership interests. On August 31, 1971, the Partnership issued 7,000 partnership interests to limited partners through a public offering. The Partnership is engaged primarily in investing in limited partnerships that own and operate government-assisted, multi-family, residential rental projects. The general partners of the limited partnerships generally are affiliates of NIDMI. The accompanying financial statements include only the assets, liabilities, results of operations and cash flows which relate to the Partnership, and not those attributable to the partners' individual activities. (2) Investments in Limited Partnerships The Partnership uses the equity method to account for its investments in limited partnerships. Accordingly, for financial statement purposes, when the carrying value of the investment has been reduced to zero, the Partnership discontinues recognizing its share of the limited partnerships' losses and recognizes cash distributions as income when received. (3) Revenue Recognition Gains on the sale of investments in limited partnerships are accounted for using the cost recovery method. Under this method, no gain is recognized until cash payments by the buyers to the Partnership exceed the Partnership's investments in the limited partnerships sold and all accrued interest has been received. F-6 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (4) Income Taxes No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. (5) Cash Equivalents The Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. (6) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B. SALES OF INVESTMENTS IN LIMITED PARTNERSHIPS TO RELATED PARTIES Prior to 1985, six limited partnerships in which the Partnership had an interest disposed of the multi-family, HUD-regulated, residential rental projects and certain other assets and liabilities owned by them. The projects were sold for various sales prices consisting of cash down payments, deferred cash payments due in future annual installments and the remainder due in the form of nonrecourse all-inclusive residual notes receivable. The residual notes, which include the unpaid principal balances of the related underlying HUD mortgages, bear interest at 14% per annum and are collateralized by the various purchasers' partnership interests. The residual notes contain provisions which limit the accrual of interest if the sum of the unpaid principal plus accrued interest exceeds the appraised value of the respective project at specified dates. Based on values determined by management, the accrual of interest on two residual notes, one of which was lost through foreclosure in 1996, was suspended as of January 1, 1992. All unpaid principal and interest is due in full through 2024. F-7 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 B. SALES OF INVESTMENTS IN LIMITED PARTNERSHIPS TO RELATED PARTIES (CONTINUED) The sales were made to partnerships whose general partners currently are affiliates of the general partner of the Partnership (two purchasing partnerships were related prior to 1985 and the remaining four partnerships became related during 1986). Concurrent with the sales, the Partnership was assigned its share of the selling limited partnerships' rights and beneficial interests in and to the resulting residual notes receivable and the related underlying HUD mortgages, and also loans payable to the former managing general partners (Note D), none of which were assumed by the purchasers. In 1985, the Partnership was assigned its share of the remaining assets of the limited partnerships. HUD took possession of the project owned by one of the purchaser partnerships effective November 1, 1994 and commenced foreclosure proceedings. The foreclosure was completed in January, 1996 and, as a result, the Partnership lost its interest in the assets acquired and liabilities assumed in connection with the original sale. Based on the accounting policy of the Partnership as described in Note A.(3), there was no net effect on the financial statements as a result of the foreclosure. The assets and liabilities written off as a result of the foreclosure are as follows: Deferred cash payment receivable $ (338,778) All-inclusive residual note receivable (6,549,300) Accrued interest receivable (2,846,145) Underlying mortgage payable 4,875,015 Deferred income 4,909,804 Reclassification of deferred income to allowance for uncollectibility of amounts due from affiliates (50,596) ----------- Net Effect $ - =========== F-8 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 B. SALES OF INVESTMENTS IN LIMITED PARTNERSHIPS TO RELATED PARTIES (CONTINUED) Additionally, in 1982, the Partnership and an unaffiliated individual sold their entire interest in a limited partnership to a partnership whose general partner is an affiliate of the general partner of the Partnership. The Partnership sold its interest for $823,000, of which $400,000 was received in cash and the remaining $423,000 is in the form of a note receivable, bearing interest at 19.5% per annum, due in 2002. The note is collateralized by the purchaser's partnership interest. Under the sales agreement, the individual will receive the next $800,000 in cash; thereafter, the additional payments will be split one-third to the Partnership and two-thirds to the individual. Under the terms of all the sales agreements, the purchasers' obligations to make payments on the notes receivable are limited to the purchasers' share of the allowable surplus cash distributions (as defined by HUD) received from the projects. These distributions may not exceed the aggregate of $38,163 annually, plus prior allowable distributions. No surplus cash distributions were received by the Partnership from the projects in 1995, 1996 and 1997. Aggregate allowable distributions were $432,326 at December 31, 1997. The purchasers are also obligated to make the payments on the related underlying HUD mortgages payable (Note D). Amounts due from the related parties in connection with these sales are summarized as follows: 1997 1996 ------------ ------------ Deferred cash payments due in various installments through 1987. At December 31, 1987, all remaining payments became delinquent $ 160,288 $ 160,288 All-inclusive residual notes receivable 11,704,225 11,704,225 Note receivable 423,000 423,000 Accrued interest receivable 14,750,915 13,876,305 Deferred gain on sales (5,824,572) (5,824,572) Deferred interest income (16,738,333) (15,850,713) ------------ ------------ $ 4,475,523 $ 4,488,533 ============ ============ F-9 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 C. INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS The Partnership owns partnership interests in the following limited partnerships, each of which owns and operates a multi-family residential rental project: Homestead Limited Dividend Housing Association Pine Villa Associates Tanglewood Terrace, Ltd. Woodhaven Apartments Associates Columbia - Jennifer, Ltd. The projects are regulated by HUD as to the rent charges and operating methods. The mortgage loan obligations of the limited partnerships are insured by HUD and the interest payments are subsidized by HUD under Sections 221(d)(4) and 236 of the National Housing Act. As the limited partner, the Partnership is generally entitled to 99% of the profits and losses and varying lesser percentages of the proceeds from the sale or refinancing of the projects of each limited partnership in which it has invested. The following is a summary of the changes in the investments in and advances to the limited partnerships in which the Partnership had an equity interest: 1997 1996 ---------- ---------- Balance, beginning of year $ - $ - Distributions from limited partnerships: Total distributions received (122,705) (20,513) Distributions received in excess of carrying values of the investments 122,705 20,513 --------- --------- - - --------- --------- Equity in net income of limited partnerships: Net income 157,567 158,939 Net income not recognized as the carrying values of the investments are at zero (157,567) (158,939) --------- --------- Net income recognized - - --------- --------- Balance, end of year $ - $ - ========= ========= F-10 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 C. INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS (CONTINUED) Summarized balance sheets and statements of operations for the limited partnerships in which the Partnership has an equity interest are as follows: BALANCE SHEETS ASSETS 1997 1996 ------------ ------------ Property and equipment, at cost: Buildings, equipment and furnishings $14,121,417 $13,993,302 Less accumulated depreciation 9,284,950 8,898,339 ----------- ----------- 4,836,467 5,094,963 Land 726,638 724,688 ----------- ----------- 5,563,105 5,819,651 Cash 238,361 322,009 Other assets 2,067,692 2,012,244 ----------- ----------- $ 7,869,158 $ 8,153,904 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Mortgages payable $10,459,925 $10,672,230 Other liabilities 959,142 995,703 ----------- ----------- 11,419,067 11,667,933 Partners' deficit (3,549,909) (3,514,029) ----------- ----------- $ 7,869,158 $ 8,153,904 =========== =========== Partnership's share of partners' deficit $(2,829,891) $(2,880,277) Cumulative cash distributions and losses from limited partnerships in excess of the Partnership's investment 2,829,891 2,880,277 ----------- ----------- Investments in and advances to limited partnerships $ - $ - =========== =========== F-11 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 C. INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS (CONTINUED) STATEMENTS OF OPERATIONS 1997 1996 1995 ----------- ----------- ----------- Revenues: Rental $2,983,843 $2,779,632 $2,697,708 Other 173,198 275,444 281,498 ---------- ---------- ---------- 3,157,041 3,055,076 2,979,206 ---------- ---------- ---------- Expenses: Operating 1,826,649 1,755,620 1,852,040 Depreciation 386,611 388,644 380,015 Interest 780,201 745,791 733,447 ---------- ---------- ---------- 2,993,461 2,890,055 2,965,502 ---------- ---------- ---------- NET INCOME $ 163,580 $ 165,021 $ 13,704 ========== ========== ========== Partnership's share of net income $ 157,567 $ 158,939 $ 9,363 Net income not recognized as the carrying values of the investments have been reduced to zero (157,567) (158,939) (9,363) ---------- ---------- ---------- Equity in net income of limited partnerships recognized $ - $ - $ - ========== ========== ========== F-12 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 D. MORTGAGES AND LOANS PAYABLE As discussed in Note B, the Partnership was assigned interests in certain underlying HUD mortgages on the multi-family residential rental projects disposed of by limited partnerships in which the Partnership had an investment. In February 1997, one of the HUD mortgages was paid with the proceeds of a conventional loan. Responsibility for servicing the HUD mortgages remains with the sellers. The Partnership's share of the mortgages is due in various monthly installments totaling $44,484, including interest at 7% to 10% per annum, through October, 2014. The mortgages are collateralized by the apartment projects and the HUD mortgages are held by the Federal National Mortgage Association and insured by HUD. The following is a schedule of the Partnership's share of future maturities of the underlying HUD mortgages payable as of December 31, 1997: Years ending December 31, ------------ 1998 $1,538,782 1999 148,461 2000 159,197 2001 170,702 2002 183,042 Thereafter 3,024,540 ----------- $ 5,224,724 =========== Subsequent to December 31, 1997, the conventional loan was paid with the proceeds of a new conventional loan, thereby reducing the 1998 maturities by approximately $1,195,000. The Partnership was also assigned interests in certain loans, aggregating $543,765 at December 31, 1997 and December 31, 1996. The loans are payable to the prior managing general partners of the limited partnerships in which the Partnership had an investment and were not assumed by the purchasers. The loans were originally made to finance construction costs that exceeded the original partners' capital contributions and the proceeds from the related HUD mortgages. Theses loans are non-interest bearing and are payable based upon certain liquidation provisions in the various limited partnership agreements. F-13 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 E. MANAGEMENT AND LIQUIDATION FEES PAYABLE The Partnership entered into a management contract with NIDC Asset Management, Inc. (NIDAM), an affiliate of the general partner of the Partnership, for the performance of certain services. The contract expires December 31, 1998, and continues thereafter on a month-to-month basis. Under the management contract, NIDAM pays the general and administrative expenses of the Partnership, except for legal and accounting expenses and the cost of communicating with the limited partners. NIDAM earns an annual management fee based on the average annual tax deductions plus cash distributions per partnership interest, which can range from one-tenth to one-quarter of one percent of the Partnership's invested assets (defined as the Partnership's investment in and its share of the mortgage debt of the limited partnerships in which it has invested). The minimum management fee is $50,000 per year. Additionally, the management contract provides that NIDAM is entitled to a liquidation fee from the sale of projects by the limited partnerships (to other than affiliates of the management company), once the requisite approval for a total or partial liquidation has been obtained. No liquidation fees were paid in 1995, 1996 and 1997. F-14 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 F. FEDERAL TAXABLE INCOME The following is a reconciliation between the net income (loss) per the financial statements and the net earnings for federal income tax purposes: 1997 1996 1995 ---------- ----------- ---------- Net income (loss), financial statement basis $ 33,600 $ (45,549) $ 30,334 Equity in income of limited partnerships recognized for tax purposes but not recognized for financial statement purposes because the carrying values of the investments have been reduced to zero 222,816 2,558,986 33,017 Distributions in excess of investments in and advances to limited partnerships (122,705) (20,513) (103,400) Net interest income recognized on residual notes receivable for tax purposes but deferred for financial statement purposes 79,077 112,578 104,991 Variation in accounts payable and accrued items 32,368 37,490 2,081 --------- ---------- --------- Net income, federal income tax basis $ 245,156 $2,642,992 $ 67,023 ========= ========== ========= Federal tax basis net income per partnership unit (based upon 7,010 units) $34.97 $377.03 $9.56 ========= ========== ========= F-15 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 G. DUE FROM AFFILIATES The Partnership has loaned funds to certain affiliated entities. The balances receivable as of December 31, 1997 and 1996 are comprised of the following: 1997 1996 -------- -------- Advances $466,547 $398,047 Accrued interest 17,568 11,863 -------- -------- 484,115 409,910 Less: Allowance for uncollectibility 134,596 134,596 -------- -------- $349,519 $275,314 ======== ======== H. CONTINGENT LIABILITY On May 8, 1997, the United States filed an action against Associated Financial Corporation ("AFC") and its affiliates (collectively, the "AFC Group") and others, in the United States District Court for the Northern District of California charging that the defendants were wrongfully participating in the fees earned by the management agent for several properties (not including any of the properties invested in by the Partnership) and had not disclosed this arrangement and, thus, were violating provisions of the applicable regulatory agreements and other agreements governing the subject properties. The Complaint did, however, allege that the defendants made certain false claims regarding the condition of one property in which the Partnership had an interest in a deferred cash payment receivable, an all-inclusive residual note receivable and accrued interest receivable and was obligated on an underlying mortgage payable. This property was lost through foreclosure in January, 1996 and, as a result, the Partnership lost its interest in these items. Defendants filed an answer on August 11, 1997, denying the material allegations of the Complaint, and asserting various separate and additional defenses. The government filed an amended complaint on March 2, 1998, adding additional defendants none of whom are part of the AFC Group and added a claim that the defendants, including the new defendants, made false claims in connection with the obtaining of insurance for various HUD-insured properties. The defendants have filed answers to the First Amended Complaint, again denying the material allegations of the Complaint and asserting various separate and additional defenses. F-16 AMERICAN HOUSING PARTNERS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 H. CONTINGENT LIABILITY (Continued) While substantial document discovery has been completed, the defendants intend to move to compel significant delivery from the government of substantial additional documentation. Deposition discovery is in its early stages. Given the defendants' need to obtain significant additional discovery, counsel can offer no opinion as to the outcome of the litigation at this time. The general partner believes that when all of the facts are presented to an impartial judge, the defendants will be exonerated. However, the complaint contains serious allegations against the defendants and every effort will be made to show that the government is wrong in bringing the lawsuit. At this time, the general partner does not believe that there will be any material adverse effect to the Partnership and the operation of its investments. I. PARTNERSHIP STATUS The term of the Partnership, under its original Partnership Agreement, expired on December 31, 1993 and has not been renewed. As a result, the Partnership has been operating since January 1, 1994 as a partnership in dissolution. Therefore, no new properties or other assets can be acquired and the general partner has been obligated to bring about the orderly liquidation of the Partnership and the distribution of its assets to its partners. The general partner has delayed liquidation of the Partnership because of difficulty in disposing of the assets, but it does not believe that the liquidation should be delayed further. The general partner will, therefore, sell the assets for the best price available and distribute the proceeds to the partners. If some assets cannot be disposed of, the general partner will acquire them in order to permit the liquidation and termination of the Partnership by December 31, 1998. F-17 [LETTERHEAD OF BAY SHERMAN CRAIG & GOLDSTEIN, LLP APPEARS HERE] Report of Independent Certified Public Accountants on Schedules --------------------------------------------------------------- The Partners American Housing Partners In connection with our audits of the financial statements of American Housing Partners referred to in our report dated June 19, 1998, which is included in Part II of this Form 10-K, we did not audit the financial statements of certain limited partnerships in which the Partnership has an investment, the statements of which reflect total assets and revenues constituting 100% of the combined totals of the limited partnerships in the years presented. Such statements were audited by other auditors, whose reports thereon have been furnished to us. Insofar as the information presented on Schedules IV, XI, XII and XIII as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 relates to these limited partnerships, our opinion is based solely upon the reports of other auditors. In our opinion, based on our audits and the reports of other auditors, these schedules present fairly, in all material respects, the information required to be set forth therein. /s/ Bay Sherman Craig & Goldstein, LLP Los Angeles, California June 19, 1998 S-1 AMOUNTS DUE FROM RELATED PARTIES - CONTINUED YEAR ENDED DECEMBER 31, 1997 SCHEDULE IV Balance at Reductions Balance at January 1, and December 31, Partnerships 1997 Additions Payments 1997 - --------------------------------------- ----------- ------------ ----------- ----------- Deferred Cash Payments Receivable: Country Acres Limited Partnership $ 6,582 $ - $ - $ 6,582 Northview Limited Partnership - - - - Springwater Limited Partnership - - - - Sunflower Park Limited Partnership 137,000 - - 137,000 Thunderbird Apartments, Ltd. I 16,706 - - 16,706 ----------- --------- ----------- ----------- 160,288 - - 160,288 ----------- --------- ----------- ----------- 14% All-inclusive Notes Receivable: Country Acres Limited Partnership 2,375,000 - - 2,375,000 Northview Limited Partnership 1,875,000 - - 1,875,000 Springwater Limited Partnership 2,810,100 - - 2,810,100 Sunflower Park Limited Partnership 2,269,125 - - 2,269,125 Thunderbird Apartments, Ltd. I 2,375,000 - - 2,375,000 ----------- --------- ----------- ----------- 11,704,225 - - 11,704,225 ----------- --------- ----------- ----------- 19.5% Note Receivable: Wesbak Housing Fund I, Ltd. 423,000 - - 423,000 ----------- --------- ----------- ----------- Accrued Interest Receivable: Country Acres Limited Partnership 2,819,132 332,500 (106,473) 3,045,159 Northview Limited Partnership 2,225,248 262,500 (77,010) 2,410,738 Springwater Limited Partnership 3,372,167 393,414 (139,042) 3,626,539 Sunflower Park Limited Partnership 1,016,527 - (107,869) 908,658 Thunderbird Apartments, Ltd. I 3,247,198 332,500 (98,395) 3,481,303 Wesbak Housing Fund I, Ltd. 1,196,033 82,485 - 1,278,518 ----------- --------- --------- ------------ 13,876,305 1,403,399 (528,789) 14,750,915 ----------- --------- --------- ------------ Deferred Gain and Interest Income: Country Acres Limited Partnership (4,281,574) (260,003) - (4,541,577) Northview Limited Partnership (3,581,503) (207,830) - (3,789,333) Springwater Limited Partnership (5,133,050) (180,339) - (5,313,389) Sunflower Park Limited Partnership (2,650,418) (30,727) 107,869 (2,573,276) Thunderbird Apartments, Ltd. I (4,409,707) (234,105) - (4,643,812) Wesbak Housing Fund I, Ltd. (1,619,033) (82,485) - (1,701,518) ------------ ---------- --------- ------------ (21,675,285) (995,489) 107,869 (22,562,905) ------------ ---------- --------- ------------ $ 4,488,533 $ 407,910 $(420,920) $ 4,475,523 ============ ========== ========== ============ S-2 AMERICAN HOUSING PARTNERS AMOUNTS DUE FROM RELATED PARTIES YEAR ENDED DECEMBER 31, 1996 SCHEDULE IV Foreclosure Reductions Balance at January and December 31, Partnerships 1996 Additions Payments 1996 - --------------------------------------- ----------- ------------ ------------ ------------ Deferred Cash Payments Receivable: Country Acres Limited Partnership $ 6,582 $ - $ - $ 6,582 Northview Limited Partnership - - - - Sierra Nevada Apartments, Ltd. I 338,778 - (338,778) - Springwater Limited Partnership - --------- ------------ ----------- Sunflower Park Limited Partnership 137,000 - - 137,000 Thunderbird Apartments, Ltd. I 16,706 - - 16,706 --------- --------- ----------- ----------- 499,066 - (338,778) 160,288 --------- --------- ----------- ----------- 14% All-inclusive Notes Receivable: Country Acres Limited Partnership 2,375,000 - - 2,375,000 Northview Limited Partnership 1,875,000 - - 1,875,000 Sierra Nevada Apartments, Ltd. I 6,549,300 - (6,549,300) - Springwater Limited Partnership 2,810,100 - - 2,810,100 Sunflower Park Limited Partnership 2,269,125 - - 2,269,125 Thunderbird Apartments, Ltd. I 2,375,000 - - 2,375,000 ---------- --------- ----------- ----------- 18,253,525 - (6,549,300) 11,704,225 ---------- --------- ----------- ----------- 19.5% Note Receivable: Wesbak Housing Fund I, Ltd. 423,000 - - 423,000 ---------- --------- ---------- ----------- Accrued Interest Receivable: Country Acres Limited Partnership 2,593,272 332,500 (106,640) 2,819,132 Northview Limited Partnership 2,039,443 262,500 (76,695) 2,225,248 Sierra Nevada Apartments, Ltd. I 2,846,145 - (2,846,145) - Springwater Limited Partnership 3,097,806 393,414 (119,053) 3,372,167 Sunflower Park Limited Partnership 1,125,429 - (108,902) 1,016,527 Thunderbird Apartments, Ltd. I 2,955,577 332,500 (40,879) 3,247,198 Wesbak Housing Fund I, Ltd. 1,113,548 82,485 - 1,196,033 ---------- --------- ---------- ----------- 15,771,220 1,403,399 (3,298,314) 13,876,305 ---------- --------- ---------- ----------- Deferred Gain and Interest Income: Country Acres Limited Partnership (4,024,029) (257,545) - (4,281,574) Northview Limited Partnership (3,374,864) (206,639) - (3,581,503) Sierra Nevada Apartments, Ltd. I (4,909,804) - 4,909,804 - Springwater Limited Partnership (4,827,285) (305,765) - (5,133,050) Sunflower Park Limited Partnership (2,730,665) (28,655) 108,902 (2,650,418) Thunderbird Apartments, Ltd. I (4,118,086) (291,621) - (4,409,707) Wesbak Housing Fund I, Ltd. (1,536,548) (82,485) - (1,619,033) ----------- ---------- ---------- ----------- (25,521,281) (1,172,710) 5,018,706 (21,675,285) ----------- ---------- ---------- ----------- $ 9,425,530 $ 230,689 $(5,167,686) $ 4,488,533 =========== ========== ========== =========== S-3 SCHEDULE IV AMERICAN HOUSING PARTNERS AMOUNTS DUE FROM RELATED PARTIES - CONTINUED YEAR ENDED DECEMBER 31, 1995 Balance at Reductions Balance at January 1, and December 31, Partnerships 1995 Additions Payments 1995 - --------------------------------------- ------------- ----------- ---------- ------------ Deferred Cash Payments Receivable: Country Acres Limited Partnership $ 6,582 $ - $ - $ 6,582 Northview Limited Partnership - - - - Sierra Nevada Apartments, Ltd. I 338,778 - - 338,778 Springwater Limited Partnership - - - - Sunflower Park Limited Partnership 137,000 - - 137,000 Thunderbird Apartments, Ltd. I 16,706 - - 16,706 ----------- ----------- ---------- ------------ 499,066 - - 499,066 ----------- ----------- ---------- ------------ 14% All-inclusive Notes Receivable: Country Acres Limited Partnership 2,375,000 - - 2,375,000 Northview Limited Partnership 1,875,000 - - 1,875,000 Sierra Nevada Apartments, Ltd. I 6,549,300 - - 6,549,300 Springwater Limited Partnership 2,810,100 - - 2,810,100 Sunflower Park Limited Partnership 2,269,125 - - 2,269,125 Thunderbird Apartments, Ltd. I 2,375,000 - - 2,375,000 ----------- ----------- --------- ----------- 18,253,525 - - 18,253,525 ----------- ----------- --------- ----------- 19.5% Note Receivable: Wesbak Housing Fund I, Ltd. 423,000 - - 423,000 ----------- ----------- --------- ----------- Accrued Interest Receivable: Country Acres Limited Partnership 2,367,413 332,500 (106,641) 2,593,272 Northview Limited Partnership 1,862,646 262,500 (85,703) 2,039,443 Sierra Nevada Apartments, Ltd. I 2,846,145 - - 2,846,145 Springwater Limited Partnership 2,827,260 393,414 (122,868) 3,097,806 Sunflower Park Limited Partnership 1,233,299 - (107,870) 1,125,429 Thunderbird Apartments, Ltd. I 2,623,077 332,500 - 2,955,577 Wesbak Housing Fund I, Ltd. 1,031,063 82,485 - 1,113,548 ----------- ----------- --------- ----------- 14,790,903 1,403,399 (423,082) 15,771,220 ----------- ----------- --------- ----------- Deferred Gain and Interest Income: Country Acres Limited Partnership (3,768,620) (255,409) - (4,024,029) Northview Limited Partnership (3,178,637) (196,227) - (3,374,864) Sierra Nevada Apartments, Ltd. I (4,909,804) - - (4,909,804) Springwater Limited Partnership (4,527,452) (299,833) - (4,827,285) Sunflower Park Limited Partnership (2,811,811) (26,724) 107,870 (2,730,665) Thunderbird Apartments, Ltd. I (3,785,586) (332,500) - (4,118,086) Wesbak Housing Fund I, Ltd. (1,454,063) (82,485) - (1,536,548) ----------- ----------- --------- ----------- (24,435,973) (1,193,178) 107,870 (25,521,281) ----------- ----------- --------- ----------- $ 9,530,521 $ 210,221 $(315,212) $ 9,425,530 =========== =========== ========= =========== S-4 AMERICAN HOUSING PARTNERS REAL ESTATE AND ACCUMULATED DEPRECIATION OF LIMITED PARTNERSHIPS IN WHICH THE PARTNERSHIP HAS AN INVESTMENT DECEMBER 31, 1997 SCHEDULE XI Land, Buildings, Equipment, Initial Cost to and Furnish- Partnership ings Costs ---------------------- Number - Buildings, Capitalized Type of Outstanding Equipment, Since Partnership/Location Apartments Mortgage Land Furnishings Completion Land - ------------------------ ---------- ----------- ----------- ----------- ------------ ----------- Columbia-Jennifer, 50-Garden $ 674,393 $ 21,907 $ 1,011,149 $ - $ 21,907 Ltd; Columbus, OH Homestead Limited 102-Garden 6,667,110 196,866 2,694,378 3,628,118 425,939 Dividend Housing 48-Town- Association; house Portage, MI Pine Villa 50-Garden 505,273 46,334 789,603 625,204 68,276 Associates; Spokane, WA Tanglewood Terrace, 196-Garden 1,605,416 91,733 2,856,587 502,643 91,733 Ltd; Texarkana, TX Woodhaven Apartments 72-Garden 1,007,733 79,768 1,698,994 604,771 118,783 Associates; Spokane, WA ------------ -------- ---------- ---------- ----------- $ 10,459,925 $436,608 $9,050,711 $5,360,736 $ 726,638 ============ ======== ========== ========== =========== Lives on Which Amount at Which Carried at Depreciation Close of Period in Latest ------------------------------------ Buildings Statement of Equipment, Accumulated Construction Operations Partnership/Location Furnishings Total Depreciation Period is Computed - ------------------------ ----------- ----------- ------------ ------------ ----------- Columbia-Jennifer, $ 1,011,149 $ 1,033,056 $ 730,470 1975-1976 8-33 Ltd; Columbus, OH Homestead Limited 6,093,423 6,519,362 3,021,675 1971-1972 4-33 Dividend Housing Association; Portage, MI Pine Villa 1,392,865 1,461,141 933,988 1971-1972 5-33 Associates; Spokane, WA Tanglewood Terrace, 3,359,230 3,450,963 2,780,789 1971-1973 5-33 Ltd; Texarkana, TX Woodhaven Apartments 2,264,750 2,383,533 1,818,028 1972-1973 5-36 Associates; Spokane, WA ----------- ----------- ----------- $14,121,417 $14,848,055 $ 9,284,950 =========== =========== =========== S-5 AMERICAN HOUSING PARTNERS NOTES TO THE SCHEDULE SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION OF LIMITED PARTNERSHIPS IN WHICH THE PARTNERSHIP HAS AN INVESTMENT YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. Each limited partnership owns and operates a multi-family, HUD-regulated, residential housing project. During the related construction stage, all costs of developing the projects were included in construction-in-progress. Upon substantial completion, the costs were reclassified to building and improvements. 2. The aggregate cost of land, buildings, equipment and furnishings for federal income tax purposes at December 31, 1997, 1996 and 1995 is $14,387,256, $14,257,194 and $14,095,555, respectively. 3. Investments in property and equipment: Cost: Balance, January 1, 1995 $13,765,868 Additions 790,483 Retirements - ----------- Balance, December 31, 1995 14,556,351 Additions 168,794 Retirements (7,155) ----------- Balance, December 31, 1996 14,717,990 Additions 130,065 Retirements - ----------- Balance, December 31, 1997 $14,848,055 =========== S-6 AMERICAN HOUSING PARTNERS NOTES TO THE SCHEDULE - CONTINUED SCHEDULE XI REAL ESTATE AND ACCUMULATED DEPRECIATION OF LIMITED PARTNERSHIPS IN WHICH THE PARTNERSHIP HAS AN INVESTMENT YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 3. Investments in property and equipment (Continued): Accumulated depreciation: Balance, January 1, 1995 $8,133,960 Depreciation charged to expense during the year 380,015 Retirements - ---------- Balance, December 31, 1995 8,513,975 Depreciation charged to expense during the year 388,644 Retirements (4,280) ---------- Balance, December 31, 1996 8,898,339 Depreciation charged to expense during the year 386,611 Retirements - ---------- Balance, December 31, 1997 $9,284,950 ========== S-7 SCHEDULE XII AMERICAN HOUSING PARTNERS MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 First mortgages, interests in which were assigned to the Partnership upon sale of the real estate by the selling limited partnerships: (1) (1) Final Monthly Face Type of Interest Maturity Payments Amount of Partnership/Location Property Rate Date to Maturity Mortgages - ----------------------------------------------------- ---------- -------- -------------- ----------- ---------- Country Acres Apartments; La Porte, Indiana Apartments 7% February, 2013 $ 8,473 $1,352,230 Northview Gardens Apartments; Henry County, Virginia Apartments 7% June, 2014 6,115 984,000 Springwater Apartments; Denver, Colorado Apartments 10% (2) August, 1998 (2) 10,213 (2) 1,225,500 (2) Sunflower Park Apartments; Kansas City, Kansas Apartments 7% September, 2014 8,558 1,377,225 Thunderbird Apartments; Las Vegas, Nevada Apartments 7% December, 2012 11,125 1,659,365 ------- ---------- $44,484 $6,598,320 ======= ========== (1) Carrying Amount of Partnership/Location Mortgages - ---------------------------------------------------- ------------- Country Acres Apartments; La Porte, Indiana $ 948,606 Northview Gardens Apartments; Henry County, Virginia 716,890 Springwater Apartments; Denver, Colorado 1,225,500 Sunflower Park Apartments; Kansas City, Kansas 1,011,394 Thunderbird Apartments; Las Vegas, Nevada 1,322,334 ------------- $ 5,224,724 ============= The Springwater obligation is a conventioned loan, while those for the other projects are HUD-insured. (1) Partnership's share (2) Subsequent to December 31, 1997, the Springwater loan was paid with the proceeds of a new conventional loan, the terms of which are follows: See notes to the schedule. Interest rate 7.65% Final maturity date 2023 Monthly payments $20,273 Amount $2,707,500 S-8 SCHEDULE XII AMERICAN HOUSING PARTNERS MORTGAGE LOANS ON REAL ESTATE - CONTINUED DECEMBER 31, 1997 HUD insured first mortgages on properties owned by limited partnerships in which the Partnership has an investment: (1) (1) (1) Final Monthly Face Carrying Type of Interest Maturity Payments Amount of Amount of Partnership/Location Property Rate Date to Maturity Mortgages Mortgages - ----------------------------------------------------- ---------- ---- --------------- ----------- ---------- ---------- Columbia-Jennifer, Ltd.; Columbus, Ohio Apartments 7% September, 2016 $ 5,390 $ 867,400 $ 674,393 Homestead Limited Dividend Housing Association; Portage, Michigan Apartments 6.5% January, 2013 16,378 2,935,400 1,859,852 Pine Villa Associates; Spokane, Washington Apartments 8% May, 2012 4,930 709,000 505,273 Tanglewood Terrace, Ltd.; Texarkana, Texas Apartments 7% September, 2013 14,391 2,315,800 1,605,416 Woodhaven Apartments Associates; Spokane, Washington Apartments 7% November, 2013 8,765 1,410,500 1,007,733 ------- ---------- ---------- $49,854 $8,238,100 $5,652,667 ======= ========== ========== HUD insured second mortgages on properties owned by limited partnerships in which the Partnership has an investment: Homestead Limited Dividend Housing Association; Portage, Michigan Apartments 8.75% 2036 $36,367 $4,835,000 $ 4,807,258 ======= =========== =========== Total $10,459,925 =========== (1) 100% amounts; Partnership's share is generally 99%. See notes to the schedule. S-9 AMERICAN HOUSING PARTNERS NOTES TO THE SCHEDULE SCHEDULE XII MORTGAGE LOANS ON REAL ESTATE - CONTINUED DECEMBER 31, 1997 1. Each limited partnership in which the Partnership has an investment owns an apartment project financed with a HUD-insured mortgage. Six of these limited partnerships sold their properties for cash and all-inclusive residual notes receivable, while remaining directly liable under the HUD mortgage. These limited partnerships assigned the residual notes receivable and the underlying HUD mortgages to their partners, including the Partnership. 2. The total federal income tax basis is the same as the carrying amounts in the schedule. 3. Carrying amount of the mortgage loans: (2) Mortgage Loans (1) of Limited Mortgage Partnerships Loans Assigned in Which the to the Partnership Has Partnership an Investment ----------- --------------- Balance at January 1, 1995 $10,330,318 $ 9,865,564 Borrowings during the year - 953,518 Payments on principal during the year (104,991) (172,119) ----------- ----------- Balance at December 31, 1995 10,225,327 10,646,963 Borrowings during the year - 222,201 Payments on principal during the year (112,578) (196,934) Foreclosure during the year (4,875,015) - ----------- ----------- Balance at December 31, 1996 5,237,734 10,672,230 Borrowings during the year - - Payments on principal during the year - Net of refinance proceeds (13,010) (212,305) ----------- ----------- Balance at December 31, 1997 $ 5,224,724 $10,459,925 =========== =========== (1) Partnership's share (2) 100% amounts; Partnership's share is generally 99%. S-10 SCHEDULE XIII AMERICAN HOUSING PARTNERS INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS YEAR ENDED DECEMBER 31, 1997 The following schedule summarizes the cumulative equity in net income and losses and cash distributions not recorded in the investments in and advances to limited partnerships account, as the carrying values of the investments are at zero: (A) % of % of Interest Balance Equity in Cash Balance Ownership in Profit January Adjust- Invest- Net Income Distri- December Limited Partnership Interest and Losses 1, 1997 ments ments (Loss) butions 31, 1997 - ---------------------------- --------- ------------- ---------- -------- -------- ---------- --------- ----------- Columbia-Jennifer, Ltd. 98.98% 98.98% $ (258,069) $ 742 $ - $ 7,838 $ (5,498) $ (254,987) Homestead Limited Dividend Housing Associates 99.00 99.00 (838,281) (1) - 105,745 (102,424) (834,961) Pine Villa Associates 98.52 99.00 (8,008) - - 47,030 - 39,022 Tanglewood Terrace, Ltd. 99.00 99.00 (1,350,550) - - (31,745) - (1,382,295) Woodhaven Apartments Associates 95.00 99.00 (425,369) - - 28,699 - (396,670) ----------- -------- ------- ---------- --------- ----------- $(2,880,277) $ 741 $ - $ 157,567 $(107,922) $(2,829,891) =========== ======== ======= ========== ========= =========== (A) Cash distributions $ (107,922) Cash distribution reflected by partnership in 1996 but not received until 1997 (14,783) ----------- 1997 Income $ (122,705) =========== S-11