COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
FINANCIAL STATEMENTS AND SUPPLEMENTAL SUPPORTING DATA
FOR THE YEAR ENDED DECEMBER 31, 1997
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
FOR THE YEAR ENDED DECEMBER 31, 1997
Page
----
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2 - 3
Statement of Profit and Loss 4 - 5
Statement of Changes in Members' Equity 6
Statement of Cash Flows 7
Notes to Financial Statements 8 - 10
Supplemental Supporting Data Required by HUD 11 - 20
[Letterhead]
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
INDEPENDENT AUDITORS' REPORT
The Members
Cove Apartments, L.C.
We have audited the accompanying balance sheet of Cove Apartments, L.C. (a Texas
limited liability company) (the "Company"), U.S. Department of Housing and Urban
Development ("HUD") Project Number 114-11122-REF, as of December 31, 1997 and
the related statements of profit and loss, changes in members' equity and cash
flows for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cove Apartments, L.C. as of
December 31, 1997 and the results of its operations, changes in members' equity
and cash flows for the year then ended in conformity with generally accepted
accounting principles.
In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 8, 1998, on our
consideration of the Company's internal controls, and reports dated February 8,
1998, on its compliance with specific requirements applicable to major HUD
programs and specific requirements applicable to Fair Housing and
Non-Discrimination.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information shown on pages 11-20 are presented for purposes of additional
analysis and is not a required part of the basic financial statements of the
Company. Such information has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Certified Public Accountants
February 8, 1998
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS:
1110 Petty Cash $ 300
1120 TCB depository account 49,774
1130 Tenant accounts receivable 752
1140 Accounts receivable - other 607
1240 Prepaid insurance 41,276
1250 Mortgage insurance 32,945
---------
Total current assets 125,654
Deposits Held in Trust - Funded:
1191 Tenant security deposits: 55,348
---------
Restricted Deposits and Funded Reserves:
1310 Mortgage escrow deposits:
MIP escrow -
FHA repair escrow -
Property tax escrow 235,982
Insurance escrow 37,732
1320 Reserve for replacements 162,957
---------
Total restricted deposits and funded reserves 436,671
---------
Property, Furniture and Equipment
1410 Land 1,354,280
1420 Buildings 5,266,271
1450 Furniture and equipment 400,230
---------
7,020,781
Less accumulated depreciation (767,961)
Total property, furniture and equipment 6,252,820
Other Assets:
1800 Financing and organization costs net of
accumulated amortization of $43,883 331,010
---------
Total Assets $7,201,503
=========
See accompanying notes to financial statements.
2
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
2110 Accounts payable $ 8,024
2120 Accrued wages and payroll taxes payable 3,829
2130 Mortgage interest payable -
2150 Accrued property taxes 223,294
2210 Prepaid rents 9,738
2320 Current portion of mortgage loan payable - Note 2 54,720
---------
Total current liabilities 299,605
Deposits Liabilities:
2191 Tenant security deposits: 55,599
Long-Term Liabilities:
2310 Mortgage loan payable, net of current portion - Note 2 6,563,623
---------
Total Liabilities 6,918,827
Members' Equity 282,676
Total Liabilities and Members' Equity $7,201,503
=========
See accompanying notes to financial statements.
3
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
Balance, December 31, 1996 $225,560
Contributions -
Distributions (22,224)
Net Profit for the year 79,340
--------
Balance, December 31, 1997 $282,676
========
See accompanying notes to financial statements.
4
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
Cash Flows from Operating Activities:
Net Income (Loss) $ 79,340
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 215,304
(Increase) decrease in:
Accounts receivable - tenants (645)
Mortgage insurance (2,503)
Prepaid insurance (4,868)
Escrow accounts (104,709)
Security deposits (1,819)
Accounts receivable - other (607)
Deposits 200
Increase (decrease) in:
Accounts payable and accrued liabilities (51,742)
Accrued interest payable (42,402)
Accrued taxes payable (5,188)
Deposit liabilities 12,445
Prepaid rents 4,631
---------
97,437
---------
Cash Flows from Investing Activities:
Property improvements (138,421)
---------
Cash Flows from Financing Activities:
Mortgage principal payments (54,770)
Distributions (22,224)
---------
(76,994)
---------
Net Decrease in Cash (117,978)
Cash, Beginning of Year 168,052
---------
Cash, End of Year $ 50,074
=========
Supplemental Disclosures of Cash Flow Information:
Interest paid during the year $ 549,170
=========
See accompanying notes to financial statements.
5
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
Note 1 Organization and Summary of Significant Accounting Policies
Organization
Cove Apartments, L.C. (the "Company") was organized as a limited
liability company on June 25, 1992, under the laws of the State of
Texas, for the purpose of acquiring and operating a housing project
or projects with the assistance of mortgage insurance under the
National Housing Act, Section 223F. Such projects are regulated by
the Department of Housing and Urban Development ("HUD"). The
Regulatory Agreement limits distributions of net operating income to
"surplus cash" available for distribution at the end of a semiannual
or annual fiscal period. The Company will terminate June 24, 2032,
according to the terms of the Articles of Organization.
On December 16, 1993, the members of Cove Apartments, L.C.
contributed a 308 unit multifamily project located at 2000 Bay Area
Blvd. in Houston, Texas, known as the Cove Apartments (the
"Project") and certain other assets to the Company. Concurrently,
the Company obtained a mortgage loan in the amount of $6,800,000,
collateralized by the Project and other assets. The Project was
recorded by the Company at the members' net carrying basis of
$6,127,303 which represents cost less accumulated depreciation. The
proceeds of the mortgage loan were used to repay the members'
existing debt on the Project, fund escrow balances and pay closing
costs, all of which were funded at closing and did not flow through
the cash accounts of the Company. The aggregate amount of the assets
contributed, including the Project and other assets and escrow
balances, in excess of the mortgage loan totaled $378,206 and was
recorded as a capital contribution.
Revenue Recognition
The Company recognizes real estate rental revenue in accordance with
the terms of the respective leases.
Property, Furniture and Equipment
Property, furniture and equipment are carried at cost and are
depreciated using the straight line method over the estimated useful
lives of 5 to 10 years for furniture and equipment and 20 to 40
years for building and building improvements.
6
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
Note 1 Organization and Summary of Significant Accounting Policies
(Continued)
Financing Costs
Financing costs consist principally of fees incurred in conjunction
with obtaining the permanent mortgage loan and are being amortized
over the 35 year term of the mortgage loan using the straight-line
method.
Income Taxes
No provision for Federal income taxes is made in the accounts of the
Company since taxes on its operations are the obligations of
individual members.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 Mortgage Loan Payable
The mortgage loan payable to TRI Capital Corporation bears interest
at 7.625% and is due in monthly installments of $46,457, including
interest, through January 1, 2029. The Company's property and
equipment and the various funded reserves collateralize the mortgage
loan.
Annual principal payments for years subsequent to December 31, 1997
are as follows:
Years Ending December 31, Amount
------------------------- ------
1998 $ 54,720
1999 59,042
2000 63,705
2001 68,735
2002 74,164
Thereafter 6,297,977
----------
$6,618,343
==========
7
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
Note 3 Real Estate Leases
At December 31, 1997 approximately 93.5% of the Project's 308 units
were committed under either month-to-month leases or non-cancelable
operating leases with terms varying from six to twelve months.
Future minimum real estate rental income under the non-cancelable
operating leases existing at December 31, 1997, expected during the
year ending December 31, 1998 is approximately $557,770.
Note 4 Related Party Transactions
Operations of the Project are managed by Bradley Apartment Homes
("BAH"), which is affiliated with the members of the Company.
Management fees paid to BAH are based on four percent of rents
collected. Such fees aggregated $70,100 for the year ended December
31, 1997.
Consulting services related to contracting for repair/replacement
expenditures on the project were provided during the year by Allied
Construction Services, which is also affiliated with the members of
the Company. Consulting fees paid to Allied Construction during the
year ended December 31, 1997 aggregated $122,930 and were calculated
on a percentage of the repair/replacement cost basis.
8
SUPPLEMENTAL SUPPORTING DATA REQUIRED BY HUD
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
December 31, 1997
Accounts Receivable (other than from regular tenants):
None
Delinquent Tenant Accounts Receivable:
1997
-----------------------
Number of Amount
Tenants Past Due
------- --------
Delinquent 30 days 8 $752
Delinquent 31 to 60 days 0 0
Delinquent 61 to 90 days 0 0
Delinquent over 90 days 0 0
--- ---
8 $752
=== ===
Mortgage Escrow Deposits:
Estimated amount required as of December 31, 1997 for future payment of:
1997
----
Property insurance, 8 months $ 23,207
Mortgage insurance, 11 months 33,210
Real estate taxes, 12 months 223,294
-------
Total 279,711
Amount confirmed by mortgagee 306,658
-------
Amount on deposit in excess
of estimated requirements $ 26,947
=======
9
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Reserve for Replacements:
In accordance with the provisions of the Regulatory Agreement, restricted
cash is held by the TRI Capital Corporation to be used for replacement of
property with the approval of HUD as follows:
Balance, beginning of period $117,835
Deposits made during period 45,122
Withdrawals made during period -
--------
Balance, end of period $162,957
========
Accounts Payable (other than to trade creditors):
None
Compensation of Partners:
None from Project funds
Changes in Fixed Assets:
Furniture &
Land Buildings Equipment Total
---- --------- --------- -----
Cost:
December 31, 1996 $1,354,280 $5,175,670 $352,410 $6,882,360
Additions - 90,601 47,820 138,421
Dispositions - - - -
--------- --------- ------- ---------
December 31, 1997 $1,354,280 $5,266,271 $400,230 $7,020,781
========= ========= ======= =========
Accumulated Depreciation:
December 31, 1996 $ 435,773 $127,600 $ 563,373
Additions 151,079 53,509 204,588
Dispositions - - -
--------- ------- ---------
December 31, 1997 $ 586,852 $181,109 $ 767,961
========= ======= =========
10
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Accrued Taxes:
Description of Basis for Period Amount
Tax Accrual Covered Date Due Accrued
-------------- ---------- --------- -------- -------
Houston ISD Tax January 1, 1997
Statement through January 31,
December 31, 1997 1998 $129,080
City of Houston and Tax January 1, 1997
Harris County Statement through January 31,
December 31, 1997 1998 94,215
--------
Total $223,295
========
Tenant Security Deposits:
Tenant security deposits are held in account #25526-00219 at Bank of America
Texas N.A., Houston, Texas. This federally insured account, in the name of the
Project, had a balance of $55,348 at December 31, 1997, including earned
interest that does not inure to the tenants.
Schedule of Unauthorized Distributions of Project Income:
None
Changes in Ownership Interests:
No ownership changes occurred during the period covered by the financial
statements.
Distributions paid to the members:
Date Declared and Paid Period Covered Amount Declared and Paid
- - ---------------------- -------------- ------------------------
February 1997 2nd half 1996 $22,224
=======
11
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Statement of Receipts and Disbursements:
Source of Funds:
Revenues:
Rental income, net $1,679,282
Financial 6,329
Other income 75,768
---------
1,761,379
---------
Expenses:
Administrative 205,134
Management fees 70,100
Utilities 84,546
Operating 21,695
Maintenance 124,553
Maintenance payroll 92,023
Real estate taxes 227,046
Other taxes 19,759
Insurance 65,155
Workmen's' compensation 16,746
Mortgage insurance 33,210
Mortgage interest 506,768
---------
1,466,735
---------
Cash provided by operations before principal
payments and changes in assets and liabilities 294,644
Principal payments 54,770
---------
Cash provided by operations before changes
in assets and liabilities 239,874
---------
12
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Statement of Receipts and Disbursements (Continued)
Application of Funds:
(Increase) decrease in:
Accounts receivable - tenants (645)
Accounts receivable - other (607)
Deposits 200
Prepaid insurance (4,868)
Security deposits (1,819)
Escrow accounts (104,709)
Mortgage insurance (2,503)
Increase (decrease) in:
Accounts payable and accrued liabilities (51,742)
Accrued interest payable (42,402)
Accrued taxes payable (5,188)
Deposit and prepayment liabilities 17,076
Additions to Property (138,421)
Surplus Cash Distributions (22,224)
--------
(357,852)
--------
Increase (decrease) in cash (117,978)
Unrestricted cash, beginning period 168,052
--------
Unrestricted cash, end of period $ 50,074
========
13
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
December 31, 1997
Schedule of Funds in Financial Institutions as of December 31, 1997:
Funds Held by Mortgagor, Regular Operating Account:
Texas Commerce Bank, (checking)(1) $135,738
Funds Held by Mortgagor in Trust, Tenant Security Deposits:
Bank of America(2) 55,348
Funds Held by Mortgagee, (in Trust):
Reserve for Replacements(3)
Sanwa Bank, (checking) 3.5% $162,957
Mortgage Insurance Escrow(3), Sanwa Bank 32,945
Property Tax Escrow(3), Sanwa Bank 235,982
Property Insurance Escrow(3), Sanwa Bank 37,732
--------
Funds Held by Mortgagee 469,616
-------
Total Funds in Financial Institutions $660,702
=======
(1) Balances Confirmed by Texas Commerce Bank
(2) Balances Confirmed by Bank of America
(3) Balances Confirmed by TRI
14
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Listing of Identity of Interest Companies and Activities
Doing Business with Owner/Agent
during the year ended December 31, 1997
Company Name Type of Service Amount Received
------------ --------------- ---------------
Bradley Apartment Homes Property Management $ 70,100
Allied Construction Service Consulting Services $122,930
15
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Certification of Members
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
We hereby certify that we have examined the foregoing financial statements of
Cove Apartments, L.C. Project Number 114-11122-REF, and, to the best of our
knowledge and belief, the same is complete and accurate.
/s/ Tim Meyers /s/ Al Bradley, Jr.
- - -------------------------------- ------------------------------------
Tim Myers Al Bradley, Jr.
President Vice-President
- - -------------------------------- ------------------------------------
Date Date
Limited Liability Company
Identification Number 76-0372786
16
COVE APARTMENTS, L.C.
(HUD Project Number 114-11122-REF)
Supplemental Supporting Data Required by HUD
For the Year Ended December 31, 1997
Management Agent's Certification
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
We hereby certify that we have examined the foregoing financial statements of
Cove Apartments, L.C. Project Number 114-11122-REF, and, to the best of our
knowledge and belief, the same is complete and accurate.
/s/ Gene R. Blevins /s/ Al Bradley, Jr.
- - -------------------------------- ------------------------------------
Gene R. Blevins Al Bradley, Jr.
President Chairman
Allied Development Corporation Allied Development Corporation
dba, Bradley Apartment Homes dba, Bradley Apartment Homes
- - -------------------------------- ------------------------------------
Date Date
Allied Development Corporation
Identification Number 76-0156150
17
[Letterhead]
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
February 8, 1998
To the Department of Housing
and Urban Development
Attached is the financial report of Cove Apartments, L.C. (HUD Project No.
114-11122-REF) for the year ended December 31, 1997.
/s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C.
Certified Public Accountants
Houston, Texas
Employer Identification No.: 74-1716599
Engagement Partner: Mr. Naushad Kermali
3555 Timmons Lane, #460
Houston, TX 77027
(713) 963-8008
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
[Letterhead]
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROLS
(COMBINED REPORT APPLICABLE TO THE
FINANCIAL STATEMENTS AND HUD-ASSISTED PROGRAMS)
To Members
Cove Apartments, L.C.
We have audited the financial statements of U.S. Department of Housing and Urban
Development ("HUD") Project No. 114-11122-REF Cove Apartments, L.C. (the
"Company"), for the year ended December 31, 1997 and have issued our report
thereon dated February 8, 1998. We have also audited the Company's compliance
with requirements applicable to major HUD-assisted programs and have issued our
report thereon dated February 8, 1998.
We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States and the Consolidated Audit Guide for Audits of HUD Programs (the
"Guide"), issued by the U.S. Department of Housing and Urban Development, Office
of the Inspector General. Those standards and the Guide require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements and about whether the Company
complied with laws and regulations, noncompliance with which would be material
to a major HUD-assisted program.
The management of Cove Apartments, L.C. is responsible for establishing and
maintaining internal controls. In fulfilling this responsibility, estimates and
judgments by management are required to assess the expected benefits and related
costs of internal controls. The objectives of internal controls are to provide
management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition, that transactions
are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with generally
accepted accounting principles, and that HUD-assisted programs are managed in
compliance with applicable laws and regulations. Because of inherent limitations
in any internal control structure, errors, irregularities, or instances of
noncompliance may nevertheless occur and not be detected. Also, projection of
any evaluation of internal controls to future periods is subject to the risk
that procedures may become inadequate because of changes in conditions or that
the effectiveness of the design and operation of policies and procedures may
deteriorate.
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
In planning and performing our audits, we obtained an understanding of the
design of relevant internal controls and determined whether they have been
placed in operation, and we assessed control risk in order to determine our
auditing procedures for the purpose of expressing our opinions on the Company's
financial statements and on its compliance with specific requirements applicable
to its major HUD-assisted programs and to report on internal controls in
accordance with the provisions of the Guide and not to provide any assurance on
internal controls.
We performed tests of controls, as required by the Guide, to evaluate the
effectiveness of the design and operation of internal controls that we
considered relevant to preventing or detecting material noncompliance with
specific requirements applicable to the Company's major HUD-assisted programs.
Our procedures were less in scope than would be necessary to render an opinion
on internal control policies and procedures. Accordingly, we do not express such
an opinion.
Our consideration of the internal controls would not necessarily disclose all
matters in internal controls that might be material weaknesses under standards
established by the American Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more
of the internal control components does not reduce to a relatively low level
risk that errors or irregularities in the amounts that would be material in
relation to the financial statements being audited or that noncompliance with
laws and regulations that would be material to a HUD-assisted program may occur
and not be detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving internal
controls and their operations that we consider to be material weaknesses as
defined above.
This report is intended for the information of audit committee, management, and
the U.S. Department of Housing and Urban Development. However, this report is a
matter of public record and its distribution is not limited.
/s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C.
HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.
February 8, 1998
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
[Letterhead]
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC
REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS
The Members
Cove Apartments, L.C.
We have audited the financial statements of U.S. Department of Housing and Urban
Development ("HUD") Project No. 114-11122-REF, Cove Apartments, L.C. (the
"Company") as of and for the year ended December 31, 1997 and have issued our
report thereon dated February 8, 1998. In addition, we have audited the
Company's compliance with the specific program requirements governing mortgage
status, replacement reserve, security deposits and cash receipts and
disbursements that are applicable to each of its major HUD-assisted programs,
for the year ended December 31, 1997. The management of the Cove Apartments,
L.C. is responsible for compliance with those requirements. Our responsibility
is to express an opinion on compliance with those requirements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards,
Government Auditing Standards, issued by the Comptroller General of the United
States, and the Consolidated Audit Guide for Audits of HUD Programs (the
"Guide") issued by the US. Department of Housing and Urban Development, Office
of 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 occurred. An audit
includes examining, on a test basis, evidence about the Company's compliance
with those requirements. We believe that our audit provides a reasonable basis
for our opinion.
The results of our audit procedures disclosed no instances of noncompliance with
the requirements referred to above, that are required to be reported herein.
In our opinion, the Cove Apartments, L.C. complied, in all material respects,
with the requirements governing Section 207 pursuant to Section 223(f) of the
National Housing Act that are applicable to each of its HUD-assisted programs
for the year ended December 31, 1997.
This report is intended for the information of management and the U.S.
Department of Housing and Urban Development. However, this report is a matter of
public record and its distribution is not limited.
/s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C.
HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.
February 8, 1998
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008
[Letterhead]
Hidalgo, Banfill, Zlotnik & Kermali, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
(Originally Founded in 1949)
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH SPECIFIC
REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION
To Members
Cove Apartments, L.C.
We have audited the financial statements of U.S. Department of Housing and Urban
Development ("HUD") Project No. 114-11122-REF, Cove Apartments, L.C. (the
"Company") as of and for the year ended December 31, 1997 and have issued our
report thereon dated February 8, 1998.
We have applied procedures to test the Company's compliance with the Fair
Housing and Non-Discrimination requirements applicable to its HUD-assisted
programs for the year ended December 31, 1997.
Our procedures were limited to the applicable compliance requirement described
in the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S.
Department of Housing and Urban Development, Office of Inspector General. Our
procedures were substantially less in scope than an audit, the objective of
which would be the expression of an opinion on the Company's compliance with the
Fair Housing and Non-Discrimination requirements. Accordingly, we do not
express such an opinion.
The results of our tests disclosed no instances of noncompliance that are
required to be reported herein under the Guide.
This report is intended for the information of management and the U.S.
Department of Housing and Urban Development. However, this report is a matter of
public record and its distribution is not limited.
/s/ Hidalgo, Banfill, Zlotnik & Kermali, P.C.
HIDALGO, BANFILL, ZLOTNIK & KERMALI, P.C.
February 8, 1998
3555 TIMMONS LANE, SUITE 460 - HOUSTON, TEXAS 77027 - (713) 963-8008