UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------- EXCHANGE ACT OF 1934
Commission File Number 0-18491
CAPITAL MORTGAGE PLUS L.P.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3502020
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Assignment Certificates
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
--- ---
The approximate aggregate book value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of June 30, 2002 was
$23,880,785, based on Limited Partner equity as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's prospectus dated May 10, 1989, as supplemented July 7, 1989,
January 8, 1990, February 9, 1990, May 18, 1990, and October 24, 1990, as filed
with the Commission pursuant to Rules 424(b) and 424(c) of the Securities Act of
1933, but only to the extent expressly incorporated by reference in Parts I, II,
III and IV.
Index to exhibits may be found on page 26
Page 1 of 70
PART I
Item 1. Business.
General
- -------
Capital Mortgage Plus L.P. (the "Registrant") is a limited partnership formed
under the laws of the State of Delaware on November 23, 1988. The sole general
partner of the Registrant is CIP Associates, Inc., a Delaware corporation (the
"General Partner"). The General Partner manages and controls the affairs of the
Registrant. See Item 10, Directors and Executive Officers of the Registrant,
below.
Investment Objectives
- ---------------------
The Registrant's principal investment objectives are to: (i) preserve and
protect the Registrant's capital; (ii) provide quarterly cash distributions of
adjusted cash from operations; and (iii) provide additional distributions from
additional interest arising from participations in the annual cash flow of the
developments and/or the sale or refinancing of a development. There can be no
assurance that all of the objectives can be achieved.
The Registrant originated federally insured and co-insured first mortgage
construction and permanent loans ("Mortgages") to finance multi-family
residential rental properties ("Developments" and each a "Development")
developed by unaffiliated entities. All base interest and initially at least 90%
in the aggregate of the principal of the Mortgages in which the Registrant
invests are insured or coinsured by the Department of Housing and Urban
Development ("HUD") and Related Mortgage Corporation ("RMC"), an affiliate of
the General Partner. The remaining 10% of the Registrant's portfolio is
comprised of uninsured non-interest bearing equity loans ("Equity Loans")
secured by the assignment of the debtor's interests in the Development made
directly to the same developers as the Mortgages for, among other purposes,
defrayal of certain specific cash requirements of the Developments. The
Registrant made five Mortgages in the aggregate amount of $26,158,190 and five
Equity Loans in the aggregate amount of $3,062,135 in connection with five
Developments. The Registrant is a closed-end Company that made its last mortgage
investment in March 1993 and does not expect to make any additional investments.
The Mortgage and Equity Loan relating to the Mortenson Manor Apartments
("Mortenson") was repaid in full on October 31, 2002. The Mortgage and Equity
Loan relating to the Willow Trace Apartments ("Willow Trace") was repaid in full
on December 16, 1998. The Registrant has no present expectation as to when it
may dispose of its remaining Mortgages and Equity Loans.
The Registrant is engaged solely in the business of investing in Mortgages and
Equity Loans; therefore, presentation of industry segment information is not
applicable.
For detailed financial information pertaining to the Registrant, see Item 8,
Financial Statements and Supplementary Data, below.
2
Investments
- -----------
The following table lists the Mortgages and Equity Loans as of February 28,
2003; it excludes the investment in Mortenson which was repaid on October 31,
2002.
Original Interest
Date of Mortgage Rate on Equity Final
Invest- Loan Mortgage Loan Endorse- Term Occu
Project Location ment Amount(2) Loan (1) Amount ment (5) pancy
- ------- -------- ------- ----------- -------- ---------- --------- ----- -----
Windemere Wichita, 9/28/ 9.62%- 40 91%
Apartments (3) Kansas 1990 $ 8,110,300 10.7% $ 736,550 7/92 years
Fieldcrest III Dothan, 8/27/ 8.75%- 40 92%
Apartments Alabama 1991 3,343,700 10.11% 383,300 11/92 years
Holly Ridge II Gresham, 3/16/ 9.25%- 40 97%
Apartments (4) Oregon 1993 5,310,100 9.89% 684,400 6/95 years
----------- ----------
$16,764,100 $1,804,250
=========== ==========
(1) The minimum interest rate shown above includes interest payable under the
first mortgage note plus additional interest payable pursuant to the terms of a
Limited Operating Guaranty agreement for Fieldcrest III Apartments
("Fieldcrest") and Holly Ridge II Apartments ("Holly Ridge") and the Additional
Interest Guaranty agreements for Windemere Apartments ("Windemere").
(2) The Windemere Mortgage is co-insured by HUD and RMC. The Fieldcrest and
Holly Ridge Mortgages are fully insured by HUD. As of February 28, 2003, all
loan amounts under the Mortgages have been disbursed.
(3) Default interest payments in the aggregate amount of approximately $466,000
for the years ended December 31, 1999 through 2002 and $130,000 for the year
ended December 31, 1996 have not been received and as a result, the Registrant
established an allowance for uncollectability for a portion of the unpaid
default interest payments which equals approximately $565,000 and $472,000 at
December 31, 2002 and 2001, respectively.
(4) Default interest payments in the aggregate amount of approximately $26,000
and $40,000 for the years ended December 31, 2002 and 2001 have not been
received and as a result the Registrant established an allowance for
uncollectability for a portion of the unpaid default interest payments which
equals approximately $53,000 and $40,000 at December 31, 2002 and 2001,
respectively.
(5) All Mortgages and Equity Loans have call provisions effective ten years
following final endorsement and a grace period. The Registrant, in order to
enforce such provisions, would be required to terminate the mortgage insurance
contract with FHA (and/or the coinsurer) with respect to each of the Mortgages
not later than the accelerated payment date. Since the exercise of such option
would be at the Registrant's discretion, it is intended to be exercised only
where the Registrant determines that the value of the Development has increased
by an amount which would justify accelerating payment in full and assuming the
risks of foreclosure if the mortgagor failed to make the accelerated payment.
3
The following is the interest income from Mortgages as a percentage of total
revenues.
2002 2001 2000
---- ---- ----
Mortenson* 34% 20% 19%
Windemere 25 37 37
Fieldcrest 9 16 16
Holly Ridge 16 24 26
* Repaid in full on October 31, 2002
Repayment of Mortgage Loan
- --------------------------
On October 31, 2002, Mortenson II Associates L.P. (the "Owner"), the owner of
Mortenson, prepaid the outstanding Mortgage and Equity Loan in full. The
Mortgage and the Equity Loan were secured by a mortgage on the Mortenson
property and partnership interests in the Owner. The outstanding debt repaid
early to the Registrant totaled $5,934,739, including the $4,543,011 outstanding
balance of the Mortgage Loan, the $577,885 Equity Loan and $813,843 of
additional interest due pursuant to the loan documents.
Competition
- -----------
The Registrant's business is affected by competition to the extent that the
underlying Developments from which its borrowers derive interest and principal
payments may be subject to competition from neighboring properties. In
particular, the receipt of additional interest and the repayment of the Equity
Loans, neither of which is insured or guaranteed by government or
quasi-government agencies, are dependent upon the economic performance of the
underlying Developments which could be adversely affected by competitive
conditions.
Employees
- ---------
The Registrant does not directly employ anyone. All services are performed for
the Registrant by its General Partner and that entity's affiliates. The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition, the Registrant reimburses the General Partner and
certain of its affiliates for expenses incurred in connection with the
performance by their employees of services for the Registrant in accordance with
the Partnership Agreement.
Item 2. Properties.
The Registrant does not own or lease any property.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against or involving the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fiscal year
covered by this report through the solicitation of proxies or otherwise.
4
PART II
Item 5. Market for the Registrant's Common Equity and Related Security Holder
Matters.
As of December 31, 2002, the Registrant had issued and outstanding 1,836,660
limited partnership interests ("Limited Partnership Interests"). All of the
issued and outstanding Limited Partnership Interests are issued to Related FI
BUC$ Associates, Inc. (the "Assignor Limited Partner"), which has issued
Beneficial Assignment Certificates ("BACs"). Each BAC represents all of the
economic and virtually all of the material ownership rights attributable to a
Limited Partnership Interest held by the Assignor Limited Partner. BACs may be
converted into Limited Partnership Interests at no cost to the holder, but
Limited Partnership Interests are not convertible back into BACs. There is
currently no established public trading market for BACs and it is not
anticipated that BACs will be listed for trading on any securities exchange or
included for quotation on the Nasdaq National Market.
The Registrant has 3,485 registered holders of an aggregate of $1,836,660 BACs,
as of March 3, 2003.
All of the Registrant's general partnership interests, representing an aggregate
capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Registrant's Amended and Restated Agreement of Limited Partnership.
Distribution Information
- ------------------------
Accrued cash distributions per BAC made to the limited partners or BACs holders
for the following quarters in 2002, 2001 and 2000, which are paid in subsequent
quarters, were as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
----------- ----------- ----------- ----------- -------
2002 .2164 .2188 .2212 3.7200 4.3764
2001 .2164 .2188 .2212 .2212 .8776
2000 .2182 .2182 .2206 .2206 .8776
Quarterly distributions are generally made 45 days following the close of the
calendar quarter.
A total of $4,835,138 was distributed to the limited partners or BACs holders
during the years 2002, 2001 and 2000. The Registrant utilized the original
working capital reserve, in the aggregate amount of $477,532, for distributions
from 1989 through 1991, which was considered to be a return of capital. An
additional working capital reserve of approximately $2,800,000 was established
from uninvested offering proceeds, a portion of which was applied to pay a part
of the 2002, 2001 and 2000 distributions (which was considered to be a return of
capital). Approximately $0, $396,000 and $274,000 paid to the limited partners
or BACs holders in each of the years ended December 31, 2002, 2001 and 2000,
respectively, represented a return of capital. A total of $98,676 was
distributed to the General Partner during 2002, 2001 and 2000.
The 2002 fourth quarter distribution, which was paid on February 14, 2003, was
funded primarily by the Mortenson repayment proceeds, $3.59 per BAC of which is
considered to be a return of capital.
5
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the
Registrant. Additional financial information is set forth in the audited
financial statements and footnotes thereto contained in Item 8 hereof.
Year ended December 31,
--------------------------------------------------------------
OPERATIONS 2002 2001 2000 1999 1998
- ---------- ---------- ---------- ---------- ---------- ----------
Interest income -
Mortgage loans $2,490,705 $1,944,183 $1,994,946 $1,987,628 $2,678,758
Temporary 26,244 36,909 45,335 61,369 32,135
investments
Other income 451,800 3,302 3,352 6,517 393,785
---------- ---------- ---------- ---------- ----------
Total revenues 2,968,749 1,984,394 2,043,633 2,055,514 3,104,678
---------- ---------- ---------- ---------- ----------
Operating expenses 506,531 482,697 501,529 488,707 567,549
Provision for bad debts 146,388 262,062 175,493 54,549 144,977
---------- ---------- ---------- ---------- ----------
Total Expenses 652,919 744,759 677,022 543,256 712,526
---------- ---------- ---------- ---------- ----------
Net income $2,315,830 $1,239,635 $1,366,611 $1,512,258 $2,392,152
========== ========== ========== ========== ==========
Net income per BAC $ 1.24 $ 0.66 $ 0.73 $ 0.81 $ 1.28
========== ========== ========== ========== ==========
December 31,
--------------------------------------------------------------
FINANCIAL POSITION 2002 2001 2000 1999 1998
- ------------------ ----------- ----------- ----------- ----------- -----------
Total assets $23,814,436 $23,159,100 $23,535,982 $23,822,034 $28,561,927
=========== =========== =========== =========== ===========
CASH DISTRIBUTIONS
- ------------------
Distributions per BAC $ 4.38 $ 0.88 $ 0.88 $ 0.88 $ 3.45
=========== =========== =========== =========== ===========
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Capital Resources and Liquidity
- -------------------------------
Sources of Registrant funds included interest earned on (1) investments in
Mortgages and Equity Loans (see also Item 1, Business) and (2) the working
capital reserve.
During the year ended December 31, 2002, cash and cash equivalents of the
Registrant increased by approximately $5,548,000 due to cash provided by
operating activities ($1,909,000), collections of principal on Mortgages and
Equity Loans approximately ($5,283,000) and reduced by distributions paid to
partners and BACs holders ($1,645,000). Included in the adjustments to reconcile
the net income to cash flow provided by operating activities is amortization of
approximately $209,000.
The regular quarterly distribution for the fourth quarter of 2002 was reduced to
$.13 per BAC. Subject to the future performance of the Registrant's investments
and results of operations, the General Partner anticipates that there will be
sufficient cash from operations generated to cover anticipated expenses in 2003
and to fund future distributions of $.52 per BAC per annum paid quarterly.
On October 31, 2002, Mortenson II Associates L.P. (the "Owner"), the owner of
Mortenson, prepaid the outstanding Mortgage Loan and Equity Loan in full. The
Mortgage and the Equity Loan were secured by a mortgage on the Mortenson
property and partnership interests in the Owner. The outstanding debt repaid
early to the Registrant totaled $5,934,739, including the $4,543,011 outstanding
balance of the Mortgage, the $577,885 Equity Loan and $813,843 of additional
interest due pursuant to the loan documents. The repayment proceeds were
included in a cash distribution and were considered a return of capital made
during the first quarter of 2003 of $6,593,609 ($3.59 per BAC) to the
BACsholders and $66,602 to the General Partner.
Regular quarterly distributions other than the distribution of repayment
proceeds for the Mortenson Loans, which on an annual basis totaled approximately
$1,612,000 and $1,611,000, were made to the limited partners or BACs holders
during the years ended December 31, 2002 and 2001. Such distributions were made
from adjusted cash flow from operations and, to a lesser extent, from working
capital reserves which is considered to be a return of capital. Approximately
$33,000 was distributed to the General Partner in each of the years ended
December 31, 2002 and 2001, respectively.
Management is not aware of any trends or events, commitments or uncertainties
that will impact liquidity in a material way. Management believes the only
impact would be from laws that have not yet been adopted. All base interest and
the principal of the Registrant's investments in Mortgages are insured or
co-insured by HUD and additionally one Mortgage is coinsured by a private
mortgage lender (which is an affiliate of the General Partner). The Registrant's
investments in uninsured non-interest bearing Equity Loans (which represent
approximately 10% of the Registrant's portfolio when originated) are secured by
a Registrant interest in three properties. Due to the prepayment of two of the
Registrant's original investments in Mortgages and Equity Loans, the portfolio
is not diversified by location around the United States. Thus, the Registrant
may not be protected against a general downturn in the national economy.
Critical Accounting Policies
- ----------------------------
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires Registrant to
make certain estimates and assumptions. A summary of significant accounting
policies is disclosed in Note 2 to the financial statements which are included
7
in Registrant's annual report on Form 10-K for the year ended December 31, 2002.
The following section is a summary of certain aspects of those accounting
policies that may require subjective or complex judgments and are most important
to the portrayal of Registrant's financial condition and results of operations.
Registrant believes that there is a low probability that the use of different
estimates or assumptions in making these judgments would result in materially
different amounts being reported in the financial statements.
o Interest income on the mortgage loans consist of contingent and
non-contingent interest as defined in the mortgage notes and other
additional interest agreements. Non-contingent interest consists of
base and default interest, which is recognized as earned. Contingent
interest is based on the development's cash flows and is recognized
when received.
o If the interest receivable exceeds the estimated value derived by
management, Registrant adjusts the allowance account to reflect its
estimated fair value.
o The equity loans are considered to be premiums paid to obtain the
Mortgages and are amortized over the average expected lives of the
respective Mortgages.
Results of Operations
- ---------------------
2002 vs. 2001
- -------------
Results of operations for the years ended December 31, 2002 and 2001 consisted
primarily of interest income of $2,491,000 and $1,944,000, respectively, earned
from investments in Mortgages.
Interest income from temporary investments decreased approximately $11,000 for
the year ended December 31, 2002 as compared to 2001, primarily due to lower
interest rates in 2002.
Other income increased approximately $448,000 for the year ended December 31,
2002 as compared to 2001, primarily due to the gain realized from the repayment
of the Mortenson Mortgage Loan and Equity Loan in 2002.
General and administrative increased approximately $12,000 for the year ended
December 31, 2002 as compared to 2001, primarily due to an increase in legal
expenses in 2002.
General and administrative-related parties increased approximately $21,000 for
the year ended December 31, 2002 as compared to 2001, primarily due to an
increase in expenses reimbursements due to the General Partner for asset
monitoring and overhead.
A provision for bad debts of approximately $146,000 and $262,000 was charged for
the years ended December 2002 and 2001, respectively, representing the 2002 and
2001 Guaranteed Interest due from Hollyridge and the 2002 Guaranteed Interest
due from Windemere and the 2001 Guaranteed Interest due from Mortenson and the
2001 and 2000 Guaranteed Interest due from Windemere.
8
2001 vs. 2000
- -------------
Results of operations for the years ended December 31, 2001 and 2000 consisted
primarily of interest income of $1,944,000 and $1,995,000, respectively, earned
from investments in Mortgages.
Interest income from temporary investments decreased approximately $8,000 for
the year ended December 31, 2001 as compared to 2000 primarily due to lower
interest rates in 2001.
General and administrative decreased approximately $15,000 for the year ended
December 31, 2001 as compared to 2000 primarily due to a decrease in legal and
printing costs in 2001.
A provision for bad debts of approximately $262,000 and $175,000 was charged for
the years ended December 31, 2001 and 2000, respectively, representing the 2001
Guaranteed Interest due from Mortenson and the 2001 and 2000 Guaranteed Interest
due from Windemere and the 2000 Guaranteed Interest due from Mortenson and the
1999 Guaranteed Interest due from Windemere.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable
9
Item 8. Financial Statements and Supplementary Data.
Page
(a) 1. Financial Statements ----
--------------------
Independent Auditors' Report 11
Statements of Financial Condition
as of December 31, 2002 and 2001 12
Statements of Income for the years
ended December 31, 2002, 2001 and
2000 13
Statements of Changes in Partners'
Capital (Deficit) for the years
ended December 31, 2002, 2001 and
2000 14
Statements of Cash Flows for the
years ended December 31, 2002, 2001
and 2000 15
Notes to Financial Statements 16
10
INDEPENDENT AUDITORS' REPORT
To the Partner of
Capital Mortgage Plus L.P.
We audited the accompanying statements of financial condition of Capital
Mortgage Plus, L.P. (a Delaware Limited Partnership) as of December 31, 2002 and
2001 and the related statements of income, changes in partners' capital
(deficit) and cash flows for the years ended December 31, 2002, 2001 and 2000.
These financial statements are the responsibility of the General Partners. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 the General Partner, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Mortgage Plus, L.P. as
of December 31, 2002 and 2001, and the results of its operations and its cash
flows for the three years then ended December 31, 2002, 2001 and 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 20, 2003
11
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
----------------------------
2002 2001
------------ ------------
Investments in mortgage loans (Note 3) $ 16,098,198 $ 21,002,372
Cash and cash equivalents 6,659,016 1,110,785
Accrued interest receivable (net of allowance
of $617,893 and $1,164,683) 153,135 408,618
Loan origination costs (net of accumulated
amortization of $162,743 and $196,624) 497,858 637,325
Other assets 406,229 0
------------ ------------
Total Assets $ 23,814,436 $ 23,159,100
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable and other liabilities $ 25,741 $ 25,000
Due to general partner and affiliates (Note 4) 56,407 73,080
------------ ------------
Total liabilities 82,148 98,080
------------ ------------
Partners' capital (deficit):
Limited Partners (1,836,660 BACs issued
and outstanding) (Note 1) 23,880,785 23,222,943
General Partner (148,497) (161,923)
------------ ------------
Total partners' capital (deficit) 23,732,288 23,061,020
------------ ------------
Total Liabilities and Partners' Capital (Deficit) $ 23,814,436 $ 23,159,100
============ ============
See accompanying notes to financial statements.
12
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2002 2001 2000
---------- ---------- ----------
Revenues:
Interest income:
Mortgage loans (Note 3) $2,490,705 $1,944,183 $1,994,946
Temporary investments 26,244 36,909 45,335
Other income 451,800 3,302 3,352
---------- ---------- ----------
Total revenues 2,968,749 1,984,394 2,043,633
---------- ---------- ----------
Expenses:
General and administrative 81,110 69,375 84,084
General and administrative-
related parties (Note 4) 215,411 194,280 198,403
Provision for bad debts 146,388 262,062 175,493
Amortization 210,010 219,042 219,042
---------- ---------- ----------
Total expenses 652,919 744,759 677,022
---------- ---------- ----------
Net income $2,315,830 $1,239,635 $1,366,611
========== ========== ==========
Net income - limited partners $2,269,513 $1,214,842 $1,339,279
========== ========== ==========
Number of BACs outstanding 1,836,660 1,836,660 1,836,660
========== ========== ==========
Net income per BAC $ 1.24 $ 0.66 $ 0.73
========== ========== ==========
See accompanying notes to financial statements.
13
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
Limited General
Total Partners Partner
------------ ------------ ------------
Partners' capital (deficit) - January 1, 2000 $ 23,744,026 $ 23,892,289 $ (148,263)
Net income 1,366,611 1,339,279 27,332
Distributions (1,645,825) (1,612,909) (32,916)
------------ ------------ ------------
Partners' capital (deficit) - December 31, 2000 23,464,812 23,618,659 (153,847)
Net income 1,239,635 1,214,842 24,793
Distributions (1,643,427) (1,610,558) (32,869)
------------ ------------ ------------
Partner's capital (deficit) - December 31, 2001 23,061,020 23,222,943 (161,923)
Net income 2,315,830 2,269,513 46,317
Distributions (1,644,562) (1,611,671) (32,891)
------------ ------------ ------------
Partner's capital (deficit) - December 31, 2002 $ 23,732,288 $ 23,880,785 $ (148,497)
============ ============ ============
See accompanying notes to financial statements.
14
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,315,830 $ 1,239,635 $ 1,366,611
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 146,388 262,062 175,493
Gain on recovery of amortized portion of
Mortenson Equity Loan (569,859) 0 0
Loss of unamortized portion of Mortenson
Loan costs 121,561 0 0
Amortization 210,010 219,042 219,042
Amortization of interest rate buydown (1,452) (1,452) (1,452)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable 109,095 (67,751) (341,240)
Increase in other assets (406,229) 0 0
Increase in accounts payable
and other liabilities 741 0 4,255
(Decrease) increase in due to general partner
and affiliates (16,673) 26,911 (11,093)
----------- ----------- -----------
Total adjustments (406,418) 438,812 45,005
----------- ----------- -----------
Net cash provided by operating activities 1,909,412 1,678,447 1,411,616
----------- ----------- -----------
Cash flows from investing activities:
Receipt of principal on mortgage loans 4,705,496 156,374 142,710
Receipt of principal on equity loan 577,885 0 0
----------- ----------- -----------
Net cash provided by investing activities 5,283,381 156,374 142,710
----------- ----------- -----------
Cash flows from financing activities:
Distributions to partners (1,644,562) (1,643,427) (1,645,825)
----------- ----------- -----------
Net cash used in financing activities (1,644,562) (1,643,427) (1,645,825)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 5,548,231 191,394 (91,499)
Cash and cash equivalents at beginning of year 1,110,785 919,391 1,010,890
----------- ----------- -----------
Cash and cash equivalents at end of year $ 6,659,016 $ 1,110,785 $ 919,391
=========== =========== ===========
See Accompanying Notes to Financial Statements.
15
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
NOTE 1 - General
Capital Mortgage Plus L.P., a Delaware limited partnership (the "Partnership")
commenced a public offering (the "Offering") on May 10, 1989 of 5,000,000
($100,000,000) Beneficial Assignment Certificates ("BACs") representing
assignments of limited partnership interests. The BACs represent an assignment
of all of the economic and all of the material ownership rights attributable to
the limited partnership interests in the Partnership. The BACs holders have
virtually the same rights and, for all practical purposes, are limited partners
of the Partnership.
Pursuant to the Offering, the Partnership received $36,733,200 of gross proceeds
from the BACs holders representing the issuance of 1,836,660 BACs. The final
closing of the Offering occurred on May 23, 1991 and no further issuance of BACs
is anticipated.
The Partnership was organized on November 23, 1988 and will continue until
December 31, 2041 unless terminated sooner under the provisions of its
partnership agreement.
The general partner of the Partnership is CIP Associates, Inc., a Delaware
corporation (the "General Partner"). Related FI BUC$ Associates, Inc. is the
Assignor Limited Partner of the Partnership. CIP Associates, Inc. and Related FI
BUC$ Associates, Inc. are under substantially common ownership.
The Partnership was formed to invest in insured or guaranteed mortgage
investments. The Partnership has invested in first mortgage construction and
permanent loans ("Mortgages") to finance multifamily residential rental
properties ("Developments") developed by unaffiliated entities. A substantial
portion of the Mortgages provides additional interest based on the annual cash
flow from the Developments and the proceeds of prepayments, sales or other
dispositions. All base interest and initially at least 90% of the principal of
the Mortgages is insured or coinsured by the Department of Housing and Urban
Development ("HUD") and a private mortgage lender (which is an affiliate of the
General Partner). The Partnership has also invested in uninsured equity loans
("Equity Loans") made directly to developers of developments on which the
Partnership holds a Mortgage.
Net income and distributions from operations of the Partnership are allocated 2%
to the General Partner and 98% to the limited partners, until the limited
partners have received an 11% per annum non-cumulative non-compounded return on
their adjusted contributions as defined in the Amended and Restated Agreement of
Limited Partnership. Thereafter, net income and distributions will be allocated
90% to the limited partners and 10% to the General Partner. Distributions of
disposition proceeds are allocated 1% to the General Partner and 99% to the
limited partners until each limited partner has received an amount equal to his
original contribution plus an amount which, when added to all prior
distributions equals a 7% per annum cumulative non-compounded return on his
adjusted contribution; then 2% and 98% of disposition proceeds, until each
limited partner has received an amount which, when added to all prior
distributions equals an 11% per annum cumulative non-compounded return on his
adjusted contribution; and thereafter 10% to the General Partner and 90% to the
limited partners.
The accrued cash distributions per BAC were approximately $4.38, $.88 and $.88
for 2002, 2001 and 2000. The 2002, 2001 and 2000 distributions were made from
adjusted cash flow from operations (and, in particular, of the fourth quarter
2002 distribution which was paid on February, 14, 2003 from the repayment of the
Mortenson loan, $3.59 per BAC was considered to be a return of capital) and to a
16
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
lesser extent were supplemented from working capital reserves, which was
considered to be a return of capital.
NOTE 2 - Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").
The preparation of financial statements in conformity with GAAP requires the
General Partner to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Significant
estimates are made when accounting for the allowance for the interest
receivable. Actual results could differ from those estimates.
Acquisition expenses incurred for the investment of Mortgages have been
capitalized and are included in loan origination costs, which are amortized over
the average expected lives of the respective Mortgages when acquired and written
off when the loan is repaid.
The Equity Loans are considered to be premiums paid to obtain the Mortgages and
are amortized over the average expected lives of the respective Mortgages.
Interest rate buydowns are amortized as an adjustment to the effective interest
rate over the average expected lives of the respective Mortgages.
b) Cash and Cash Equivalents
Cash and cash equivalents include temporary investments with original maturity
dates of less than 3 months when acquired and are carried at cost plus accrued
interest, which approximates market.
c) Income Taxes
The Partnership is not required to provide for, or pay, any federal income
taxes. Income tax attributes that arise from its operation are passed directly
to the individual partners. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
d) Revenue Recognition
Interest income on the Mortgages loans consists of contingent and non-contingent
interest as defined in the mortgage notes and other additional interest
agreements. Non-contingent interest consists of base and default interest, which
is recognized as earned. Contingent interest is based on the underlying
Development's cash flows and is recognized when received.
17
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(Unaudited)
Note 3 - Investments in Loans
Information relating to investments in Mortgages and Equity Loans as of December
31, 2002 and 2001 is as follows, one of which was repaid on October 31, 2002:
Amount Advanced
---------------------------------------------------------
No. of
Apt Date of Fianl Total Investments in Investments
Property/ -ment Invest- Maturity Equity Amounts Loans at in Loans at
Location Units ment Date Mortgages Loans Advanced 12/31/2002(E) 12/31/2001(E)
- --------- ------ ------- -------- ----------- ---------- ----------- ------------- -------------
Mortenson 104 8/1990 (F) $ 4,974,090 $ 577,885 $5,551,975 $ 0 $ 4,635,159
Manor
Apts./
Ames, IA
Windemere 204 9/1990 9/2030 8,110,300 736,550 8,846,850 7,650,456 7,773,702
Apts./
Wichita, KS
Fieldcrest 112 8/1991 8/2031 3,343,700 383,300 3,727,000 3,214,166 3,268,113
III
Apts./
Dothan, AL
Holly 144 3/1993 3/2033 5,310,100 684,400 5,994,500 5,233,576 5,325,398
Ridge II
Apts./
Gresham, OR
----------------------------------------------------------------------
Total $21,738,190 $2,382,135 $24,120,325 $16,098,198 $21,002,372
======================================================================
Interest earned by the Partnership during 2002
--------------------------------------------------------------------
Non-contingent Contingent
----------------------------- -----------------------------------
Car Flow
Default Annual Partici-
Base Interest Interest Yield pation Total
Property/ Amount/ Amount/ Amount/ Amount/ Interest
Location Rate(A) Rate(B) Rate(C) Rate(D) Earned
- --------- --------------- ----------- --------- --------- ----------
Mortenson $ 242,327 $ 768,843 $ 0 $ 0 $1,011,170
Manor 6.45% 1.98% .97% 30.00%
Apts./
Ames, IA
Windemere 610,504 124,574 0 0 735,078
Apts./ 7.95% 1.60% 1.08% 30.00%
Wichita, KS
Fieldcrest 277,379 0 0 0 277,379
III 8.68% 0% 1.36% 30.00%
Apts./
Dothan, AL
Holly 415,141 51,937 0 0 467,078
Ridge II 8.125% 1.00% .64% 30.00%
Apts./
Gresham, OR
------------------------------------------------------------------
Total $ 1,545,351 $ 945,354 $ 0 $ 0 $2,490,705
==================================================================
18
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
(A) Base interest on the Mortgages is that amount that is insured/co-insured by
HUD and is being shown net of service fee.
(B) Default Interest is the minimum amount due over the base rate, and is not
contingent upon cash flow. This interest is secured by partnership interests in
the borrower.
(C) Annual Yield is the amount over the default rate and is contingent upon cash
flow of the Development.
(D) Cash Flow Participation is the percent of cash flow due to the Partnership
after payment of the Annual Yield and is contingent upon cash flow.
(E) The Investments in Loans amount reflects the unpaid balance of the Mortgages
and the unamortized balance of the Equity Loans in the amounts of $15,945,807
and $152,391 respectively, at December 31, 2002 and $20,651,303 and $351,069,
respectively, at December 31, 2001.
(F) On October 31, 2002, Mortenson II Associates L.P. (the "Owner"), the owner
of Mortenson, prepaid the Mortgage and Equity Loan in full. The Mortgage and the
Equity Loan were secured by a mortgage on the Mortenson property and partnership
interests in the Owner. The outstanding debt repaid early to the Partnership
totaled $5,934,739, including the $4,543,011 outstanding balance of the
Mortgage, the $577,885 Equity Loan and $813,843 of additional interest due
pursuant to the loan documents.
Total interest earned, as shown on the above schedule of investment in loans
does not include the gain on the recovery of the amortized portion of the
Mortenson Equity Loan of $569,859 and the writeoff of the unamortized portion of
the Mortenson Loan costs of $121,561, both of which are included in other income
on the Statements of Income.
19
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
2002 2001
------------ ------------
Investment in loans January 1, $ 21,002,372 $ 21,357,424
Additions:
Fieldcrest discount amortization 1,452 1,452
------------ ------------
1,452 1,452
Deductions:
Amortization of equity loans (192,104) (200,130)
Collection of principal -Mortgages
-Mortenson (4,587,002) (49,769)
-Windemere (61,867) (57,114)
-Fieldcrest (21,839) (20,016)
-Holly Ridge (34,788) (29,475)
Collection of principal -Equity Loan
-Mortenson* (8,026) 0
------------ ------------
(4,905,626) (356,504)
------------ ------------
Investment in loans December 31, $ 16,098,198 $ 21,002,372
============ ============
* This is the unamortized portion of the Equity Loan and the balance of the
$577,885 repaid is included in other income on the Statements of Income.
The Windemere Mortgage is co-insured by HUD and Related Mortgage Corporation
("RMC"), an affiliate of the General Partner. The Fieldcrest III and Holly Ridge
II Mortgages are insured by HUD. Mortenson was co-insured by HUD and RMC.
In addition to the interest rate payable during the post-construction periods,
the Partnership will be entitled to payment of 30% of cash flow, if any,
remaining after payment of the permanent loan interest and accrued interest if
any, and certain amounts from sales or refinancing proceeds.
The Equity Loans are non-interest bearing and are secured by the assignment of
the owner/developers' interests in the Developments. The Equity Loans are not
insured by HUD or any other party and, for financial statement reporting
purposes, are considered to be premiums paid to obtain the Mortgages. These
premiums are amortized over the average expected lives of the respective
Mortgages.
At December 31, 2002, all of the loans due to the Partnership are current with
respect to their Federal Housing Authority ("FHA") mortgage obligations.
Windmere has not paid its default interest of approximately $125,000, $88,000
and $126,000 for the years ended December 31, 2002, 2001 and 2000. Hollyridge II
has not paid its default interest of approximately $26,000 and $40,000 for the
years ended December 31, 2002 and 2001. As a result, an allowance for
uncollectability relating to the default interest amounted to approximately
$618,000 and $1,165,000 at December 31, 2002 and 2001, respectively.
20
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
NOTE 4 - Related Parties
The costs incurred to related parties for the years ended December 31, 2002,
2001 and 2000 were as follows:
2002 2001 2000
-------- -------- --------
Partnership management fees (a) $119,098 $126,368 $126,368
Expense reimbursement (b) 96,313 67,912 72,035
-------- -------- --------
Total general and administrative-
related parties $215,411 $194,280 $198,403
======== ======== ========
(a) A Partnership management fee for managing the affairs of the Partnership
equal to .5% per annum of invested assets is payable out of cash flow to the
General Partner. The fourth quarter 2002 Partnership management fee was
calculated on the reduced asset base due to the repayment of the Mortenson
Mortgage Loan and Equity Loan on October 31, 2002. During the years ended
December 31, 2002, 2001 and 2000, payments of approximately $126,000, $126,000
and $126,000 were made, respectively. At December 31, 2002 and 2001, a balance
of approximately $24,000 and $32,000 were due to the General Partner for these
fees.
(b) The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management,
registrar, transfer and assignment functions, asset management; investor
communications, printing services and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. An affiliate of the General Partner performs asset
monitoring services for the Partnership. These asset monitoring services include
site visits and evaluations of the performance of the properties securing the
loans. During the years ended December 31, 2002, 2001 and 2000, payments of
approximately $106,000, $41,000 and $83,000 were made, respectively, relating to
these costs. As of December 31, 2002 and 2001, the General Partner and its
affiliates were due approximately $32,000 and $41,000, respectively.
RMC is a co-insurer on the Windemere Mortgage in which the Partnership has
invested. RMC was a co-insurer in the Mortenson Mortgage. RMC is entitled to a
mortgage insurance premium which is paid by the mortgagors.
NOTE 5 - Concentration of Credit Risk
The Partnership maintains its cash in several banks which are insured by the
Federal Deposit Insurance Corporation (FDIC) for a balance up to $100,000. At
times during 2002, 2001 and 2000, the account balance exceeded the FDIC limit.
NOTE 6 - Fair Value of Financial Instruments
Financial Accounting Standards Board SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments," requires that the estimated fair value of financial
instruments, as defined by SFAS No. 107, be disclosed. Financial instruments are
defined as cash, evidence of an ownership interest in an entity or a contract
which creates obligations and rights to exchange cash and/or other financial
instruments. SFAS No. 107 also requires disclosures of the methods and
21
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 and 2000
significant assumptions used to estimate the fair value of financial
instruments.
Considerable judgment is required in interpreting data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Partnership could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The following methods/assumptions were used to estimate the fair value of each
class of financial instrument:
Cash and Cash Equivalents
- --------------------------
Fair value is determined to be the carrying value because each class of
financial instrument matures in three months or less and does not represent
unanticipated credit concerns.
Investments in Loans
- --------------------
At December 31, 2002, the estimated carrying value of the Mortgages and Equity
Loans approximated fair value. The estimated fair values at December 31, 2002
were based on internal valuations of the three Developments collateralizing
these loans. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument which
sets forth the terms of a loan. This estimate is subjective in nature and
involves uncertainties and matters of significant judgment. Changes in
assumptions could significantly affect estimates. Due to the property-specific
nature of the loans and the lack of a ready market for such investments, this
fair value estimate does not necessarily represent the amount which the
Partnership could realize upon a current sale of its investments.
NOTE 7 - Quarterly Financial Information (Unaudited)
First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Fiscal Year 2002
- -----------------------
Total Revenue $ 470,728 $ 470,872 $ 469,047
Net earnings (loss) 301,322 306,356 289,205
Fiscal Year 2001
- -----------------------
Total Revenue $ 502,401 $ 504,329 $ 490,541
Net earnings (loss) 395,536 172,563 333,323
NOTE 8 - Subsequent Event
On February 14, 2003, distributions of $6,832,375 and $71,475 were paid to BAC
holders and the General Partner, respectively, representing the 2002 fourth
quarter distributions.
22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The Registrant's affairs
are managed and controlled by the General Partner. The General Partner was
organized in Delaware in November 1988. The executive officers and director of
the General Partner have held their positions as indicated below. Certain
information concerning the director and executive officers of the General
Partner is set forth below.
The Registrant, the General Partner and its director and executive officers, and
any BACs holder holding more than ten percent of the Registrant's BACs are
required to report their initial ownership of such BACs and any subsequent
changes in that ownership to the Securities and Exchange Commission on Forms 3,
4 and 5. Such executive officers, directors (and ten percent holders) are
required by Securities and Exchange Commission regulators to furnish the
Registrant with copies of all Forms 3, 4 or 5 they file. The Registrant is not
aware of any BACs holders who own more than ten percent of the BACs. During the
most recent fiscal year, all of these filing requirements were satisfied by the
officers and director of the General Partner on a timely basis. In making these
disclosures, the Registrant has relied solely on written representations of the
General Partner's director and executive officers or copies of the reports they
have filed with the Securities and Exchange Commission during and with respect
to its most recent fiscal year.
CIP Associates Inc.
Name Position Position Held Since
- ---------------- --------------------- -------------------
Stephen M. Ross Director 1988
Stuart J. Boesky Senior Vice President 1988
Alan P. Hirmes Senior Vice President 1988
Glenn F. Hopps Treasurer 1998
Teresa Wicelinski Secretary 1998
STEPHEN M. ROSS, 62, is a Director of the General Partner. Mr. Ross is President
of The Related Companies, L.P. He graduated from The University of Michigan with
a Bachelor of Business Administration degree and from Wayne State School of Law.
Mr. Ross then received a Master of Law degree in taxation from New York
University School of Law. He joined the accounting firm of Coopers & Lybrand in
Detroit as a tax specialist and later moved to New York, where he worked for two
large Wall Street investment banking firms in their real estate and corporate
finance departments. Mr. Ross formed The Related Companies, Inc. ("Related") in
1972, to develop, manage, finance and acquire subsidized and conventional
apartment developments. To date, Related has developed multi-family properties
totaling in excess of 25,000 units, all of which it manages. Mr. Ross also
serves on the Board of Trustees of Charter Municipal Mortgage Acceptance Company
("CharterMac") which is a public company managed by an affiliate of the General
Partner.
23
STUART J. BOESKY, 46, is a Vice President of the General Partner. Mr. Boesky
practiced real estate and tax law in New York City with the law firm of Shipley
& Rothstein from 1984 until February 1986 when he joined Capital where he
presently serves as Managing Director. From 1983 to 1984 Mr. Boesky practiced
law with the Boston law firm of Kaye, Fialkow Richard & Rothstein (which
subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980 was a
consultant specializing in real estate at the accounting firm of Laventhol &
Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor of
Arts degree and from Wayne State School of Law with a Juris Doctor degree. He
then received a Master of Law degree in Taxation from Boston University School
of Law. Mr. Boesky also serves on the Board of Trustees of CharterMac and
American Mortgage Acceptance Company and the Board of Directors of Aegis
Reality, Inc. ("Aegis"), each of which public companies is managed by an
affiliate of the General Partner.
ALAN P. HIRMES, 48, is a Vice President of the General Partner. Mr. Hirmes has
been a Certified Public Accountant in New York since 1978. Prior to joining
Capital in October 1983, Mr. Hirmes was employed by Weiner & Co., certified
public accountants. Mr. Hirmes is also a Managing Director of Capital. Mr.
Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr.
Hirmes also serves on the Board of Directors of Aegis and Board of Trustees of
CharterMac.
GLENN F. HOPPS, 40, joined Related in December, 1990, and prior to that date was
employed by Marks Shron & Company and Weissbarth, Altman and Michaelson,
certified public accountants. Mr. Hopps graduated from New York State University
at Albany with a Bachelor of Science Degree in Accounting.
TERESA WICELINSKI, 37, joined Related in June 1992, and prior to that date was
employed by Friedman, Alprin & Green, certified public accountants. Ms.
Wicelinski graduated from Pace University with a Bachelor of Arts Degree in
Accounting.
There are no family relationships between the foregoing director and/or
executive officers.
24
Item 11. Executive Compensation.
The Registrant has no officers or directors. The Registrant does not pay or
accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partner for their services. The director and certain
officers of the General Partner receive compensation from the General Partner
and its affiliates for services performed for various affiliated entities which
may include services performed for the Registrant. Such compensation may be
based in part on the performance of the Registrant; however, the General Partner
believes that any compensation attributable to services performed for the
Registrant is immaterial. See also Note 4-Related Parties, in Notes to the
Financial Statements, included in Item 8 above.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 2003, no person was known by the Registrant to be the beneficial
owner of more than five percent of the Limited Partnership Interests and/or
BACs; and neither the General Partner nor any director or officer of the General
Partner owns any Limited Partnership Interests or BACs.
As of March 3, 2003, the director and officers of the General Partner as a group
own, in the aggregate, 95.2% of the common stock of CIP Associates Inc.
Item 13. Certain Relationships and Related Transactions.
The Registrant has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11, Executive
Compensation. However, there have been no direct financial transactions between
the Registrant and the director and/or officers of the General Partner. See Note
4-Related Parties, in Notes to the Financial Statements, included in Item 8
above.
Item 14. Controls and Procedures
The Principal Executive Officer and Principal Financial Officer of CIP
Associates, Inc., the general partner of the Registrant has evaluated the
Registrant's disclosure controls and procedures relating to the Registrant's
annual report on Form 10-K for the period ending December 31, 2002 as filed with
the Securities and Exchange Commission and has judged such controls and
procedures to be effective as of December 31, 2002 (the "Evaluation Date").
There have been no significant changes in the internal controls or in other
factors that could significantly affect internal controls relating to the
Registrant since the Evaluation Date.
25
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
----------
(a) 1. Financial Statements
--------------------
Independent Auditors' Report 11
Statements of Financial Condition
as of December 31, 2002 and 2001 12
Statements of Income for the years
ended December 31, 2002, 2001 and
2000 13
Statements of Changes in Partners'
Capital (Deficit) for the years
ended December 31, 2002, 2001 and
2000 14
Statements of Cash Flows for the
years ended December 31, 2002, 2001
and 2000 15
Notes to Financial Statements 16
(a) 2. Financial Statement Schedules
-----------------------------
All schedules have been omitted
because they are not required or
because the required information is
contained in the financial statements
or notes hereto.
(a) 3. Exhibits
-----------
(3A) The Registrant's Amended and
Restated Agreement of Limited
Partnership, incorporated by
reference to Exhibit A to the
Registrant's Prospectus, dated May
10, 1989 (the "Prospectus"), filed
pursuant to Rule 424(b) under the
Securities Act of 1933, File No.
33-26690.
(3B) The Registrant's Certificate of
Limited Partnership, as amended,
incorporated by reference to
Exhibits 3B and 3C to the
Registrant's Registration Statement
on Form S-11, File No. 33-26690,
dated January 24, 1989 and to
Exhibit 3D to Amendment No. 1 to
such Registration Statement dated
April 28, 1989
(3C) Amendment No. 1, dated July 7, 1989,
to the Registrant's Amended and
Restated Agreement of Limited
Partnership
(10A) Mortgage Note, dated August 31,
1990, with respect to Mortenson
Manor Apartments in Ames, Iowa, in
the principal amount of $4,974,900
(incorporated by reference to
Exhibit 10(a) in the Registrant's
Current Report on Form 8-K dated
August 31, 1990)
(10B) Equity Loan Note dated August 31,
1990, with respect to Mortenson
Manor Apartments in Ames, Iowa, in
the principal amount of $577,885
(incorporated by reference to
Exhibit 10(b) in the Registrant's
Current Report on Form 8-K dated
August 31, 1990)
26
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
----------
(10C) Subordinated Promissory Note, dated
August 31, 1990 with respect to
Mortenson Manor Partnership (incor-
porated by reference to Exhibit 10(c)
in the Registrant's Current Report on
Form 8-K dated August 31, 1990)
(10D) Mortgage Note, dated September 27,
1990, with respect to Windemere
Apartments in Wichita, Kansas, in
the principal amount of $8,110,300
(incorporated by reference to
Exhibit 10(a) in the Registrant's
Form 8 Amendment dated October 30,
1990 to Current Report on Form 8-K
dated September 28, 1990)
(10E) Equity Loan Note, dated September
27, 1990, with respect to Windemere
Apartments in Wichita, Kansas, in
the principal amount of $736,500
(incorporated by reference in
Exhibit 10(b) in the Registrant's
Form 8 Amendment dated October 30,
1990 to Current Report on Form 8-K
dated September 28, 1990)
(10F) Subordinated Promissory Note, dated
September 27, 1990 with respect to
Windemere Development, Inc.
(incorporated by reference to
Exhibit 10(c) in the Registrant's
Form 8 Amendment dated October 30,
1990 to Current Report on Form 8-K
dated September 28, 1990)
(10G) Mortgage Note, dated August 23,
1991, with respect to Fieldcrest
III Apartments in Dothan, Alabama,
in the principal amount of
$3,450,200 (incorporated by
reference to Exhibit 10(a) in the
Registrant's Current Report on Form
8-K dated August 27, 1991)
(10H) Equity Loan Note, dated August 27,
1991, with respect to Fieldcrest
III Apartments in Dothan, Alabama,
in the principal amount of $383,300
(incorporated by reference to
Exhibit 10(b) in the Registrant's
Current Report on Form 8-K dated
August 27, 1991)
(10I) Subordinated Promissory Note, dated
August 27, 1991 with respect to
Fieldcrest III Apartments (incor-
porated by reference to Exhibit 10(c)
in the Registrant's Current Report on
Form 8-K dated August 27, 1991)
(10J) Mortgage Note, dated March 1, 1993,
with respect to Holly Ridge
Apartments in Gresham, Oregon, in
the principal amount of $5,310,000
(incorporated by reference to
Exhibit 10(a) in the Registrant's
Current Report on Form 8-K dated
March 16, 1993)
(10K) Equity Loan dated March 16, 1993,
with respect to Holly Ridge
Apartments in Gresham, Oregon, in
the principal amount of $684,000
(incorporated by reference to
Exhibit 10(b) in the Registrant's
Current Report on Form 8-K dated
March 16, 1993)
27
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Sequential
Page
----------
(10L) Subordinated Promissory Note, dated
March 16, 1993, with respect to Holly
Ridge Apartments in Gresham, Oregon
(incorporated by reference to Exhibit
10(c) in the Registrant's Current
Report on Form 8-K dated March 16,
1993)
(10M) Modification Agreement, dated January
1, 1995, with respect to Mortenson
Manor Apartments in Ames, Iowa
(incorporated by reference to Exhibit
(10P) in the Registrant's Form 10-K
for the fiscal year ended December
31, 1995)
(10N) Guaranty made for the benefit of
the Registrant, dated January 1,
1995, with respect to the
Modification Agreement regarding
Mortenson Manor Apartments
(incorporated by reference to
Exhibit (10Q) in the Registrant's
Form 10-K for the fiscal year ended
December 31, 1995)
99. Additional Exhibits
(99A) The Financial Statements of Windemere
Development, Inc., which owns and
operates an apartment complex known
as Windemere at Tallgrass located
in Wichita, Kansas, as required by
Staff Accounting Bulletin No. 71 34
(99B) The Financial statements of HR II
Associates, which owns and operates
an apartment complex known as Holly
Ridge II located in Gresham, Oregon,
as required by Staff Accounting
Bulletin No 71. 46
(99C) The Financial Statements of Field-
crest Apartments III, Ltd., which
owns and operates an apartment
complex known as Fieldcrest located
in Dothan, Alabama, as required by
Staff Accounting Bulletin No 71. 57
(b) Reports on Form 8-K
No reports on Form 8-K were filed
during the last quarter of the period
covered by this report.
(c) Exhibits:
99.1 Certification Pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL MORTGAGE PLUS L.P.
(Registrant)
By: CIP ASSOCIATES, INC.
General Partner
Date: March 31, 2003 By: /s/ Alan P. Hirmes
----------------------
Alan P. Hirmes
Senior Vice President
(Principal Executive and
Financial Officer)
29
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
Signature Title Date
- ------------------ ----------------------------------------- --------------
Senior Vice President (principal
executive and financial officer)
/s/ Alan P. Hirmes of CIP Associates, Inc.
- ------------------ (the General Partner of the Registrant) March 31, 2003
Alan P. Hirmes
Treasurer(principal accounting
/s/ Glenn F. Hopps officer) of CIP Associates, Inc.
- ------------------ (the General Partner of the Registrant) March 31, 2003
Glenn F. Hopps
/s/ Stephen M. Ross Director of CIP Associates, Inc.
- ------------------- (the General Partner of the Registrant) March 31, 2003
Stephen M. Ross
30
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Yearly Report of Capital Mortgage Plus L.P. (the
"Partnership") on Form 10-K for the period ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer
of CIP Associates, Inc., the general partner of the Partnership, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Alan P. Hirmes
- -----------------
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
March 31, 2003
31
CERTIFICATION
I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer
of CIP Associates, Inc., (the "General Partner"), the general partner of Capital
Mortgage Plus L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this annual report on Form 10K for the period ending
December 31, 2002 of the Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such annual statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this annual report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14)
for the Partnership and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Partnership is made known to me
by others within the Partnership, particularly during the period in
which this annual report is being prepared;
b) evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of December 31, 2002 (the "Evaluation
Date"); and
c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and to the board of directors of the General
Partner:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to
record, process, summarize and report financial data and have
identified for the Partnership's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and
32
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Alan P. Hirmes
--------------------------
Alan P. Hirmes
Principal Executive Officer and
Principal Financial Officer
March 31, 2003
33
WINDEMERE DEVELOPMENT, INC
Financial Statements
December 31, 2002 and 2001
Contents
--------
Independent Auditors' Report
Financial Statements
Balance Sheets
Statements of Income
Statements of Changes in Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
34
INDEPENDENT AUDITORS' REPORT
Board of Directors
Windemere Development, Inc.
Wichita, Kansas
We have audited the accompanying balance sheets of Windemere Development,
Inc. (a subchapter S corporation), as of December 31, 2002 and 2001, and the
related statements of income, changes in stockholders' deficit and cash flows
for the years then ended. 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 auditing standards generally
accepted in the United States of America. 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 Windemere Development, Inc.,
as of December 31, 2002 and 2001, and the results of its operations, changes in
stockholders' deficit and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Peterson, Peterson & Goss L.C.
March 26, 2003
35
WINDEMERE DEVELOPMENT, INC.
Balance Sheets
December 31, 2002 and 2001
Assets
------
2002 2001
---------- ----------
Current assets:
Petty cash $ 100 $ 100
Cash in bank and interest-bearing deposits 5,945 25,937
Rent receivable 505 2,290
---------- ----------
Total current assets 6,550 28,327
Deposits held in trust-funded:
Tenant security deposits 26,845 38,913
Restricted deposits and funded reserves:
Mortgagee escrow deposits 78,441 71,236
Reserve for replacements 98,319 67,960
---------- ----------
Total deposits 176,760 139,196
Fixed assets:
Land and special assessments 756,956 756,956
Buildings and improvements 7,808,748 7,808,748
Furniture and equipment 185,866 152,823
---------- ----------
8,751,570 8,718,527
Less accumulated depreciation 2,194,997 1,982,803
---------- ----------
Total fixed assets 6,556,573 6,735,724
Other assets:
Loan costs, net of amortization of $178,491 and $161,943 482,271 498,790
---------- ----------
Total $7,248,999 $7,440,950
========== ==========
See notes to financial statements
36
WINDEMERE DEVELOPMENT, INC.
Balance Sheets
December 31, 2002 and 2001
Liabilities and Stockholders' Equity
------------------------------------
2002 2001
----------- ----------
Current liabilities:
Accounts payable, trade $ 7,280 $ 20,063
Accrued management fee 283,614 210,087
Accrued interest payable 710,661 588,205
Accrued real estate taxes 55,122 56,239
Accrued mortgage insurance 28,699 28,930
Mortgage payable, current portion 67,015 61,867
Rent deferred credits -- 2,751
----------- -----------
Total current liabilities 1,152,391 968,142
Deposit liabilities:
Tenant security deposits 28,940 32,330
Long-term liabilities:
Mortgage payable 7,650,574 7,712,441
Less current portion 67,015 61,867
----------- -----------
Total long-term liabilities 7,583,559 7,650,574
Stockholders' deficit:
Common stock, authorized 1,000 shares;issued - 1,000 shares 1,000 1,000
Additional paid-in capital 763,420 763,420
Retained deficit (2,280,311) (1,974,516)
----------- -----------
Total stockholders' deficit (1,515,891) (1,210,096)
----------- -----------
Total $ 7,248,999 $ 7,440,950
=========== ===========
See notes to financial statements
37
WINDEMERE DEVELOPMENT, INC.
Statements of Income
Years Ended December 31, 2002 and 2001
2002 2001
----------- -----------
Operating income:
Rental $ 1,278,954 $ 1,231,728
Operating expenses:
Interest 738,752 814,839
Mortgage insurance 57,167 57,647
Bank charges 474 389
Property taxes 110,245 112,397
Insurance 53,782 29,024
Management fees 76,679 74,724
Salaries and wages 84,436 104,338
Payroll taxes 10,360 4,275
Utilities 46,727 63,491
Professional fees 9,673 9,467
Repairs and maintenance 130,502 99,280
Outside services 12,581 --
Advertising 13,661 11,610
Office supplies and postage 1,836 2,360
Miscellaneous 9,410 2,181
Depreciation and amortization 228,714 228,781
----------- -----------
Total operating expenses 1,584,999 1,614,803
----------- -----------
Loss from operations (306,045) (383,075)
Other income (expense):
Interest and dividends 395 1,789
Gain on sale of assets -- --
Unrealized loss on securities (145) (7,608)
----------- -----------
Total other income (expense) 250 (5,819)
----------- -----------
Net Loss $ (305,795) $ (388,894)
=========== ===========
See notes to financial statements
38
WINDEMERE DEVELOPMENT, INC.
Statements of Changes in Stockholders' Equity (Deficit)
Years Ended December 31, 2002 and 2001
Additional
Common Paid-in Retained
Stock Capital Deficit Total
----------- ----------- ----------- ------------
Balance at
January 1,
2001 $ 1,000 $ 749,569 $(1,585,622) $ (835,053)
Net Loss (388,894) (388,894)
Contributed
capital 13,851 13,851
----------- ----------- ----------- -----------
Balance at
December 31,
2001 1,000 763,420 (1,974,516) (1,210,096)
Net Loss (305,795) (305,795)
----------- ----------- ----------- -----------
Balance at
December 31,
2002 $ 1,000 $ 763,420 $(2,280,311) $(1,515,891)
=========== =========== =========== ===========
See notes to financial statements
39
WINDEMERE DEVELOPMENT, INC.
Statements of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
----------- -----------
Cash flows from operating activities:
Rental receipts 1,277,986 1,240,081
Interest and dividend receipts 395 1,789
----------- -----------
1,278,381 1,241,870
Administrative (48,052) (33,893)
Management fees (3,152) (5,516)
Utilities (46,727) (63,491)
Salaries and wages (102,808) (108,613)
Operating and maintenance (142,868) (80,105)
Real estate taxes and escrow deposits (118,566) (110,545)
Property insurance (45,769) (29,024)
Tenant security and other deposits 8,533 (20,080)
Interest on mortgage (616,296) (658,510)
Mortgage insurance premium (57,398) (57,860)
----------- -----------
(1,173,103) (1,167,637)
Net cash provided by operating activities 105,278 74,233
Cash flows from investing activities:
Purchase of property and equipment (33,044) (12,832)
Deposits into reserve for replacement (30,359) (30,889)
----------- -----------
Net cash used in investing activities (63,403) (43,721)
Cash flows from financing activities:
Mortgage principal payments (61,867) (57,114)
Capital contributed -- 13,851
----------- -----------
Net cash used in financing activities (61,867) (43,263)
----------- -----------
Net increase (decrease) in cash and cash equivalents (19,992) (12,751)
Cash and cash equivalents, beginning of year 26,037 38,788
----------- -----------
Cash and cash equivalents, end of year $ 6,045 $ 26,037
=========== ===========
See notes to financial statements
40
WINDEMERE DEVELOPMENT, INC.
Statements of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
Cash flows from operating activities:
Net loss $(305,795) $(388,894)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 228,714 228,781
Unrealized loss on securities 145 7,608
(Increase) decrease in rent receivable 1,785 11,875
(Increase) decrease in cash restricted for tenant
security deposits 11,923 (21,210)
Increase in mortgagee escrow deposits (7,205) (1,723)
Increase (decrease) in accounts payable (12,783) 11,290
Increase (decrease) in accrued liabilities 194,635 228,898
Increase (decrease) in tenant security deposits (3,390) 1,130
Decrease in deferred revenue (2,751) (3,522)
--------- ---------
Net cash provided by operating activities $ 105,278 $ 74,233
========= =========
See notes to financial statements
41
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 2002 and 2001
1. Summary of Significant Accounting Policies
Method of Accounting
--------------------
The Company presents it's financial statements in accordance with
accounting principles generally accepted in the United States of America.
History and Business Activity
-----------------------------
Windemere Development, Inc. was founded in 1991 to develop and operate a
206-unit apartment complex in Wichita, Kansas, known as Windemere at
Tallgrass.
The apartments are located at 8220 East Oxford Circle, Wichita, Kansas
67226 and consist of one and two bedroom units.
Property and Equipment
----------------------
Depreciation is computed by using the straight-line method over the
following estimated useful lives:
Buildings - 40 years
Landscape improvements - 20 years
Furniture and equipment - 10 years
Expenditures for maintenance and repairs are charged to income as incurred.
Expenditures materially extending the useful lives of assets or increasing
their productivity are capitalized.
Income Taxes
------------
An income tax provision has not been included in the financial statements
since the shareholder reports the income or loss of the Company on his
respective income tax return.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
42
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 2002 and 2001
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Advertising
-----------
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense was $13,661 and $11,610 for the
years ended December 31, 2002 and 2001, respectively.
2. Restricted Deposits and Funded Reserves
The Company has deposited with the lender the following amounts:
2002 2001
------- -------
Mortgagee escrow deposits
-------------------------
Mortgage and Property Insurance,
Real estate taxes and special assessments $78,441 $71,236
======= =======
An evaluation of the adequacy of certain escrows is as follows:
Estimated amount required as of December 31, 2002 and 2001 for future
payment of:
2002 2001
------- -------
Property insurance $18,775 $16,875
Mortgage insurance 38,265 38,574
------- -------
57,040 55,449
Total confirmed by mortgagee 78,441 71,236
------- -------
Amount on deposit in excess of
estimated requirements $21,401 $15,787
======= =======
3. Tenant Security Deposits and Funded Reserves
Tenant security deposits are held in a separate account in the name of the
project. The total held in the account is $2,096 more than the deposits
held for tenants. The account consists of interest bearing deposits and a
mutual fund that has been adjusted to market value at December 31, 2002.
43
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 2002 and 2001
4. Reserve for Replacements
In accordance with the provisions of the Regulatory Agreement restricted
cash is held by the mortgagee to be used for replacement of property with
the approval of HUD as follows:
2002 2001
------- -------
Balance at beginning of year $67,960 $37,071
Monthly deposits 30,031 30,031
Withdrawal -- --
------- -------
97,991 67,102
Interest earned 328 858
------- -------
Balance confirmed by mortgagee $98,319 $67,960
======= =======
5. Long-Term Liabilities
Long-term debt at December 31, 2002 and 2001 consisted of the following
obligations:
2002 2001
---------- ----------
Mortgage loan payable in monthly installments of
$56,514 including interest at 8.02% and principal.
The loan is due May 1, 2032 and is secured by a
first mortgage on the land and buildings. The
debt also includes a subordinated promissory
note which provides that additional interest shall
be payable semiannually in an amount that will
provide a maximum cumulative yield (uncompounded)
of 10.70% on the principal amount of the mortgage
loan outstanding. The amounts for the years ending
December 31, 2002 and 2001 were $122,869 and
$125,542 respectively (at 1.60%) and are included
in accrued interest payable.
The subordinated promissory note is secured by a
second mortgage on the land and buildings. $7,650,574 $7,712,441
Less current portion 67,015 61,867
---------- ----------
$7,583,559 $7,650,574
========== ==========
44
WINDEMERE DEVELOPMENT, INC.
Notes to Financial Statements
December 31, 2002 and 2001
5. Long-Term Liabilities (continued)
Maturities of debt are as follows:
2002 2001
---------- ----------
2002 $ -- $ 61,867
2003 67,015 67,015
2004 72,592 72,592
2005 78,633 78,633
2006 85,176 85,176
2007 92,264 92,264
Later years 7,254,894 7,254,894
---------- ----------
$7,650,574 $7,712,441
========== ==========
6. Accrued Real Estate Taxes
Accrued real estate taxes at December 31, 2002 consist of the following:
Description Basis for Period Amount
of Tax Accrual Covered Due Date Accrued
----------- ------------ ------------ ------------- --------
Real estate Second-half January 1 to June 20, 2003 $55,122
taxes and due for 2002 December 31
special
assessments
7. Related Party Transactions
Gaddis Properties, Inc., a related entity controlled by Jerry A. Gaddis,
manages the Apartments. Under the terms of the management agreement with
Gaddis Properties, Inc., a management fee not in excess of 6% of cash basis
rental revenue, is payable monthly for management services. The total
management fees earned in 2002 were $76,679.
The following summarizes other related party transactions for 2002:
Related Party Classification Amount
------------- ------------------ -----------
Carolyn Gaddis Salaries and wages 13,115
Doug Gaddis Salaries and wages 2,500
-----------
Total $ 15,615
===========
8. Operations
The project has incurred increasing accrual basis operating losses over the
last two years. Management has maintained positive cash flow by deferring
payment of management fees and reducing salaries. Occupancy rates have
increased slightly during the year. Management has also been researching
lower rate financing for the project. The accrued management fees in the
amount of $283,614 are not expected to require payment during the next
year. Based on terms in the loan agreement, $659,529 of the accrued
interest payable will not require payment until the project generates
excess cash flow.
45
HRII ASSOCIATES
Financial Statements and Supplemental Data
December 31, 2002 and 2001
46
[Hansen, Bradshaw, Malmrose & Erickson Letterhead]
To the Owners of
HRII Associates
We have audited the accompanying balance sheets of HRII Associates (the
Partnership) as of December 31, 2002 and 2001, and the related statements of
operations, changes in partners' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audit
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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HRII Associates as of December
31, 2002 and 2001, and the results of its operations, changes in partners'
deficit, and cash flows for the years 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 issued by the U.S. Department of Housing and
Urban Development we have also issued a report dated February 17, 2003, on our
consideration of the Project's internal controls, and reports dated February 17,
2003, 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 on pages 18 to 31 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 financial statements taken as a whole.
/s/ Hansen, Bradshaw, Malmrose & Erickson
February 17, 2003
47
HRII ASSOCIATES
Balance Sheets
December 31, 2002 and 2001
2002 2001
----------- -----------
Assets
- ------
Cash and cash equivalents $ 145,926 $ 200,452
Tenant accounts receivable, net of allowance for
doubtful accounts of $13,356 in 2002 and 2001 6,313 15,780
Prepaid expenses 83,171 78,372
Restricted deposits (note 3) 246,493 218,247
Land, buildings and equipment (notes 1,4) 3,789,815 3,903,105
Loan costs, net of accumulated amortization
of $61,382 (note 1) 220,559 227,608
----------- -----------
Total assets $ 4,492,277 $ 4,643,564
=========== ===========
Liabilities and Partners' Deficit
- ---------------------------------
Accounts payable $ 5,267 $ 3,283
Accrued liabilities 101,645 131,687
Related party payable 8,133 8,133
Mortgage note payable (note 5) 5,107,627 5,139,848
Note payable (note 5) 71,012 80,835
Tenant security deposits (note 1) 26,452 31,973
Prepaid revenue (note 1) 1,360 3,236
Equity loan (note 6) 684,400 684,400
----------- -----------
Total liabilities 6,005,896 6,083,395
Partners' deficit (1,513,619) (1,439,831)
----------- -----------
Total liabilities and partners' deficit $ 4,492,277 $ 4,643,564
=========== ===========
The accompanying notes are an integral part of these financial statements.
48
HRII ASSOCIATES
Statements of Operations and Partners' Deficit
For the Years Ended December 31, 2002 and 2001
2002 2001
----------- -----------
Revenues:
Rent $ 1,091,395 $ 1,110,419
Other 50,987 47,177
----------- -----------
1,142,382 1,157,596
----------- -----------
Operating expenses:
Administrative 226,879 199,575
Utilities 99,362 94,311
Operating and maintenance 118,821 158,901
Taxes and insurance 143,716 138,831
Depreciation and amortization (note 1) 145,704 143,386
----------- -----------
734,482 735,004
----------- -----------
Income from operations 407,900 422,592
----------- -----------
Other income (expense):
Interest income 3,556 6,497
Interest expense (442,960) (517,851)
----------- -----------
Total other expense (439,404) (511,354)
----------- -----------
Net loss (31,504) (88,762)
Partners' deficit beginning of year (1,439,831) (1,348,951)
Distributions to partners (42,284) (2,118)
----------- -----------
Partners' deficit end of year $(1,513,619) $(1,439,831)
=========== ===========
The accompanying notes are an integral part of these financial statements.
49
HRII ASSOCIATES
Statements of Cash Flows
For the Years Ended December 31, 2002 and 2001
2002 2001
----------- -----------
Cash flows from operating activities:
Rental receipts $ 1,098,986 $ 1,101,287
Interest receipts 3,556 6,497
Other receipts 50,987 47,177
----------- -----------
1,153,529 1,154,961
Administrative (133,577) (103,287)
Management fees (44,443) (46,682)
Utilities (99,362) (94,311)
Salaries and wages (96,048) (93,198)
Operating and maintenance (73,901) (111,528)
Real estate taxes and escrow deposits (107,048) (102,729)
Property insurance (11,204) (10,285)
Mortgage insurance premium (25,465) (25,817)
Interest on mortgage (453,203) (507,856)
Tenant security deposits (3,159) (2,648)
Interest expense - other loans (20,344) (92,020)
----------- -----------
Net cash provided (used) by operating activities 85,775 (35,400)
----------- -----------
Cash flows from investing activities:
Reduction in (deposits to) mortgage escrow (9,192) 6,742
Deposits to replacement reserve (21,416) (22,865)
Purchase of property and equipment (25,365) --
Reduction in operating reserve -- 82,362
----------- -----------
Net cash provided by (used in) investing activities (55,973) 66,239
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (32,221) (29,864)
Distributions to partners (42,284) (2,118)
Increase (decrease) in note payable (9,823) (9,258)
----------- -----------
Net cash used in financing activities (84,328) (41,240)
----------- -----------
Net increase (decrease) in cash (54,526) (10,401)
Cash and cash equivalents, beginning of year 200,452 210,853
----------- -----------
Cash and cash equivalents, end of year $ 145,926 $ 200,452
=========== ===========
50
HRII ASSOCIATES
Statements of Cash Flows (Continued)
For the Years Ended December 31, 2002 and 2001
2002 2001
--------- ----------
Cash flows from operating activities:
Net loss $ (31,504) $ (88,762)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 145,704 143,386
Decrease (increase) in tenant accounts receivable, net 9,467 (7,443)
Increase in miscellaneous prepaid expenses (4,799) (2,379)
Decrease (increase) in restricted security deposits 2,362 (22)
Increase (decrease) in accounts payable 1,984 (697)
Decrease in accrued liabilities (30,042) (82,297)
Increase in related party payable -- 7,129
Decrease in tenant security deposits liability (5,521) (2,626)
Decrease in prepaid revenue (1,876) (1,689)
--------- ---------
Net cash provided (used) by operating activities $ 85,775 $ (35,400)
========= =========
The accompanying notes are an integral part of these financial statements.
51
HRII ASSOCIATES
Notes to the Financial Statements
December 31, 2002 and 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Business Organization
---------------------
HRII Associates (HUD Project No. 126-35216) (the Partnership) is a
Utah Limited Partnership, which was organized in 1989. The Project consists
of 144 units in apartment buildings in Gresham, Oregon. The apartment
complex is financed with a loan which is insured by the U.S. Department of
Housing and Urban Development (HUD), under Section 221(d)(4) of the
National Housing Act (HUD Project No. 126-35216). The Partnership's
operating methods are regulated by HUD under the terms of a regulatory
agreement.
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the Partnership to
concentration of credit risk consist primarily of tenant rents receivable.
The Partnership maintains allowances for possible losses which, when
realized, have been within range of management's expectations.
The Partnership maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Partnership has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risk on cash and cash equivalents.
Cash and Cash Equivalents
-------------------------
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments with an original maturity of
three month\ or less to be cash equivalents.
52
HRII ASSOCIATES
Notes to the Financial Statements
December 31, 2002 and 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------
Land, Buildings and Equipment
-----------------------------
Land, buildings and equipment are recorded at cost and are depreciated
using the straight-line method over estimated useful lives ranging from 5
to 40 years. Major additions and improvements are capitalized while minor
replacements, maintenance and repairs which do not increase the useful
lives of the property are expensed as incurred.
Loan Costs
----------
Costs incurred by the Partnership in connection with obtaining the
construction loan and long-term financing have been capitalized and are
amortized using the straight-line method over the term of the HUD insured
mortgage.
Revenue Recognition
-------------------
Prepaid rents are accrued as a liability by the Partnership and the
associated revenue is recognized as it is earned. Tenant security deposits
are recognized as income when forfeited.
Cost Allocation
---------------
On March 1, 1993, the Partnership entered into a cross easement
agreement with Holly Ridge Associates, an entity that owns Phase I of Holly
Ridge. Holly Ridge Phase I is located on property adjacent to the Phase II
property. The two phases share common amenities such as the exercise
facilities, sauna, tanning beds, swimming pools, tennis courts, maintenance
building, etc. In addition, the same management company (The Stoddard
Group, L.L.C.) manages both projects. Under the terms of the agreement,
joint costs of the two phases are allocated based on the number of units in
each phase.
Management Fee
--------------
The Partnership paid a management fee equal to 4% of defined gross
revenues.
53
HRII ASSOCIATES
Notes to the Financial Statements
December 31, 2002 and 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Income Taxes
------------
Under tax law provisions, the Partnership does not pay income taxes on
its income. Instead, the income or loss of the Partnership is allocated to
the partners, and the partners are responsible for any income taxes related
to their share of allocated income.
Financial Instruments
---------------------
None of the Partnership's financial instruments are held for trading
purposes. The Partnership estimates that the fair value of all financial
instruments at December 31, 2002 and 2001, does not differ materially from
the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Partnership using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amounts
that the Partnership could realize in a current market exchange.
2. RELATED PARTY TRANSACTIONS
--------------------------
A general partner of HRII Associates also owns The Stoddard Group,
L.L.C. (Stoddard). Stoddard provides services for the Partnership, which
include accounting services and management functions. The management fee
expensed to Stoddard for the year ended December 31, 2002 was $44,443
($46,682 in 2001). In addition, $121,153 was paid to Stoddard in 2002 to
reimburse costs of payroll, payroll taxes and workman's compensation
insurance for their employees who provide on-site labor to the Project
($120,273 in 2001).
Accrued workman's compensation and payroll taxes of $5,514 at December
31, 2002 represents a payable to Stoddard ($4,970 in 2001).
3. RESTRICTED DEPOSITS
-------------------
Restricted deposits consist of the following at December 31, 2002:
Property tax and insurance escrow $ 32,534
Replacement reserve escrow 181,532
Tenant security deposits 32,427
----------
$ 246,493
==========
54
HRII ASSOCIATES
Notes to the Financial Statements
December 31, 2002 and 2001
4. LAND, BUILDING AND EQUIPMENT
----------------------------
Land, buildings and equipment consist of the following:
2002 2001
------------ -----------
Land and land improvements $ 242,044 $ 242,044
Buildings 4,643,591 4,627,115
Furniture for tenant use 303,447 295,312
Office furniture and equipment 5,981 5,226
------------ ------------
Less: accumulated depreciation (1,405,248) (1,266,592)
------------ ------------
$ 3,789,815 $ 3,903,105
============ ============
5. MORTGAGE PAYABLE AND NOTE PAYABLE
---------------------------------
The HUD insured mortgage note is payable to a financial institution in
monthly installments of $37,921 including interest at 8.25%. The loan is
secured by the apartment complex and matures on August 1, 2034.
The Partnership has a note payable to a corporation due in semi-annual
installments of $7,130, including interest at 6%. The loan matures on
September 1, 2005. The loan balance at December 31, 2002 includes accrued
interest of $1,385 ($1,576 in 2001).
Future maturities over the next five years are as follows:
Year Ending December 31
-----------------------
2003 $ 45,646
2004 49,260
2005 91,055
2006 45,075
2007 48,938
Thereafter 4,898,665
-----------
$ 5,178,639
===========
55
HRII ASSOCIATES
Notes to the Financial Statements
December 31, 2002 and 2001
6. EQUITY LOAN
-----------
The Partnership also has an equity loan payable to a financial
institution payable upon maturity of the HUD insured mortgage in the amount
of $684,400. This is a non-interest equity loan. The Partnership also has a
Subordinated Promissory Note payable to a financial institution related to
both the mortgage loan and the equity loan. This note requires additional
interest payments based on the outstanding balance of the mortgage note to
assure an annual yield of 9.89%. The total amount of interest payable
related to this loan at December 31, 2002 was $61,015 ($91,380 in 2001).
7. COMMITMENT AND CONTINGENCY
--------------------------
The Partnership entered into an agreement in March 1993 with an entity
which provided funds for certain costs in connection with the construction
of the Project. Under the terms of the agreement, HRII Associates is
obligated to pay additional interest amounts to this entity from the
proceeds of events such as sale or refinancing of the Project.
8. ALLOWABLE DISTRIBUTIONS TO PARTNERS
-----------------------------------
Under the HUD regulatory agreement for Section 221(d)(4) projects,
distributions to partners from funds provided by rental operations are
allowed, provided: 1) surplus cash, as defined by HUD, is available for
such purposes, 2) the project is in compliance with all outstanding notices
of requirements for proper maintenance and 3) there is no default under the
regulatory agreement or under the mortgage note. For the year ended
December 31, 2002, surplus cash was $54,066 ($88,811 in 2001).
56
FIELDCREST APARTMENTS III, LTD.
HUD PROJECT NUMBER 062-35425
FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
DECEMBER 31, 2002
KENMORE AND COMPANY, P.C.
Certified Public Accountants
Montgomery, Alabama
57
FIELDCREST APARTMENTS III, LTD.
TABLE OF CONTENTS
Independent Auditor's Report 3
Financial Statements:
Balance Sheet 4
Statement of Profit and Loss (Hud Form No. 92410) 6
Statement of Changes in Partners' Deficit 8
Statement of Cash Flows 9
Notes to Financial Statements 11
Supplemental Information:
Supplemental Data Required by HUD 15
Independent Auditor's Report on Internal Control 18
Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD Programs 20
Independent Auditor's Report on Compliance with Specific Requirements Applicable to Affirmative Fair
Housing and Non-Discrimination 21
Schedule of Findings and Questioned Costs 22
Auditor's Comments on Audit Resolution Matters Related to the HUD Programs 23
Certification of Partners 24
Management Agent's Certification 25
58
INDEPENDENT AUDITOR'S REPORT
To The Partners of
Fieldcrest Apartments III, LTD.
We have audited the accompanying balance sheet of Fieldcrest Apartments III,
LTD., HUD Project No. 062-35425, as of December 31, 2002, and the related
statements of income, changes in partners' deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Project's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and Government Auditing Standards issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fieldcrest Apartments III, LTD.
as of December 31, 2002, and the results of its operations, changes in partners'
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 issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated March 8, 2003, on our
consideration of Fieldcrest Apartments III, LTD.'s internal control, and reports
dated March 8, 2003, on its compliance with specific requirements applicable to
major HUD programs and specific requirements applicable to 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 audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information on pages 15 to 25 is presented for purposes of additional analysis
and is not a required part of the basic financial statements of Fieldcrest
Apartments III, LTD.. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Kenmore & Company, P.C.
KENMORE & COMPANY, P.C.
Montgomery, Alabama
March 8, 2003
59
FIELDCREST APARTMENTS III, LTD.
HUD Project Number 062-35425
BALANCE SHEET
December 31, 2002
ASSETS
Current Assets:
1120 Cash - Operations $ 904
1130 Tenant Accounts Receivable 4,071
1200 Miscellaneous Prepaid Expenses 32,735
-----------
Total Current Assets 37,710
Deposits Held in Trust:
1191 Tenant Security Deposits 24,380
Restricted Deposits and Funded Reserves:
1310 Mortgage Escrow Deposits 34,144
1320 Reserve for Replacements 59,589
-----------
Total Restricted Deposits and Funded Reserves 93,733
Property and Equipment (at Cost):
1410 Land 151,750
1420 Buildings 3,273,721
1440 Building Equipment (Portable) 127,476
-----------
Total Fixed Assets 3,552,947
1495 Less Accumulated Depreciation (1,429,804)
-----------
Net Property and Equipment 2,123,143
Other Assets (at Cost):
1520 Intangible Assets 141,068
Total Assets $ 2,420,034
===========
60
FIELDCREST APARTMENTS III, LTD.
HUD Project Number 062-35425
BALANCE SHEET - CONTINUED
December 31, 2002
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
2110 Accounts Payable - Operations $ 30,144
2123 Accrued Management Fee 7,800
2131 Accrued Interest Payable - First Mortgage 69,606
2150 Accrued Property Taxes 4,881
2173 Loan-Related Company 28,000
2170 Mortgage Payable - Current Portion 23,829
-----------
Total Current Liabilities 164,260
Deposits and Prepayment Liabilities:
2191 Tenant Security Deposits 24,080
Long-Term Liabilities:
2310 Note Payable - Equity Loan 383,300
2320 Mortgage Payable, Net of Current Maturities 3,163,777
-----------
Total Long-Term Liabilities 3,547,077
-----------
Total Liabilities 3,735,417
3130 Partners' Deficit (1,315,383)
-----------
Total Liabilities and Partners' Deficit $ 2,420,034
===========
See notes to financial statements
61
Statement of U.S. Department of Housing
Profit and Loss and Urban Development
Office of Housing OMB Approval No. 2502-
Federal Housing Commissioner 0052 (Exp. 1/31/95)
- -----------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response,
including the time for reviewing instructions, searching existing data sources, gathering and maintaining the
data needed, and completing and reviewing the collection information. Send comments regarding this burden
estimate or any other aspect of this collection of information, including suggestions for reducing this
burden, to the Reports Management Officer, Office of infor. Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600 and to the Office of Management and Budget, Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed to either of these addresses.
- -----------------------------------------------------------------------------------------------------------------
For Month/Period Project Number Project Name
Beginning: Ending:
January 1, 2002 December 31, 2002 062-35425 Fieldcrest Apartments III, LTD.
- -----------------------------------------------------------------------------------------------------------------
Part 1 Description of Account Acct. No. Amount *
- -----------------------------------------------------------------------------------------------------------------
Rent Revenue-Gross Potential 5120 $ 729,940
----------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121
----------------------------------------------------------------------------------------------
Rental Stores and Commercial 5140
Income ----------------------------------------------------------------------------------------------
Garage and Parking Spaces 5170
----------------------------------------------------------------------------------------------
5100 Flexible Subsidy Income 5180
----------------------------------------------------------------------------------------------
Miscellaneous (specify) 5190
----------------------------------------------------------------------------------------------
Excess Rent 5191
----------------------------------------------------------------------------------------------
Rent Revenue/Insurance 5192
----------------------------------------------------------------------------------------------
Special Claims Revenue 5193
----------------------------------------------------------------------------------------------
Retained Excess Income 5194
----------------------------------------------------------------------------------------------
Total Rent Revenue Potential at 100%
Occupancy 5100T $ 729,940
- -----------------------------------------------------------------------------------------------------------------
Apartments 5220 $ (148,701)
----------------------------------------------------------------------------------------------
Vacancies Stores and Commercial 5240
----------------------------------------------------------------------------------------------
5200 Rental Concessions 5250
----------------------------------------------------------------------------------------------
Garage and Parking Spaces 5270
----------------------------------------------------------------------------------------------
Miscellaneous (specify) 5290
----------------------------------------------------------------------------------------------
Total Vacancies 5200T $ (148,701)
----------------------------------------------------------------------------------------------
Net Rental Revenue Rent Revenue Less
Vacancies 5152N $ 581,239
- -----------------------------------------------------------------------------------------------------------------
Elderly and Congregate Services
Income - 5300 Total Service Income
(Schedule Attached) 5300 $
- -----------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 75
----------------------------------------------------------------------------------------------
Financial Income from Investments-Residual
Revenue Receipts 5430
----------------------------------------------------------------------------------------------
Income from Investments-Reserve
for Replacement 5440 233
----------------------------------------------------------------------------------------------
5400 Income from Investments-Miscellaneous 5490
----------------------------------------------------------------------------------------------
Total Financial Revenue 5400T $ 308
- -----------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
----------------------------------------------------------------------------------------------
Other Tenant Charges 5920 20,222
Revenue ----------------------------------------------------------------------------------------------
Other Revenue (specify) 5990 670
----------------------------------------------------------------------------------------------
5900 Total Other Revenue 5900T $ 20,892
----------------------------------------------------------------------------------------------
Total Revenue 5000T $ 602,439
- -----------------------------------------------------------------------------------------------------------------
Conventions & Meetings 6203 $
----------------------------------------------------------------------------------------------
Management Consultants 6204
----------------------------------------------------------------------------------------------
Advertising & Marketing 6210 12,859
----------------------------------------------------------------------------------------------
Other Renting Expense 6250 643
----------------------------------------------------------------------------------------------
Office Salaries 6310 19,471
----------------------------------------------------------------------------------------------
Office Expenses 6311 8,421
----------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312
----------------------------------------------------------------------------------------------
Adminis- Management Fee 6320 29,367
trative ----------------------------------------------------------------------------------------------
Expenses Manager or Superintendent Salaries 6330 22,762
----------------------------------------------------------------------------------------------
6200/6300 Administrative Rent Free Unit 6331 10,795
----------------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 1,512
----------------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 3,400
----------------------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351
----------------------------------------------------------------------------------------------
Bad Debts 6370 8,234
----------------------------------------------------------------------------------------------
Miscellaneous Administrative Expenses
(specify) 6390 3,243
----------------------------------------------------------------------------------------------
Total Administrative Expenses 6263T $ 120,707
- -----------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
----------------------------------------------------------------------------------------------
Utilities Electricity (Light and Misc. Power) 6450 14,030
Expenses ----------------------------------------------------------------------------------------------
Water 6451 15,181
----------------------------------------------------------------------------------------------
6400 Gas 6452
----------------------------------------------------------------------------------------------
Sewer 6453
----------------------------------------------------------------------------------------------
Total Utilities Expense 6400T $ 29,211
- -----------------------------------------------------------------------------------------------------------------
* All amounts must be rounded to Page 1 of 2 form HUD-92410 (7/91)
the nearest dollar; $.50 and Ref. HB 4370.2
over, round up - $.49 and below,
round down
62
Statement of U.S. Department of Housing
Profit and Loss and Urban Development
Office of Housing OMB Approval No. 2502-
Federal Housing Commissioner 0052 (Exp. 1/31/95)
- -----------------------------------------------------------------------------------------------------------------
Payroll 6510 $ 41,012
----------------------------------------------------------------------------------------------
Supplies 6515 48,191
----------------------------------------------------------------------------------------------
Contracts 6520 59,881
----------------------------------------------------------------------------------------------
Operating & Maintenance Rent Free Unit 6521
----------------------------------------------------------------------------------------------
Operating and Garbage and Trash Removal 6525 6,436
----------------------------------------------------------------------------------------------
Maintenance Security Payroll/Contract 6530 22
----------------------------------------------------------------------------------------------
Expenses Security Rent Free Unit 6531
----------------------------------------------------------------------------------------------
6500 Heating/Cooling Repairs and Maintenance 6546 969
----------------------------------------------------------------------------------------------
Snow Removal 6548
----------------------------------------------------------------------------------------------
Vehicle & Maintenance Equipment Operation & Repair 6570
----------------------------------------------------------------------------------------------
Miscellaneous Operating & Maintenance Exp. 6590 440
----------------------------------------------------------------------------------------------
Total Operating & Maintenance Expenses 6500T $ 156,951
- -----------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 18,981
----------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 6,072
----------------------------------------------------------------------------------------------
Taxes Property and Liability Insurance (Hazard) 6720 31,275
----------------------------------------------------------------------------------------------
And Fidelity Bond Insurance 6721
----------------------------------------------------------------------------------------------
Insurance Workmen's Compensation 6722 4,779
----------------------------------------------------------------------------------------------
6700 Health Insurance & Other Employee Benefits 6723 9,774
----------------------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses, Permits &
Insurance 6790 249
----------------------------------------------------------------------------------------------
Total Taxes and Insurance 6700T $ 71,130
- -----------------------------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 279,981
----------------------------------------------------------------------------------------------
Financial Interest on Notes Payable (Long-Term) 6830
----------------------------------------------------------------------------------------------
Expenses Interest on Notes Payable (Short-Term) 6840
----------------------------------------------------------------------------------------------
6800 Mortgage insurance Premium/Service Charge 6850 15,978
----------------------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890
----------------------------------------------------------------------------------------------
Total Financial Expenses 6800T $ 295,959
- -----------------------------------------------------------------------------------------------------------------
Elderly & Nursing Homes/Assisted Living/Board & 6900 $
Care/Other Elderly Care Exp
----------------------------------------------------------------------------------------------
Congregate Total Cost of Operations before Depreciation 6000T $ 673,958
----------------------------------------------------------------------------------------------
Service Profit (Loss) before Depreciation 5060T $ (71,519)
----------------------------------------------------------------------------------------------
Expenses Depreciation (Total) - 6600 (specify) 6600 $ 120,521
----------------------------------------------------------------------------------------------
6900 Amortization Expense 6610 $ 4,768
----------------------------------------------------------------------------------------------
Operating Profit of (Loss) 5060N $ (196,808)
- -----------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
----------------------------------------------------------------------------------------------
Legal Expenses (Entity) 7120
----------------------------------------------------------------------------------------------
Corporate or Federal, State & Other Income Taxes 7130
----------------------------------------------------------------------------------------------
Mortgagor Interest Income 7140
----------------------------------------------------------------------------------------------
Entity Interest on Notes Payable 7141
----------------------------------------------------------------------------------------------
Expenses Interest on Mortgage Payable 7142
----------------------------------------------------------------------------------------------
7100 Other Expenses (Entity) 7190 (46,363)
----------------------------------------------------------------------------------------------
Total Corporate Expenses 7100T $ (46,363)
----------------------------------------------------------------------------------------------
Net Profit or (Loss) 3250 $ (243,171)
- -----------------------------------------------------------------------------------------------------------------
Warning: HUD will prosecute false claims and stmts. Conviction may result in criminal and/or civil penalties.
(18 U.S.C. 1001, 1010, 1012: 31 U.S.C. 3729, 3802)
Miscellaneous or other Income and Expense Sub-account Groups. If miscellaneous or other income and/or expense
sub-accounts (5190, 5290, 5490, 5990, 6390,6590,6729)
6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate
schedule describing or explaining the miscellaneous income or expense.
- -----------------------------------------------------------------------------------------------------------------
Part II
- -----------------------------------------------------------------------------------------------------------------
1. Total principal payments required under the mortgage, even if payments under a Workout $ 21,840
Agreement are less or more than those required under the mortgage.
- -----------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, $ 19,366
even if payments may be temporarily suspended or waived.
- -----------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items $ 38,242
on this Profit and Loss Statement
- -----------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are
included as expense items on this Profit and Loss Statement. $ 0
- -----------------------------------------------------------------------------------------------------------------
Page 2 of 2 form HUD-92410 (7/91)
Ref. HB 4370.2
See notes to financial statements.
63
FIELDCREST APARTMENTS III, LTD.
HUD Project Number 062-35425
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
For the year ended December 31, 2002
Balance, Beginning of Year $(1,118,619)
Net Income (Loss) (243,171)
Capital Contributions 46,407
-----------
Balance, End of Year $(1,315,383)
===========
See notes to financial statements
64
FIELDCREST APARTMENTS III, LTD.
HUD Project Number 062-35425
STATEMENT OF CASH FLOWS
For the year ended December 31, 2002
Cash Flows From Operating Activities:
Rental Receipts $ 560,923
Interest Receipts 308
Other Receipts 20,892
-----------
582,123
Administrative (30,530)
Management Fees (23,702)
Utilities (29,597)
Salaries (70,092)
Operating and Maintenance (110,374)
Real Estate Taxes (19,523)
Property Insurance (56,049)
Miscellaneous Taxes and Insurance (18,237)
Tenant Security Deposits 3,489
Interest on Mortgage (326,372)
Mortgage Insurance Premium (15,923)
-----------
(696,910)
-----------
Net Cash Provided (Used) by Operating Activities (114,787)
Cash Flows From Investing Activities:
Net Deposits to the Mortgage Escrow Account (3,655)
Net Deposits from the Reserve for Replacement Account 19,578
Purchase of Fixed Assets (934)
-----------
Net Cash Provided (Used) by Investing Activities 14,989
Cash Flows From Financing Activities:
Mortgage Principal Payments (21,840)
Capital Contributions 46,407
Loan From Related Company 28,000
-----------
Net Cash Provided (Used) by Financing Activities 52,567
-----------
Net Increase (Decrease) in Cash (47,231)
Cash at Beginning of Year 48,135
-----------
Cash at End of Year $ 904
===========
65
FIELDCREST APARTMENTS III, LTD.
HUD Project Number 062-35425
STATEMENT OF CASH FLOWS - CONTINUED
For the year ended December 31, 2002
Reconciliation of Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss) $ (243,171)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities:
Depreciation 120,521
Amortization 4,768
(Increase) Decrease in:
Accounts Receivable - Tenants 517
Prepaid Expenses (24,719)
Cash - Security Deposits (241)
Increase (Decrease) in:
Accounts Payable - Trade 20,517
Accounts Payable - Managing Agent 5,665
Accrued Interest Payable (28)
Prepaid Rental Income (1,804)
Accrued Property Taxes (542)
Tenant Security Deposits 3,730
-----------
Total Adjustments 128,384
-----------
Net Cash Provided (Used) by Operating Activities $ (114,787)
===========
See notes to financial statements
66
FIELDCREST APARTMENTS III, LTD.
HUD PROJECT NUMBER 062-35425
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:
The partnership is organized as a limited partnership formed August 23, 1991, to
acquire an interest in real property located in Dothan, Alabama and to construct
and operate thereon an apartment complex of 112 units, under Section 221(d)(4)
of the National Housing Act. Such projects are regulated by HUD as to rent
charges and operating methods. Cash distributions to partners are limited to the
extent of "surplus cash" as defined by the HUD regulatory agreement. The Section
221(d)(4) loan is a major HUD program.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Major renewals and betterments are
charged to the property accounts while replacement, maintenance and repairs
which do not improve or extend the life of the respective assets are expensed.
Depreciation is provided primarily using the straight-line method over the
estimated useful lives of the assets.
AMORTIZATION:
Amortization of deferred loan costs is computed on a straight line basis over 40
years.
INCOME TAXES:
Fieldcrest Apartments III, Ltd. is a partnership with earnings taxed directly to
the partners in their personal tax returns.
CASH FLOWS:
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents. However, mortgage escrows, replacement reserve funds, and
security deposits are excluded from cash due to restrictions on expenditures
from these accounts.
ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
The HUD regulatory agreement requires that monthly deposits of $1,279 be made to
a replacement reserve account. The reserve's purpose is for use in funding
extraordinary maintenance, repair, and replacement of capital items. Withdrawals
from this account must be approved by HUD.
Monthly deposits to escrow for property insurance, mortgage insurance, and
property taxes are made as required by the mortgage agreement.
67
FIELDCREST APARTMENTS III, LTD.
HUD PROJECT NUMBER 062-35425
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES - CONTINUED
Tenant security deposits are required by HUD to be fully funded and segregated
in separate bank accounts in the name of the project.
NOTE C - LONG-TERM LIABILITIES
Mortgage Payable
- ----------------
The mortgage note is held by Related Mortgage Company and is secured by the
rental property. The note bears interest at a default rate of 8.75%. Principal
and interest are payable in monthly installments of $25,150 through October
2032.
The mortgage loan has a participation feature which increases the rate of
interest on the mortgage. This additional interest is only payable from "surplus
cash" or additional capital contributions by the partners. Under this agreement,
the stated interest rate increases to 10.11% plus 30% of any remaining "surplus
cash" available after payment of the additional interest. The obligation is
evidenced by a subordinated promissory note secured by (i) a second mortgage,
(ii) collateral assignments of excess cash and capital proceeds, and (iii)
operating guaranties of the partners. During 2002, additional interest of
$46,363 was charged to expense and $46,363 was included in year end accruals.
Current maturities of the mortgage payable for the next five years are as
follows:
2003 $ 23,829
2004 26,000
2005 28,368
2006 30,953
2007 33,772
Thereafter 3,044,684
---------
Total $3,187,606
==========
Note Payable - Equity Loan
- --------------------------
In connection with obtaining the mortgage loan, the partners also entered into
an "equity loan" agreement with Related Mortgage Company. The non-interest
bearing equity loan is due October 2032, or upon payoff or refinancing of the
mortgage and is callable after October 1, 2002. This loan is secured by
collateral assignments of partnership interest and a third mortgage to be held
in escrow for so long as a mortgage insurance contract is in effect.
68
FIELDCREST APARTMENTS III, LTD.
HUD PROJECT NUMBER 062-35425
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
- --------------------------------------------------------------------------------
NOTE D - RELATED PARTY TRANSACTIONS
The managing agent, Aronov Realty Management, Inc., and one of the project's
insurance providers, Aronov Insurance, are related to the partnership through
common ownership. The following amounts payable to Aronov were charged to
expense in 2002:
Management fees (5% of gross receipts) $ 23,703
Insurance 60,828
----------
Total $ 84,531
==========
Included in accounts payable at December 31, 2002 were salaries and group
insurance due to Aronov Realty Management in the amount of $15,790. Aronov
Realty, a company related by common ownership, advanced $28,000 in 2002 for
operating expenses. This advance is to be paid from surplus cash.
NOTE E - OTHER EXPENSES (ENTITY) (HUD FORM 92410)
The components of Line 7190 Other Expenses (Entity) on HUD Form 92410 are as
follows:
Additional interest due on mortgage, payable from
surplus cash or partner contributions $ 46,363
==========
69
FIELDCREST APARTMENTS III, LTD.
HUD PROJECT NUMBER 062-35425
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002
- --------------------------------------------------------------------------------
NOTE G - ALLOWABLE DISTRIBUTIONS TO PARTNERS
Under the regulatory agreement for Section 221 (d)(4) projects, distributions to
partners from funds provided by rental operations are allowed, provided: 1)
surplus cash, as defined by HUD, is available for such purposes, 2) the project
is in compliance with all outstanding notices of requirements for proper
maintenance, and 3) there is no default under the regulatory agreement or under
the mortgage note. Surplus cash as of December 31, 2002, amounted to $0. For the
year ended December 31, 2002, allowable distributions of surplus cash to the
partners is as
Surplus Cash Available at 12/31/02 $ 0
==========
2002 Cash Distributions to Partners 0
2002 Payments of Additional Interest on the Mortgage 46,407
----------
$ 46,407
==========
Partner capital contributions of $46,407 were made in 2002 to pay the additional
2000 interest expense.
NOTE H - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Partnership's sole asset is Fieldcrest Apartments III, Ltd.. The
Partnership's operations are concentrated in the multifamily real estate market.
In addition, the Partnership operates in a heavily regulated environment. The
operations of the Partnership are subject to the administrative directives,
rules and regulations of federal, state and local regulatory agencies,
including, but not limited to, HUD. Such administrative directives, rules and
regulations are subject to change by an act of congress or an administrative
change mandated by HUD. Such changes may occur with little notice or inadequate
funding to pay for the related cost, including the additional administrative
burden, to comply with a change.
70