CENTURY PACIFIC TAX CREDIT HOUSING FUND II
1 E. STOW ROAD
MARLTON, NEW JERSEY 08053
VIA FEDEX and FAX (202)772-9209
June 6, 2005
United States Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Mail Stop 4561
Attention: Cicely Luckey, Accounting Branch Chief
RE: Century Pacific Tax Credit Housing Fund - II
Form 10-K for the fiscal year ended March 31, 2004
Filed January 25, 2005 File No. 033-24537
Dear Ms. Luckey:
We are responding to the letter from the United States Securities and Exchange
Commission dated May 19, 2005 regarding the above referenced filing.
Notes to the Financial Statements, pages F-7 - F-14
- ---------------------------------------------------
Note 1. Summary of Significant Accounting Policies, pages F-7 - F-8
- --------------------------------------------------------------------
Investments in Operating Partnerships, page F-7
1. We note your response to comment 1 and your reliance on paragraph 4h
of FIN46R as your basis for not evaluating whether the Laurel-Clayton
limited partnership is a variable interest entity ("VIE").
Supplementally, please provide us with a detailed analysis that shows
how the Laurel-Clayton limited partnership meets the definition of a
business. In addition, please provide an expanded response to how you
determined that you did not trigger the conditions in parts (2) and
(3) of paragraph 4h that would require you to determine whether this
is a variable interest entity under FIN 46R.
Response:
Appendix C of FIN 46R ("the Interpretation"), related to EITF Issue No.98-3,
defines a business for use in the Interpretation as follows:
"A business is a self-sustaining integrated set of activities and assets
conducted and managed for the purpose of providing a return to investors. A
business consists of (a) inputs, (b) processes applied to those inputs, and (c)
resulting outputs that are used to generate revenues. For a set of activities
and assets to be a business, it must contain all of the inputs and processes
necessary for it to conduct normal operations, which include the ability to
sustain a revenue stream by providing its outputs to customers."
CENTURY PACIFIC TAX CREDIT HOUSING FUND II
1 E. STOW ROAD
MARLTON, NEW JERSEY 08053
As noted in the December 31, 2003 financial statements of Laurel-Clayton Limited
Partnership ("Laurel-Clayton"), Laurel-Clayton owns and operates a 430 unit
apartment complex in Worcester, Massachusetts. Further review of these financial
statements reveals that the inputs, processes and outputs described in Appendix
C exist within the operations of Laurel-Clayton. On this basis, the Registrant
determined that Laurel-Clayton is a business within the definition of FIN46R.
The December 31, 2003 financial statements of Laurel-Clayton Limited Partnership
are attached to this response.
Paragraph 4h of FIN46R list four conditions which would require a business to be
evaluated as a variable interest entity, including condition (2) "the entity is
designed so that substantially all of it activities either involve or are
conducted on behalf of the reporting enterprise and its related parties" and
condition (3) the reporting enterprise and its related parties provide more than
half of the total of the equity, subordinated debt, and other forms of
subordinated financial support to the entity based on an analysis of the fair
values of the interests in the entity.
As it relates to condition (2), the Registrant is a limited partner of
Laurel-Clayton. In that capacity, the Registrant did not participate in the
design of Laurel-Clayton, whose apartment complex is operated under an agreement
with, and subsidized by, the U.S. Department of Housing and Urban Development.
As it relates to condition (3), the Laurel-Clayton financial statements state
that the general partner, an unrelated entity of the Registrant, provided more
than half of the total equity and subordinated debt of Laurel-Clayton.
On the basis of the above, Laurel-Clayton does not meet the criteria for
consideration as a VIE with respect to the Registrant.
In connection with the SEC's comments, Century Pacific Tax Credit Housing Fund
II acknowledges the following:
1. Century Pacific Tax Credit Housing Fund II is responsible for the
adequacy and accuracy of the disclosure in our filings;
2. staff comments or changes to disclosures in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filings; and
3. Century Pacific Tax Credit Housing Fund II may not assert staff
comments as a defense in any proceedings initiated by the Commission
or any person under the federal securities laws of the United States.
Sincerely,
/s/ James V. Bleiler
Mr. James V. Bleiler
Chief Financial Officer
cc: Michael D. Byrnes, CPA, Asher & Company, Ltd.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
TABLE OF CONTENTS
PAGE
MORTGAGOR'S CERTIFICATION 4
MANAGING AGENT'S CERTIFICATION 5
INDEPENDENT AUDITORS' REPORT 6
FINANCIAL STATEMENTS
BALANCE SHEET 8
STATEMENT OF OPERATIONS 10
STATEMENT OF PARTNERS' EQUITY (DEFICIT) 13
STATEMENT OF CASH FLOWS 14
NOTES TO FINANCIAL STATEMENTS 16
SUPPLEMENTAL INFORMATION
BALANCE SHEET DATA 26
STATEMENT OF OPERATIONS DATA 28
STATEMENT OF PARTNERS' EQUITY (DEFICIT) DATA 32
STATEMENT OF CASH FLOWS DATA 33
RESERVE FOR REPLACEMENTS 35
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND
RESIDUAL RECEIPTS 36
CHANGES IN FIXED ASSET ACCOUNTS 37
DETAIL OF ACCOUNTS - BALANCE SHEET 39
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
TABLE OF CONTENTS
PAGE
SUPPLEMENTAL INFORMATION (CONTINUED)
OTHER INFORMATION 40
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL 41
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
MAJOR HUD PROGRAMS 43
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING
AND NON-DISCRIMINATION 45
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
TABLE OF CONTENTS
MORTGAGOR'S CERTIFICATION
We hereby certify that we have examined the accompanying financial
statements and supplemental data of Laurel-Clayton Limited Partnership and, to
the best of our knowledge and belief, the same are complete and accurate.
GENERAL PARTNER
______________________________________
Charles M. Moran, Jr. Date
______________________________________
Beverly Bates Date
Telephone Number: (617) 695-9595
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
TABLE OF CONTENTS
MANAGING AGENT'S CERTIFICATION
I hereby certify that I have examined the accompanying financial
statements and supplemental data of Laurel-Clayton Limited Partnership and, to
the best of my knowledge and belief, the same are complete and accurate.
MANAGING AGENT
The Community Builders, Inc.
______________________________________
Maria Correla
Keven Spillane
Property Manager Managing Agent Taxpayer
Identification Number:
04-2324773
Reznick Group, P.C.
7700 Old Georgetown Road * Suite 400 * Bethesda, MD 20814-6224
(301) 652-9100 * Fax (301) 652-1848
INDEPENDENT AUDITORS' REPORT
To the Partners
Laurel-Clayton Limited Partnership
We have audited the accompanying balance sheet of Laurel-Clayton
Limited Partnership as of December 31, 2003, and the related statements of
operations, partners' equity (deficit) and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the 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 Laurel-Clayton
Limited Partnership as of December 31, 2003, and the results of its operations,
the changes in partners' equity (deficit) and cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
In accordance with Government Auditing Standards and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
January 28, 2004 on our consideration of Laurel-Clayton Limited Partnership's
internal control and on its compliance with specific requirements applicable to
major HUD programs and fair housing and non-discrimination. Those reports are an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.
Our audit was conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The accompanying supplemental
information on pages 26 through 40 is presented for purposes of additional
analysis and is not a required part of the basic financial
statements of the Partnership. 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.
Bethesda, Maryland Taxpayer Identification Number:
January 28, 2004 52-1088612
Lead Auditor: Karen D. Donahoe, CPA
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
BALANCE SHEET
December 31, 2003
ASSETS
CURRENT ASSETS
Cash and cash equivalents - operations $ 483,213
Tenant accounts receivable $ 17,578
Allowance for doubtful accounts (13,000)
-----------
4,578
Accounts receivable - HUD 8,854
Accounts and notes receivable - operations 5,624
Interest reduction payment receivable 4,622
Payroll deposit 106,999
Miscellaneous prepaid expenses 138,535
------------
Total current assets 752,425
DEPOSITS HELD IN TRUST - FUNDED
Tenant deposits 93,012
RESTRICTED DEPOSITS AND FUNDED RESERVES
Escrow deposits 225,537
Reserve for replacements 989,007
-----------
1,214,544
RENTAL PROPERTY
Land 1,100,000
Buildings 23,197,918
Office furniture and equipment 1,342,476
Maintenance equipment 22,139
Motor vehicles 6,400
-----------
25,668,933
Less accumulated depreciation (11,893,951)
-----------
13,774,982
------------
$ 15,834,963
============
(continued)
-5-
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
BALANCE SHEET - CONTINUED
December 31, 2003
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - operations $ 88,739
Accrued property taxes payable 180,000
Mortgage payable - first mortgage, current maturities 463,660
Accrued expenses 43,875
---------
Total current liabilities 776,274
DEPOSITS LIABILITY
Tenant deposits held in trust (contra) 91,332
LONG-TERM LIABILITIES
Accrued interest payable - other loans/notes (surplus cash) $ 8,447,461
Notes payable - surplus cash 2,800,000
Mortgage payable - first mortgage, net of current maturities 5,297,532
Other loans/notes payable 3,517,966
Accrued asset management fees 169,997
-----------
20,232,956
CONTINGENCY -
PARTNERS' EQUITY (DEFICIT) (5,265,599)
------------
$ 15,834,963
============
See notes to financial statements
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF OPERATIONS
Year ended December 31, 2003
RENTAL REVENUE
Rent revenue - gross potential $ 2,025,690
Tenant assistance payments 2,597,584
Rent revenue - stores and commercial 24,776
Miscellaneous rent revenue 33,002
-----------
Total rental revenue $ 4,681,052
VACANCIES
Apartments (20,015)
Rental concessions (2,008)
-----------
Total vacancies (22,023)
----------
Net rental revenue 4,659,029
FINANCIAL REVENUE
Financial revenue - project operations 19,923
Revenue from investments - replacement reserve 9,181
-----------
Total financial revenue 29,104
OTHER REVENUE
Laundry and vending 9,237
Tenant charges 15,233
Interest reduction payments revenue 130,859
Miscellaneous revenue 11,188
-----------
Total other revenue 166,517
-----------
Total revenue 4,854,650
-----------
(continued)
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 2003
ADMINISTRATIVE EXPENSES
Advertising and marketing 890
Resident services 184,645
Office salaries 228,245
Office expenses 39,240
Management fee 279,829
Administrative rent free unit 6,276
Legal expense - project 20,502
Auditing expense 9,800
Bad debts 5,947
Miscellaneous administrative expenses 41,315
-----------
Total administrative expenses 816,689
UTILITIES EXPENSE
Electricity 298,807
Water 223,966
Gas 382,425
-----------
Total utilities expense 905,198
OPERATING AND MAINTENANCE EXPENSES
Payroll 371,638
Supplies 75,134
Contracts 291,848
Garbage and trash removal 49,093
Snow removal 2,811
Vehicle and maintenance equipment operation and repairs 8,195
-----------
Total operating and maintenance expenses 798,719
(continued)
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF OPERATIONS - CONTINUED
Year ended December 31, 2003
TAXES AND INSURANCE
Real estate taxes 180,000
Payroll taxes 54,010
Property and liability insurance 173,955
Workmen's compensation 14,164
Health insurance and other employee benefits 156,343
Miscellaneous taxes, licenses, permits and insurance 86
------------
Total taxes and insurance 578,558
FINANCIAL EXPENSES
Interest on notes payable - long-term 224,000
Mortgage insurance premium/service charge 29,775
Miscellaneous financial expenses 10,059
-----------
Total financial expenses 263,834
----------
Total cost of operations before depreciation and amortization 3,362,998
----------
Income (loss) before depreciation and amortization 1,491,652
----------
DEPRECIATION AND AMORTIZATION
Depreciation expense 848,101
-----------
Total depreciation and amortization 848,101
----------
Operating income (loss) 643,551
----------
CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES
Interest on notes payable 751,578
Asset management fees 46,641
-----------
Net entity expenses 798,219
----------
Total expenses 5,009,318
----------
Net income (loss) $ (154,668)
==========
See notes to financial statements
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
Year ended December 31, 2003
General partners Limited partners Total
----------------- ----------------- ------------
Partners' equity (deficit)
December 31, 2002 $ (3,549,909) $ (1,561,022) $ (5,110,931)
Net income (loss) (1,547) (153,121) (154,668)
------------ ------------ ------------
Partners' equity (deficit)
December 31, 2003 $ (3,551,456) $ (1,714,143) $ (5,265,599)
============ ============ ============
See notes to financial statements
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF CASH FLOWS
Year ended December 31, 2003
Cash flows from operating activities
Rental receipts $ 4,636,348
Interest receipts 29,104
Other operating receipts 166,517
-----------
Total receipts 4,831,969
-----------
Administrative expenses paid (320,835)
Management fees paid (279,829)
Utilities paid (875,598)
Salaries and wages paid (599,883)
Operating and maintenance paid (410,824)
Real estate taxes paid (180,000)
Property insurance paid (157,080)
Miscellaneous taxes and insurance paid (86)
Net tenant security deposits received (paid) 106
Other operating expenses paid (194,823)
Interest paid on notes (303,822)
Mortgage insurance premium paid (28,141)
Miscellaneous financial expenses paid (10,059)
Entity/construction expenses paid
Interest paid $ (276,055)
Asset management fees (44,134)
----------
(320,189)
----------
Total disbursements (3,681,063)
----------
Net cash provided by (used in) operating activities 1,150,906
----------
Cash flows from investing activities
Net deposits to mortgage escrows (13,256)
Net deposits to reserve for replacements (130,973)
Net purchases of fixed assets (525,989)
--------
Net cash provided by (used in) investing activities (670,218)
---------
Cash flows from financing activities
Mortgage principal payments - first mortgage (426,006)
Principal payments on notes and loans payable (405,895)
---------
Net cash provided by (used in) financing activities (831,901)
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (351,213)
Cash and cash equivalents, beginning 834,426
---------
Cash and cash equivalents, end $ 483,213
=========
(continued)
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 2003
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
Net income (loss) $ (154,668)
-----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 848,101
Changes in asset and liability accounts
(Increase) decrease in assets
Tenant accounts receivable 5,576
Accounts receivable - other (6,591)
Miscellaneous prepaid expenses 18,509
Tenant security deposits funded 21,146
Increase (decrease) in liabilities
Accounts payable 21,532
Accrued interest payable (50,128)
Tenant security deposits held in trust (21,040)
Prepaid revenue (9,561)
Entity/construction liability accounts (include detail)
Accrued interest - entity $ 475,523
Accrued asset management fee 2,507
---------
478,030
-----------
Total adjustments 1,305,574
-----------
Net cash provided by (used in) operating activities $ 1,150,906
===========
See notes to financial statements
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE A - ORGANIZATION
Laurel-Clayton Limited Partnership (the "Partnership") was formed on
December 1, 1987 as a Massachusetts limited partnership for the purpose of
acquiring and operating Plumley Village East, a 430-unit apartment complex
in Worcester, Massachusetts (the "Project") providing residential housing
for families of low and moderate income.
The Project is operated under the terms of a U.S. Department of Housing and
Urban Development ("HUD") regulatory agreement under Section 236 of the
National Housing Act. The Project has a HUD mortgage note under this
program, with an interest rate subsidy which effectively can lower the
interest rate to 1%. The Section 236 program is a major program of the
Project. The Project is also subsidized by HUD under its Section 8 Housing
Assistance Program.
Each building of the Project has qualified for and been allocated
low-income housing credits pursuant to Internal Revenue Code Section 42
("Section 42") which regulates the use of the Project as to occupant
eligibility and unit gross rent, among other requirements. Each building of
the Project must meet the provisions of these regulations during each of
fifteen consecutive years in order to remain qualified to receive the
credits. In addition, Laurel-Clayton Limited Partnership has executed an
Extended Low-income Housing Extended Use Commitment which requires the
utilization of the Project pursuant to Section 42 for a minimum of 30
years, even if the Partnership disposes of the Project.
On December 10, 1987, The Community Builders, Inc. ("TCB") entered into a
purchase and sale agreement to acquire the assets and liabilities of the
Project for $1,750,000, payable to the seller upon syndication of the
Partnership. On December 30, 1987, TCB assigned its rights and obligations
under the purchase and sale agreement to the Partnership for $4,250,000
(see note D) and the Partnership acquired the assets and liabilities of the
Project. In connection with the acquisition, the Partnership also agreed to
pay an acquisition fee of $1,000,000 to TCB, which was forgiven in 1989.
The purchase price of the Project was allocated to property and equipment
based on fair market values determined at the date of acquisition.
The Partnership is made up of the managing general partner with a 0.5%
share, the supervising general partners with a 0.5% share, the investor
limited partner with a 60% share,
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE A - ORGANIZATION (Continued)
and the class A limited partners with a 39% share. The managing general
partner is owned 76% by a corporation which in turn is owned 100% by The
Community Builders, Inc., which manages the Project.
Except as specified in the partnership agreement, all items of income,
expense, gain, loss, tax credits, tax preferences and cash are allocated to
the partners based on their ownership percentages. Certain special items of
loss generated by bridge loan interest expense, seller loan interest,
refinance fees and contingent interest expense are allocated exclusively to
the class A limited partners.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Accounts Receivable and Bad Debts
---------------------------------
Tenant receivables are reported net of an allowance for doubtful accounts.
Management's estimate of the allowance is based on historical collection
experience and a review of the current status of tenant accounts
receivable. It is reasonably possible that management's estimate of the
allowance will change.
Rental Property
---------------
Rental property is carried at cost. Depreciation is computed using the
straight-line method for the buildings and land improvements and the double
declining balance method for equipment over the estimated useful lives of
the assets.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rental payments received
in advance are deferred until earned. All leases between the Partnership
and tenants of the property are operating leases.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the Partnership considers all
highly liquid treasury bills purchased with a maturity of three months or
less to be cash equivalents.
Income Taxes
------------
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and is
reportable by, the partners individually.
NOTE C - MORTGAGE PAYABLE
The Partnership has a mortgage payable to HUD, secured by the real property
of the Project. Monthly installments of $77,965 include principal and
interest at 8.5%. The monthly mortgage interest reduction is equal to the
difference between the payment that would be required for principal and
interest at 8.5% on the actual mortgage note and the amount that would be
required for principal and interest if the mortgage note carried an
interest rate of 1%. The interest reduction is then passed on to eligible
tenants in the form of lower rents. The amount received in the current year
totaled $640,428. Final payment is due September 2012.
Under agreements with HUD, the Partnership is also required to make monthly
escrow deposits for taxes, insurance and replacement of project assets, and
is subject to restrictions as to operating policies, rental charges,
operating expenditures and distributions.
The liability of the Partnership under the mortgage note is limited to the
underlying value of the real estate collateral plus other amounts deposited
with the lender.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE C - MORTGAGE PAYABLE (Continued)
Aggregate annual maturities of the mortgage payable over each of the next
five years following December 31, 2003 and thereafter are as follows:
December 31, 2004 $ 463,660
2005 504,644
2006 549,250
2007 597,798
2008 650,638
Thereafter 2,995,202
----------
$5,761,192
==========
NOTE D - NOTES PAYABLE
Related Party
-------------
A note payable to TCB in the original amount of $4,250,000 is secured by
the assets of the Project and subordinated to both the mortgage note and
the residual receipts note. Interest is compounded annually on the
outstanding principal and interest balance at 8.38%, a portion of which is
payable out of surplus cash (see note G). Principal and unpaid interest are
due on the earlier of the date of sale or refinancing of the Project, or
the 90th day after the close of the Low-Income Housing Credit Compliance
Period, as defined in Section 42(i) of the Internal Revenue Code. During
2003, $751,578 of interest was incurred. The Partnership distributed
$276,055 from available surplus cash during 2003 to pay accrued interest.
At December 31, 2003, the note principal balance was $3,517,966 and unpaid
interest of $5,935,296 was included in accrued interest payable - other
loans/notes.
A note payable to Community Development, Inc. ("CDI"), an affiliate of TCB,
bears no interest. All principal is due upon the earlier of: (a) the
removal of Laurel-Clayton Associates as managing general partner; (b) the
sale or transfer of the property; (c) the dissolution and liquidation of
Laurel-Clayton Associates; or (d) November 28, 2003. During 2003 the entire
principal balance of $405,895 was paid.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE D - NOTES PAYABLE (Continued)
Other
-----
A residual receipts note is payable to HUD, incurred for the purpose of
completing a rehabilitation plan which provided for renovation to rental
units, common areas and structures. The note is secured by the real estate
of the Project. This note bears interest at an annual rate of 8%, a portion
of which is payable out of surplus cash (see note G). Principal and unpaid
interest are due in their entirety in a balloon payment when the mortgage
expires. During 2003, $224,000 of interest was incurred. The Partnership
paid $303,822 from available surplus cash during 2003. At December 31,
2003, the principal note balance was $2,800,000 and unpaid interest of
$2,512,165 was included in accrued interest payable - other loans/notes.
NOTE E - RELATED PARTY TRANSACTIONS
The Project owes asset management fees of $169,997, including the current
year expense of $46,641, to Century Pacific Realty Corporation, the
supervising general partner. The fees are payable out of surplus cash
available for distribution (see note G), or proceeds from the sale or
refinancing of the property. During 2003, the Partnership paid $44,134 from
available surplus cash.
NOTE F - MANAGEMENT FEE
The Project is managed by TCB. Management fees to TCB, based on 6% of gross
collections, were $279,829. In addition, TCB charged the Partnership
$964,286 for payroll and related costs.
NOTE G - DISTRIBUTIONS
The HUD regulatory agreement limits annual distributions of Project funds
to 6% of the initial equity investment in the Project which is $242,600.
Distributions may only be made from surplus cash, as defined by the HUD
regulatory agreement. Distributions that are allowable, but limited by
insufficient surplus cash, can be accumulated. At December 31, 2003,
surplus cash amounted to $361,133 and accumulated undistributed return on
investment totaled $5,372,065.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE G - DISTRIBUTIONS (Continued)
An amendment to the HUD residual receipts note provides for the following
uses of surplus cash:
(a) The first $120,000 shall be retained in an operating account and
used in the following 12-month period for resident services.
(b) The next $40,000 shall be allocated for distributions permitted
under the HUD regulatory agreement.
(c) The next $50,000 shall be applied to interest on the HUD residual
receipts note.
(d) The next $30,000 shall be allocated for distributions permitted
under the HUD regulatory agreement.
(e) Any surplus cash beyond $240,000 shall be allocated equally to
interest on the HUD residual receipts note and distributions
permitted under the HUD regulatory agreement.
NOTE H - RESIDENT SERVICES
The Project provides many programs and other services to its residents at
its Center for Education and Employment. Those programs include a computer
learning center, adult education classes for GED and ESL, workforce
readiness and employment assistance and various youth programs. These
services are funded by up to $120,000 from the previous year's surplus cash
and the remainder from the Project's operating budget. In 2003, resident
service expenses totaled $216,355, which consists of salaries and related
expenses, as well as supplies, equipment and administrative costs.
NOTE I - CONCENTRATION OF CREDIT RISK
The Partnership maintains its cash balances in two banks. The balances are
insured by the Federal Deposit Insurance Corporation up to $100,000 at each
bank. As of December 31, 2003, the uninsured portion of the cash balances
held at one of the banks was $399,873.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE I - CONCENTRATION OF CREDIT RISK (Continued)
The restricted deposits described in note C are held by GMAC Mortgage
Corporation, which potentially subjects the Partnership to risk.
NOTE J - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENT
HUD has contracted with the Partnership, under Section 8 of Title II of the
Housing and Community Development Act of 1974, to make housing assistance
payments to the Partnership on behalf of qualified tenants. One agreement
covering 256 units expires on September 30, 2004. A second agreement
covering 86 units expires on September 30, 2004.
In January 2001, HUD issued its "Guidebook for Section 8 Renewal Policy"
(the "Guidebook"), which provides guidance for the renewal of expiring
Section 8 project-based contracts. The Guidebook is a comprehensive
resource for all renewals and is updated periodically to reflect program
and legislative changes.
The Guidebook sets forth six options for initial Section 8 contract
renewals. They include requesting renewal under the mark-up-to-market
procedures, renewing other contracts with rents at or below comparable
market rents, referring projects to the Office of Multifamily Housing
Assistance Restructuring ("OMHAR") for full restructuring or "OMHAR-lite"
renewals because the contract has rents greater than market, renewing
contracts for "exception" projects which are exempted from referral to
OMHAR, renewing contracts for portfolio reengineering demonstration or
preservation projects, and opting out of the Section 8 program. Owners are
limited to selecting options based upon the type of project involved and
current rent levels and must submit requests to HUD at least 120 days
before contract expiration. Each option contains specific eligibility
requirements, rules and procedures that must be followed to comply with the
Guidebook. Approved multiple year contracts are funded for one year with
the balance of years subject to annual appropriations. Subsequent renewals
of contracts may be made under any option the contract is eligible for at
the time of renewal.
As of the date of the report, the Partnership intends to renew its
contracts under the options provided by HUD housing notice 99-36.
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE K - MORTGAGOR ENTITY EXPENSES
Mortgagor entity expenses included in the Statement of Operations do not
represent operating expenses of the project and, accordingly, cannot be
paid and are not paid out of project operations. Rather, they are entity
expenses, which can only be paid out of surplus cash or mortgagor entity
funds. Such expenses have been segregated from project operations in the
Statement of Operations for that reason. Unpaid mortgagor entity expenses
included in the Statement of Operations represent accruals only and are
recorded only where required under accounting principles generally accepted
in the United States of America. These accruals result only in increased
liabilities in the Balance Sheet. The liability that results from any
accrual is also subject to surplus cash restrictions and is payable only to
the extent of surplus cash or mortgagor entity funds. The Statement of Cash
Flows reflects those mortgagor entity expenses actually paid during the
period. Below is a summary of mortgagor entity expenses expensed and paid:
Expensed Paid Beginning Ending
Description Amount Amount Liability Liability
-------------------- ------------ ------------ -------------- --------------
Interest on notes
payable $ 751,578 $ 276,055 $ 5,459,773 $ 5,935,296
Asset management
fees 46,641 44,134 167,490 169,997
------------ ------------ -------------- --------------
Total $ 798,219 $ 320,189 $ 5,627,263 $ 6,105,293
============ ============ ============== ==============
NOTE L - CONTINGENCY
Interest on the residual receipts note from HUD described in note D had
been accrued at 1% simple interest from the loan origination date until the
date of the transfer of physical assets from the seller to the Partnership,
at which time the interest rate increased to 8%. HUD contends that the rate
change is retroactive to the loan origination, while management contends
that the increase was effective as of the date of the transfer, and it has
kept its books and records accordingly. The amount of interest which would
have been capitalized as part of the purchase price due to the retroactive
adjustment is approximately $179,331. This additional amount would be due
with the balance of principal and interest at the expiration of
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003
NOTE L - CONTINGENCY (Continued)
the mortgage as described in note C. No accrual of this amount has been
made in the accounting records as of December 31, 2003.
NOTE M - FRONT FOOTAGE BENEFIT
The Partnership entered into a contract exempting it from taxation of real
and personal property and betterments and special assessments and from the
payment of any tax, excise or assessment to or for the Commonwealth or any
of its political subdivisions on account of the Project. The Partnership
pays the excises with respect to the Project which a corporation would be
bound to pay under the formulae and provisions set forth under the
provisions of the contract. For the year ended December 31, 2003, the
Partnership incurred $180,000 in taxes.
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION
SUPPORTING DATA REQUIRED BY HUD
BALANCE SHEET DATA
December 31, 2003
ASSETS
Account No.
- ----------
CURRENT ASSETS
1120 Cash - operations $ 483,213
1130 Tenant accounts receivable $ 17,578
1131 Allowance for doubtful accounts (13,000)
-----------
1130N Net tenants accounts receivable 4,578
1135 Accounts receivable - HUD 8,854
1140 Accounts and notes receivable - operations 5,624
1165 Interest reduction payment receivable 4,622
1190 Miscellaneous current assets 106,999
1200 Miscellaneous prepaid expenses 138,535
------------
1100T Total current assets 752,425
DEPOSITS HELD IN TRUST - FUNDED
1191 Tenant deposits 93,012
RESTRICTED DEPOSITS AND FUNDED RESERVES
1310 Escrow deposits 225,537
1320 Reserve for replacements 989,007
-----------
1300T Total deposits 1,214,544
RENTAL PROPERTY
1410 Land 1,100,000
1420 Buildings 23,197,918
1465 Office furniture and equipment 1,342,476
1470 Maintenance equipment 22,139
1480 Motor vehicles 6,400
-----------
1400T Total fixed assets 25,668,933
1495 Less accumulated depreciation (11,893,951)
-----------
1400N Net fixed assets 13,774,982
------------
1000T Total assets $ 15,834,963
============
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
BALANCE SHEET DATA - CONTINUED
December 31, 2003
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Account No.
- -----------------
CURRENT LIABILITIES
2110 Accounts payable - operations $ 88,739
2150 Accrued property taxes payable 180,000
2170 Mortgage payable - first mortgage,
current maturities 463,660
2190 Miscellaneous current liabilities 43,875
------------
2122T Total current liabilities 776,274
DEPOSITS LIABILITY
2191 Tenant deposits held in trust (contra) 91,332
LONG-TERM LIABILITIES
2133 Accrued interest payable - other loans/notes
(surplus cash) $ 8,447,461
2311 Notes payable - surplus cash 2,800,000
2320 Mortgage payable - first mortgage, net of
current maturities 5,297,532
2324 Other loans/notes payable, net of
current maturities 3,517,966
2390 Miscellaneous long-term liabilities 169,997
-----------
2300T Total long-term liabilities 20,232,956
3130 PARTNERS' EQUITY (DEFICIT) (5,265,599)
------------
2033T Total liabilities and partners' equity (deficit) $ 15,834,963
============
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF OPERATIONS DATA
Year ended December 31, 2003
Account No.
- -----------------
RENTAL REVENUE
5120 Rent revenue - gross potential $ 2,025,690
5121 Tenant assistance payments 2,597,584
5140 Rent revenue - stores and commercial 24,776
5190 Miscellaneous rent revenue 33,002
-----------
5100T Total rental revenue $ 4,681,052
VACANCIES
5220 Apartments (20,015)
5250 Rental concessions (2,008)
-----------
5200T Total vacancies (22,023)
-----------
5152N Net rental revenue 4,659,029
FINANCIAL REVENUE
5410 Financial revenue - project operations 19,923
5440 Revenue from investments - replacement reserve 9,181
-----------
5400T Total financial revenue 29,104
OTHER REVENUE
5910 Laundry and vending 9,237
5920 Tenant charges 15,233
5945 Interest reduction payments revenue 130,859
5990 Miscellaneous revenue 11,188
-----------
5900T Total other revenue 166,517
-----------
5000T Total revenue 4,854,650
-----------
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF OPERATIONS DATA - CONTINUED
Year ended December 31, 2003
Account No.
- -----------------
ADMINISTRATIVE EXPENSES
6210 Advertising and marketing 890
6250 Other renting expenses 184,645
6310 Office salaries 228,245
6311 Office expenses 39,240
6320 Management fee 279,829
6331 Administrative rent free unit 6,276
6340 Legal expense - project 20,502
6350 Auditing expense 9,800
6370 Bad debts 5,947
6390 Miscellaneous administrative expenses 41,315
-----------
6263T Total administrative expenses 816,689
UTILITIES EXPENSE
6450 Electricity 298,807
6451 Water 223,966
6452 Gas 382,425
-----------
6400T Total utilities expense 905,198
OPERATING AND MAINTENANCE EXPENSES
6510 Payroll 371,638
6515 Supplies 75,134
6520 Contracts 291,848
6525 Garbage and trash removal 49,093
6548 Snow removal 2,811
6570 Vehicle and maintenance equipment
operation and repairs 8,195
-----------
6500T Total operating and maintenance expenses 798,719
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF OPERATIONS DATA - CONTINUED
Year ended December 31, 2003
Account No.
TAXES AND INSURANCE
6710 Real estate taxes 180,000
6711 Payroll taxes 54,010
6720 Property and liability insurance 173,955
6722 Workmen's compensation 14,164
6723 Health insurance and other employee benefits 156,343
6790 Miscellaneous taxes, licenses, permits and insurance 86
--------
6700T Total taxes and insurance 578,558
FINANCIAL EXPENSES
6830 Interest on notes payable - long-term 224,000
6850 Mortgage insurance premium/service charge 29,775
6890 Miscellaneous financial expenses 10,059
--------
6800T Total financial expenses 263,834
----------
6000T Total cost of operations before
depreciation and amortization 3,362,998
----------
5060T Income (loss) before depreciation and amortization 1,491,652
----------
DEPRECIATION AND AMORTIZATION
6600 Depreciation expense 848,101
--------
Total depreciation and amortization 848,101
----------
5060N Operating income (loss) 643,551
----------
CORPORATE OR MORTGAGOR ENTITY REVENUE AND EXPENSES
7141 Interest on notes payable 751,578
7190 Other expenses 46,641
--------
7100T Net entity expenses 798,219
----------
Total expenses 5,009,318
----------
3250 Net income (loss) $ (154,668)
==========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF OPERATIONS DATA - CONTINUED
Year ended December 31, 2003
Account No.
- -----------
S1000-010 Total mortgage principal payments required during the audit year (12 monthly payments).
Applies to all direct loans and HUD-held and fully-insured mortgages. Any HUD-approved second
mortgages are included. $ 426,006
=========
S1000-020 Total of 12 monthly deposits in the audit year made to the replacement reserve account, as
required by the regulatory agreement, even if payments are temporarily suspended or reduced. $ 579,732
=========
S1000-030 Replacement reserve and residual receipts reserve releases which are included as expense
items on the statement of operations. $ -
=========
S1000-040 Project improvement reserve releases under the flexible subsidy program which are included as
expense items on the statement of operations. $ -
=========
S3100-120 Mortgage payable note detail (Section 236 only) Interest reduction payments from subsidy. $ 640,428
=========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF PARTNERS' EQUITY (DEFICIT) DATA
Year ended December 31, 2003
Account No. General partners Limited partners Total
- ----------- ---------------- ---------------- ------------
S1100-010 Partners' equity (deficit)
December 31, 2002 $ (3,549,909) $ (1,561,022) $ (5,110,931)
3250 Net income (loss) (1,547) (153,121) (154,668)
------------ ------------ ------------
3130 Partners' equity (deficit)
December 31, 2003 $ (3,551,456) $ (1,714,143) $ (5,265,599)
============ ============ ============
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF CASH FLOWS DATA
Year ended December 31, 2003
Account No.
- -----------
Cash flows from operating activities
S1200-010 Rental receipts $ 4,636,348
S1200-020 Interest receipts 29,104
S1200-030 Other operating receipts 166,517
-----------
S1200-040 Total receipts 4,831,969
-----------
S1200-050 Administrative expenses paid (320,835)
S1200-070 Management fees paid (279,829)
S1200-090 Utilities paid (875,598)
S1200-100 Salaries and wages paid (599,883)
S1200-110 Operating and maintenance paid (410,824)
S1200-120 Real estate taxes paid (180,000)
S1200-140 Property insurance paid (157,080)
S1200-150 Miscellaneous taxes and insurance paid (86)
S1200-160 Net tenant security deposits received (paid) 106
S1200-170 Other operating expenses paid (194,823)
S1200-190 Interest paid on notes (303,822)
S1200-210 Mortgage insurance premium paid (28,141)
S1200-220 Miscellaneous financial expenses paid (10,059)
S1200-225 Entity/construction expenses paid
S1200-226 Interest paid $ (276,055)
S1200-226 Asset management fee (44,134)
----------
(320,189)
-----------
S1200-230 Total disbursements (3,681,063)
-----------
S1200-240 Net cash provided by (used in) operating activities 1,150,906
-----------
Cash flows from investing activities
S1200-245 Net deposits to mortgage escrows (13,256)
S1200-250 Net deposits to reserve for replacements (130,973)
S1200-330 Net purchases of fixed assets (525,989)
-----------
S1200-350 Net cash provided by (used in) investing activities (670,218)
-----------
Cash flows from financing activities
S1200-360 Mortgage principal payments - first mortgage (426,006)
S1200-370 Principal payments on notes and loans payable (405,895)
-----------
S1200-460 Net cash provided by (used in) financing activities (831,901)
-----------
S1200-470 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (351,213)
S1200-480 Cash and cash equivalents, beginning 834,426
-----------
S1200T Cash and cash equivalents, end $ 483,213
===========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
STATEMENT OF CASH FLOWS DATA - CONTINUED
Year ended December 31, 2003
Account No.
- -----------
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
3250 Net income (loss) $ (154,668)
-----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
6600 Depreciation 848,101
Changes in asset and liability accounts
(Increase) decrease in assets
S1200-490 Tenant accounts receivable 5,576
S1200-500 Accounts receivable - other (6,591)
S1200-520 Miscellaneous prepaid expenses 18,509
S1200-530 Tenant security deposits funded 21,146
Increase (decrease) in liabilities
S1200-540 Accounts payable 21,532
S1200-570 Accrued interest payable (50,128)
S1200-580 Tenant security deposits held in trust (21,040)
S1200-590 Prepaid revenue (9,561)
S1200-605 Entity/construction liability accounts (include detail)
S1200-606 Accrued interest - entity $ 475,523
S1200-606 Accrued asset management fee 2,507
----------
478,030
-----------
Total adjustments 1,305,574
-----------
S1200-610 Net cash provided by (used in) operating activities $ 1,150,906
===========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
RESERVE FOR REPLACEMENTS
Balance at December 31, 2002 $ 858,034
Total monthly deposits 579,732
Interest income 9,181
Approved withdrawals (457,940)
---------
Balance at December 31, 2003 $ 989,007
=========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
COMPUTATION OF SURPLUS CASH, DISTRIBUTIONS AND RESIDUAL RECEIPTS
Part A - Compute Surplus Cash
-----------------------------
Cash (Accounts 1120, 1170 and 1191) $ 576,225
Accounts receivable - HUD 8,854
---------
Total cash 585,079
---------
Accrued mortgage interest payable -
Delinquent mortgage principal payments -
Delinquent deposits to reserve for replacements -
Accounts payable (due within 30 days) 88,739
Loans and notes payable (due within 30 days) -
Deficient tax, insurance or MIP escrow deposits -
Accrued expenses (not escrowed) -
Prepaid revenue (Account 2210) -
Tenant security deposits liability (Account 2191) 91,332
Other current obligations (describe in detail)
Miscellaneous current liabilities $ 43,875
43,875
---------
Less total current obligations 223,946
---------
Surplus cash (deficiency) $ 361,133
=========
Part B - Compute Distributions to Owners and Required Deposit to Residual Receipts
----------------------------------------------------------------------------------
Surplus cash $ 361,133
---------
Limited Dividend Projects
-------------------------
Annual distribution earned during fiscal period covered by the statements 242,600
Distribution accrued and unpaid as of the end of the prior fiscal period 5,449,654
Distributions and entity expenses paid during fiscal period covered by the statements 320,189
---------
Amount remaining as distribution earned but unpaid 5,372,065
---------
Amount available for distribution during next fiscal period $ 361,133
=========
Deposit due residual receipts reserve NONE
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
CHANGES IN FIXED ASSET ACCOUNTS
Assets
------------------------------------------------------------------------------------
Balance 12/31/02 Additions Deletions Balance 12/31/03
------------------ ------------------- ------------------- -------------------
Land $ 1,100,000 $ - $ - $ 1,100,000
Buildings 22,696,043 501,875 - 23,197,918
Office furniture and equipment 1,320,764 21,712 - 1,342,476
Maintenance equipment 19,737 2,402 - 22,139
Motor vehicles 6,400 - - 6,400
------------------ ------------------- ------------------- -------------------
$ 25,142,944 $ 525,989 $ - $ 25,668,933
================== =================== =================== ===================
Accumulated depreciation $ 11,045,850 $ 848,101 $ - $ 11,893,951
================== =================== =================== ===================
Total net book value $ 13,774,982
===================
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
CHANGES IN FIXED ASSET ACCOUNTS (Continued)
Fixed Assets Detail
-------------------
Additions to Buildings Account
------------------------------
Item and quantity Amount
------------------------------------------------------------- ---------
Parking lot $ 8,760
Decorating 142,231
Electrical 7,821
Exterior repairs 5,047
Floor/carpet 19,653
Lock and key 2,857
Plumbing 78,911
Safety systems 5,296
Security 6,153
Windows/screens/doors 136,830
Other repair 45,813
HVAC 17,727
Appliances 24,776
---------
$ 501,875
=========
Additions to Office Furniture and Equipment Account
---------------------------------------------------
Item and quantity Amount
------------------------------------------------------------- ---------
Computers $ 21,712
=========
Additions to Maintenance Equipment Account
------------------------------------------
Item and quantity Amount
------------------------------------------------------------- ---------
Bobcat bucket $ 520
Other maintenance equipment 1,882
---------
$ 2,402
=========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
DETAIL OF ACCOUNTS - BALANCE SHEET
ACCOUNTS AND NOTES RECEIVABLE - OPERATIONS (ACCOUNT NO. 1140)
Accounts receivable - commerical $ 2,478
Accounts receivable - other 3,146
--------
$ 5,624
========
MISCELLANEOUS CURRENT ASSETS (ACCOUNT NO. 1190)
Payroll deposit $106,999
========
MISCELLANEOUS CURRENT LIABILITIES (ACCOUNT NO. 2190)
Accrued audit fees $ 9,800
Accrued expenses 34,075
--------
$ 43,875
========
MISCELLANEOUS LONG-TERM LIABILITIES (ACCOUNT NO. 2390)
Asset management fees $169,997
========
Laurel-Clayton Limited Partnership
HUD Project No.: 023-44012-LDC
SUPPLEMENTAL INFORMATION - CONTINUED
SUPPORTING DATA REQUIRED BY HUD
Year ended December 31, 2003
OTHER INFORMATION
Schedule of notes payable:
Lien placed on
project assets?
Creditor (Yes,No) Amount due
----------------------------------------------------------- --------------- -----------
The Community Builders, Inc. No $ 3,517,966
HUD Yes 2,800,000
-----------
$ 6,317,966
===========
Related party transactions detail:
Entity name Amount paid
----------------------------------------------------------- -----------
The Community Builders, Inc. - Payroll and related costs $ 964,286
The Community Builders, Inc. - Management fee 279,829
The Community Builders, Inc. - Accrued interest on note 276,055
Century Pacific Realty Corporation - Asset management fee 44,134
-----------
$ 1,564,304
===========
Reznick Group, P.C.
7700 Old Georgetown Road * Suite 400 * Bethesda, MD 20814-6224
(301) 652-9100 * Fax (301) 652-1848
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
To the Partners
Laurel-Clayton Limited Partnership
We have audited the financial statements of Laurel-Clayton Limited
Partnership, as of and for the year ended December 31, 2003, and have issued our
report thereon dated January 28, 2004. We have also audited Laurel-Clayton
Limited Partnership's compliance with requirements applicable to major
HUD-assisted programs and have issued our report thereon dated January 28, 2004.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America, the standards applicable to financial
audits contained in 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. 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 Laurel-Clayton Limited Partnership complied with laws and regulations,
noncompliance with which would be material to a major HUD-assisted program.
The management of the Partnership is responsible for establishing and
maintaining effective internal control. In planning and performing our audit of
the financial statements, we considered the Partnership's internal control over
financial reporting and its internal control over compliance with requirements
that would have a direct and material effect on a major HUD-assisted program in
order to determine our audit procedures for the purpose of expressing our
opinions on the financial statements and on compliance and not to provide
assurance on the internal control over financial reporting and the internal
control over compliance.
Our consideration of internal control would not necessarily disclose
all matters in internal control that might be material weaknesses. A material
weakness is a condition in which the design or operation of one or more of the
internal control components does not reduce to a relatively low level the risk
that misstatements that would be material in relation to the financial
statements or that noncompliance with applicable requirements of laws and
regulations that would be material in relation 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
internal control and its operation that we consider to be material weaknesses as
defined above.
ATLANTA o BALTIMORE o BETHESDA o CHARLOTTE o SACRAMENTO
This report is intended solely for the information and use of
management and the Department of Housing and Urban Development and is not
intended to be and should not be used by anyone other than these specified
parties.
Bethesda, Maryland
January 28, 2004
Reznick Group, P.C.
7700 Old Georgetown Road * Suite 400 * Bethesda, MD 20814-6224
(301) 652-9100 * Fax (301) 652-1848
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
MAJOR HUD PROGRAMS
To the Partners
Laurel-Clayton Limited Partnership
We have audited Laurel-Clayton Limited Partnership's compliance with
the specific program requirements governing federal financial reports; mortgage
status; replacement reserve; residual receipts; distributions to owners; tenant
application, eligibility and recertification; management functions; unauthorized
change of ownership/acquisition of liabilities; unauthorized loans of project
funds; unauthorized transfer of beneficial interest; electronic submission
verification; and excess income that are applicable to each of its major
HUD-assisted programs for the year ended December 31, 2003. Compliance with
those requirements is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on the Partnership's compliance based on
our audit.
We conducted our audit of compliance in accordance with auditing
standards generally accepted in the United States of America, the standards
applicable to financial audits contained in 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.
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 that could have a direct and material effect on a
major HUD-assisted program occurred. An audit includes examining, on a test
basis, evidence about Laurel-Clayton Limited Partnership's compliance with those
requirements and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our
opinion. Our audit does not provide a legal determination of the Partnership's
compliance with those requirements.
In our opinion, Laurel-Clayton Limited Partnership 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, 2003.
This report is intended solely for the information and use of
management and the Department of Housing and Urban Development and is not
intended to be and should not be used by anyone other than these specified
parties.
Bethesda, Maryland
January 28, 2004
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE
WITH SPECIFIC REQUIREMENTS APPLICABLE TO
FAIR HOUSING AND NON-DISCRIMINATION
To the Partners
Laurel-Clayton Limited Partnership
We have applied procedures to test Laurel-Clayton Limited Partnership's
compliance with the Fair Housing and Non-Discrimination requirements applicable
to its HUD-assisted programs for the year ended December 31, 2003.
Our procedures were limited to the applicable compliance requirement
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 the Inspector General. Our procedures were substantially less in scope than
an audit, the objective of which is the expression of an opinion on
Laurel-Clayton Limited Partnership's compliance with the Fair Housing and
Non-Discrimination requirements. Accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance that
are required to be reported herein under the Guide.
This report is intended solely for the information and use of
management and the Department of Housing and Urban Development and is not
intended to be and should not be used by anyone other than these specified
parties.
Bethesda, Maryland
January 28, 2004