SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Year Ended December 31, 2002 Commission File Number 0-17717
FOUNDATION REALTY FUND, LTD.
(Exact name of Registrant as specified in its charter)
Florida 59-2802896
------- ----------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
1100 Abernathy Road NE,
Building 500, Suite 700 Atlanta, GA 30328
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - (770) 551-0007
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 by Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or 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
Number of share outstanding of each of Registrant's classes of securities.
Title of Each Class Number of Units December 31, 2002
Units of Limited Partnership 9,407
Interest: $1,000 per unit
DOCUMENT INCORPORATION BY REFERENCE
Part IV - Registration Statement S-11, File No. 33-13849
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
PART I
Item 1. Business
General Development of Business -
The Registrant is a Florida Limited Partnership ("Partnership") whose General
Partners are RJ Properties, Inc. ("RJP"), a wholly-owned subsidiary of Raymond
James Financial, Inc., and J. Robert Love, an individual (collectively, the
"General Partners"). The Partnership was formed under the laws of Florida and
commenced operations on January 12, 1988.
Financial Information about Industry Segments -
The Registrant is engaged in only one industry segment, the acquisition,
management and disposition of apartment properties.
Narrative Description of Business -
The Partnership's business is to acquire, manage, and eventually sell apartment
properties which offer the potential for providing periodic, cash distributions
to Limited Partners, capital appreciation, and preservation and protection of
the Limited Partners' Capital Contributions.
The Registrant has no direct employees. The General Partners have full and
exclusive discretion in management and control of the Partnership.
2
Item 2. Properties
As of December 31, 2002, the Partnership owned the property listed below:
Purchase Current
Property Name and Location Date Cost
Springfield Apartments 9/22/88 $13,229,141
Durham, North Carolina
The Partnership sold the Oakwood Village Apartments in Atlanta, Georgia on
November 27, 2002.
December 31, 2002 December 31, 2001
Land $ 2,154,136 $ 3,141,510
Buildings 9,613,912 17,298,118
Furniture & Fixtures 1,461,093 2,191,473
----------- -----------
Apartment Properties, at Cost 13,229,141 22,631,101
Less: Accumulated Depreciation (5,178,983) (8,559,129)
----------- -----------
$ 8,050,158 $14,071,972
=========== ===========
Item 3. Legal Proceedings
The Registrant is not a party to material pending legal proceedings.
Item 4. Submission of Matters to Vote of Security Holders
A solicitation of proxy was made to the security holders during 2001. The
subject matter the proxy dealt with was the corporate general partner seeking
approval from the limited partners to sell the assets owned by the partnership
and approval to windup partnership operations. A majority of the limited
partners voted to approve the sale of the partnership assets and windup the
partnership operations.
One of the two apartment properties that the Partnership originally held was
sold in 2002. The Partnership continues to actively market the remaining
apartment property.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
(A) The Registrant's Limited Partnership interests are not publicly traded.
There is no market for the Registrant's Limited Partnership interests and
it is unlikely that any will develop.
(B) Approximate Number of Equity Security Holders:
Title of Class Number of Record Holders
as of December 31, 2002
Units of Limited Partnership Interest 731
General Partner Interest 2
3
Item 6. Selected Financial Data
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total Operating $ 3,534,874 $ 3,951,773 $ 3,876,716 $ 3,753,624 $ 3,681,292
Revenues
Gain on Sale of 5,527,029 -0- -0- -0- -0-
Property*
Net Income (Loss)* 4,659,236 (38,218) 89,573 153,404 194,764
Total Assets 9,419,403 15,255,678 15,933,059 16,442,093 16,826,009
Notes Payable 9,940,331 17,169,423 17,373,014 17,561,620 17,736,343
Distributions to $357.50 $ 45.00 $ 45.00 $37.50 $ 51.25
Limited Partners Per
Partnership Unit
Income (Loss) Per $468.48 $(3.86) $9.05 $ 15.49 $ 19.67
$1,000 Limited
Partners Unit
Outstanding
Occupancy % 90.6% 93.5% 94.6% 93.8% 93.1%
Rental Revenue per $8.49 $9.50 $9.32 $9.03 $ 8.85
Sq. Ft.
* The Partnership sold the Oakwood Village Apartments on November 27, 2002 for
$11,150,000 less selling expense of $29,839. Based upon the net book value of
$5,593,132 at the time of sale, a $5,527,029 gain on sale resulted.
The above selected financial data should be read in conjunction with the
financial statement's related notes appearing elsewhere in this report. This
statement is not covered by the auditor's opinion included elsewhere in this
report.
4
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial figures disclosed in this narrative consists of both the Oakwood
Village and Springfield apartment community operations. The Oakwood Village
apartment community was sold on November 27, 2002 and the Oakwood Village net
property operations are disclosed on a separate line in the Statement of
Operations entitled "Discontinued Operations."
Rental income for the twelve months ended December 31, 2002 was $3,362,139 as
compared to $3,771,408 and $3,686,506 for the comparable periods ended December
31, 2001 and December 31, 2000, respectively. Income from property operations
for the twelve months ended December 31, 2002 was $1,089,962 as compared to
$1,257,891 and $1,382,498 for the comparable periods ended December 31, 2001 and
December 31, 2000.
The $124,607 decrease in income from property operations in 2001 was a result of
several factors. During 2001 the partnership incurred approximately $110,000 of
expenses in connection with the Proxy Solicitation discussed in Part I. Item 4.
above. The expenses included professional services for legal, property
appraisals and accounting, printing and mailing fee expenses and filing fees
paid to the Securities and Exchange Commission. The remaining factors attributed
to the decrease in income from property operations was an increase of $115,138
in operating expenses offset by an increase in rental and related income of
$92,835.
The decreases in both rental income and income from property operations in 2002
was a result of the sale of the Oakwood Village Apartment in November of 2002
coupled with economic data that showed job losses and continued apartment
building in the Atlanta and Durham markets which reduced rental income. The pace
of construction of new apartments in the Durham, North Carolina area will
continue to exceed demand for new apartment units thus the prospect of declining
rental revenues at the Springfield apartments seems likely.
The $115,138 increase in operating expenses in 2001 was caused by the wood
replacement and repainting of the Springfield Apartments for $100,225 and an
increase of $10,659 in advertising related costs, offset by a $7,465 reduction
in utility expense at both properties. During 2002, expense levels, with the
exception of other general and administrative expense, returned to normal prior
year levels. Other general and administrative expenses continue to be higher
than the year 2000 and prior levels as the Partnership has incurred more legal
costs when several purchase contracts were written up for sale of the properties
that never came to fruition.
The most significant financial event in 2002 was the sale of the Oakwood Village
Apartments on November 27, 2002. The 184-unit apartment community was sold for
$11,150,000 to an unrelated third party buyer. After paying off the mortgage on
the property, including a loan payment penalty of $700,280 and the associated
closing costs, approximately $3,246,450 was returned to the limited partners in
the form of a sale distribution. The gain on sale of the property totaled
$5,527,029 or $587 per Limited Partner unit.
Net income for the twelve months ended December 31, 2000 was $85,094 or $9.05
per Limited Partnership Unit outstanding as compared to a net loss of $36,307 or
$3.86 per Limited Partnership Unit for the comparable period ended December 31,
2001. Net income for the twelve months ended December 31, 2002 was $4,406,913 or
$468.48 per Limited Partner unit outstanding. The increase from the prior years
is a result of the aforementioned sale of the Oakwood Village Apartments offset
by a drop in rental income. The primary source of funds in 2002 will accumulate
from rental operations and investment earnings.
5
Cash distributions of $3,363,002, $423,316 and $427,316 were paid to limited
partners in 2002, 2001, and 2000 respectively. The higher distribution in 2002
was a result of the property sale distribution offset by a lower distribution
from property operations.
Year 2000 Disclosure
The partnership's operations were not affected negatively by the advent of the
year 2000. The partnership spent between five and seven thousand dollars towards
Y2K preparations and these amounts were expensed.
Other Disclosure
At the inception of the partnership, Foundation Realty Fund, Ltd. entered into a
property management agreement with RJ Properties, Inc., a general partner, for
management of the apartment properties. On March 31, 1998, a subsidiary and
certain assets of RJ Properties, Inc. were sold to SHLP Realty Corp. and the
existing employees of RJ Properties, Inc. and its affiliate transferred to the
buyer. To avoid loss of continuity, RJ Properties,Inc. entered into a
submanagement agreement with SHLP Realty Corp. for management of the
partnership's properties. This new agreement in no way changes the management
fee expense nor the personnel assigned to the day-to-day operations of the
properties. This submanagement agreement installs SHLP Realty Corp. as the named
management entity for the Partnership's properties and J. Robert Love remains
President of RJ Properties, Inc. as well as individual General Partner.
Liquidity and Capital Resources
In management's opinion, working capital reserves and liquidity from property
operations are sufficient to meet the short-term operating needs of the
Partnership. The sole long-term commitment of the Partnership is the mortgage
payable which has a balloon payment due November 2004. Management plans to meet
the long-term commitment through a property sale or through approaching lenders
to refinance the Partnership mortgage. We are currently in the process of
marketing the remaining Partnership property for sale. Capital expenditures for
any material commitments, should they occur, will be funded from two
sources-working capital reserves and proceeds earned from property operations.
Cash provided by operating activities decreased by $108,966 from 2000 to 2001.
The primary reason for the change is the result of the partnership experiencing
a net loss in 2001 verse net income in 2000. Factors contributing to the
operational net loss in 2001 are presented in the Management Discussion and
Analysis section above. Cash provided by operating activities decreased by
$438,186 from 2001 to 2002. The decrease was caused primarily by a $829,575
increase in the properties net loss before extraordinary items offset by a
$358,902 decrease in restricted cash. Both of these events were related
primarily to the sale of the Oakwood Village Apartments. The net loss from
property operations included a $700,280 loan prepayment penalty and upon sale of
the property $205,477 of restricted cash was returned to the Partnership from
the Partnership's lender.
Cash used by investing activities totaled $68,870 in 2000. The cash used by
investing activities in 2001 was $77,309 and is comparable to the prior year
amount. Cash used by investing activities totaled $120,662 in 2002 and the
increase was primarily the result in an increase in the number of carpets
replaced at both apartment communities coupled with some roof replacements and
clubhouse improvements.
6
The monthly debt service commitments totaled $52,777 for Oakwood Village and
currently totals $74,644 for Springfield. The debt service is adequately funded
from Partnership operations. Cash used by financing activities totaled $611,922
for 2000 as compared to $626,907 for 2001. This increase was caused by the
increased pay down of partnership debt principal as required in the new loan
agreements entered into during 1997. The change in cash used by financing
activities was more dramatic in 2002 verse 2001. The $9,965,187 increase was a
result of an increase in partnership distributions of $2,939,686 resulting from
the sale of Oakwood Village, coupled with a $7,025,501 increase in principal
payments on the partnership's mortgage balance resulting from the loan payoff on
the Oakwood Village mortgage.
Item 8. Financial Statements and Supplementary Data
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
Part I - Financial Information Page No.
------------------------------ --------
Independent Auditor's Report 8
Balance Sheets as of December 31, 2002 and December 31, 2001 9
Statements of Operations - For the Years Ended December 31, 10-11
2002, 2001 and 2000
Statements of Partners' Equity (Deficit) - For the Years Ended 12
December 31, 2002, 2001 and 2000
Statements of Cash Flows - For the Years Ended December 31, 13
2002, 2001 and 2000
Notes to Financial Statements 14-18
Supplementary Financial Data 19
All other schedules have been omitted as not required, not applicable, or the
information required to be shown therein is included in the financial statements
and related notes.
7
Independent Auditor's Report
----------------------------
To the Partners of Foundation Realty Fund, Ltd.
We have audited the accompanying balance sheets of Foundation Realty Fund Ltd.
(a Florida Limited Partnership) as of December 31, 2002 and 2001, and the
related statements of operations, partners' deficit and cash flows for each of
the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These 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 also 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 Foundation Realty Fund, Ltd. as
of December 31, 2002 and 2001 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
Our audits were made for the purpose of forming an opinion on the basic
financial Statements taken as a whole. The schedules listed under items 14(2) in
the index are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, based on our
audits, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
As discussed in note 8, the partnership is winding down its operations.
SPENCE,MARSTON,BUNCH,MORRIS & CO.
Certified Public Accountants
Clearwater, Florida
February 18, 2003
8
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31, 2002 December 31, 2001
----------------- -----------------
ASSETS
Apartment Properties, at
Cost $13,229,141 $22,631,101
Less - Accumulated
Depreciation (5,178,983) (8,559,129)
----------- -----------
8,050,158 14,071,972
Cash and cash equivalents 1,144,230 584,564
Restricted Cash 92,774 477,695
Prepaid Expenses 93,764 7,174
Deferred Loan Cost (Net of
Accumulated Amortization of
$115,342 and $176,605) 38,477 114,273
----------- -----------
TOTAL ASSETS $ 9,419,403 $15,255,678
=========== ===========
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Notes Payable $ 9,940,331 $17,169,423
Interest Payable 63,817 -0-
Accounts Payable 57,921 42,203
Security Deposits 42,163 99,399
Unearned Rent 106,653 32,369
------------ -----------
TOTAL LIABILITIES 10,210,885 17,343,394
============ ===========
Partners' (Deficit):
Limited Partners' (Deficit)
(9,407 units)outstanding at
December 31, 2002 and
December 31, 2001 (791,482) (1,835,443)
General Partners' (Deficit) -0- (252,273)
----------- -----------
TOTAL PARTNERS'(DEFICIT) (791,482) (2,087,716)
----------- -----------
TOTAL LIABILITIES AND
PARTNERS'(DEFICIT) $ 9,419,403 $15,255,678
=========== ===========
The accompanying notes are an integral part of these financial statements.
9
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
2002 2001 2000
---- ---- ----
Property Operations:
Rental Income $1,944,750 $2,084,324 $2,037,217
Miscellaneous 118,185 112,528 105,461
---------- ---------- ----------
2,062,935 2,196,852 2,142,678
Expenses:
Depreciation and
Amortization 341,665 338,964 336,173
Payroll 271,923 279,983 265,434
Real Estate Taxes 164,161 159,735 161,143
Utilities 99,400 128,083 107,241
Repairs and Maintenance 253,143 374,152 366,215
Property Management -
General Partner 102,916 110,393 106,748
Landscaping 49,307 48,628 31,381
Other 102,743 95,176 77,510
General and Administrative
- - Affiliate 580 515 999
Other General and
Administrative 38,138 57,801 4,993
---------- ---------- ----------
1,423,976 1,593,430 1,457,837
Income from Property
Operations 638,959 603,422 684,841
Interest Income 3,338 11,119 19,073
---------- ---------- ----------
642,297 614,541 703,914
Other Expenses:
Interest 767,364 776,851 785,238
---------- ---------- ----------
Net Income (Loss) before
Discontinued Operations
and Extraordinary Items (125,067) (162,310) (81,324)
Discontinued Operations (42,446) 124,092 170,897
Gain on Sale of Property 5,527,029 -0- -0-
---------- ---------- ----------
Net Income (Loss) before
Extraordinary Item 5,359,516 (38,218) 89,573
Extraordinary Item:
Mortgage Prepayment
Penalty (700,280) -0- -0-
---------- ---------- ----------
Net Income (Loss) $4,659,236 $ (38,218) $ 89,573
========== ========== ==========
10
2002 2001 2000
---- ---- ----
Allocation of Net Income
(Loss) -
Limited Partners $4,406,963 $ (36,307) $ 85,094
General Partners 252,273 (1,911) 4,479
---------- --------- --------
$4,659,236 $ (38,218) $ 89,573
========== ========= ========
Net Income (Loss) Per
Limited Partnership Unit
Before Extraordinary Item $ 542.91 $ (3.86) $ 9.05
========== ========= ========
Net Income (Loss) Per
Limited Partnership Unit
of the Extraordinary Item $ (74.43) $ -0- $ -0-
========== ========= ========
Net Income (Loss) Per
Limited Partnership Unit $ 468.48 $ (3.86) $ 9.05
========== ========= ========
Number of Limited
Partnership Units 9,407 9,407 9,407
========== ========= ========
The accompanying notes are an integral part of these financial statements.
11
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Limited General Total
Partners' Partners' Partners'
Equity(Deficit) Equity(Deficit) Equity(Deficit)
--------------- --------------- ---------------
Balance, December 31, 1999 $(1,037,598) $(254,841) $(1,292,439)
----------- --------- -----------
Distribution to Partners (423,316) -0- (423,316)
Net Income (Loss) 85,094 4,479 89,573
----------- --------- -----------
Balance, December 31, 2000 (1,375,820) (250,362) (1,626,182)
----------- --------- -----------
Distribution to Partners (423,316) -0- (423,316)
Net Income (Loss) (36,307) (1,911) (38,218)
----------- --------- -----------
Balance, December 31, 2001 (1,835,443) (252,273) (2,087,716)
----------- --------- -----------
Distribution to Partners (3,363,002) -0- (3,363,002)
Net Income (Loss) 4,406,963 252,273 4,659,236
----------- --------- -----------
Balance, December 31, 2002 $ (791,482) $ -0- $ (791,482)
============ ========= ===========
The accompanying notes are an integral part of these financial statements.
12
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2002 2001 2000
---- ---- ----
Net Cash Provided by Operating
Activities:
Net Income (Loss)
$ 4,659,236 $ (38,218) $ 89,573
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation & Amortization 625,140 613,798 611,521
Gain on Sale of Property (5,527,029) -0- -0-
Changes in Operating
Assets and Liabilities:
(Increase) Decrease
in Restricted Cash 384,921 26,019 (14,815)
(Increase) Decrease in Prepaid
Expense (86,590) 1,104 (181)
Increase (Decrease) in Accounts
Payable 79,535 10,355 (7,923)
Increase (Decrease)in Unearned
Rents 74,284 (19,495) 15,142
Increase (Decrease) in
Security Deposits (57,236) (3,116) 6,096
----------- ---------- ----------
Net Cash Provided by
Operating Activities 152,261 590,447 699,413
----------- ---------- ----------
Net Cash Flows from Investing
Activities:
Proceeds from Sale of Property 11,120,161 -0- -0-
Improvements to Apartment
Properties (120,662) (77,309) (68,870)
----------- ---------- ----------
Net Cash Used in Investing
Activities 10,999,499 (77,309) (68,870)
----------- ---------- ----------
Net Cash Flows from Financing
Activities:
Distributions to Partners
(3,363,002) (423,316) (423,316)
Payments of Notes Payable (7,229,092) (203,591) (188,606)
----------- ---------- ----------
Net Cash Used by Financing
Activities (10,592,094) (626,907) (611,922)
----------- ---------- ----------
Increase (Decrease) in Cash 559,666 (113,769) 18,621
Cash at Beginning of Year 584,564 698,333 679,712
----------- ---------- ----------
Cash at End of Year $ 1,144,230 $ 584,564 $ 698,333
=========== ========== ==========
Supplemental Cash Flow
Information: Interest Paid $ 1,901,067 $1,325,844 $1,340,438
=========== ========== ==========
The accompanying notes are an integral part of these financial statements.
13
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 1 - ORGANIZATION:
Foundation Realty Fund, Ltd. (the "Partnership"), a Florida Limited Partnership,
was formed April 14, 1987 under the laws of Florida. Operations commenced on
January 12, 1988. The Partnership operates two apartment properties. The
Partnership will terminate on December 31, 2020, or sooner, in accordance with
the terms of the Limited Partnership Agreement. The Partnership has received
Limited and General Partner capital contributions of $9,407,000 and $1,000
respectively. J. Robert Love, an individual, and RJ Properties, Inc., a wholly
owned subsidiary of Raymond James Financial, Inc. are the General Partners and
manage and control the business of the Partnership.
Operating profits and losses are allocated 95% to the Limited Partners and 5% to
the General Partners. Cash from operations will be shared 95% by the Limited
Partners and 5% by the General Partners; however, distributions to the General
Partners are subordinated to certain preferred returns to the Limited Partners.
The Limited Partnership Agreement states that no cash from operations shall be
distributed to the General Partners in any year until Limited Partners have
received distributions in such year in an amount equal to 7% of their adjusted
capital contribution. Profit and loss and cash distributions from sales of
properties will be allocated as formulated in the Limited Partnership Agreement.
The Limited Partnership Agreement states that cash distributions from sales will
be distributed first to the General Partners until they receive 5% of aggregate
distributions of cash from operations. Cash distributions from sales will be
distributed second to each Limited Partner an amount equal to their adjusted
capital contribution plus an amount equal to an 8% per annum, cumulative but
non-compounded return. Cash distributions from sales will be distributed third
to the General Partners until they have received cumulative distributions in an
amount equal to 3% of the aggregate disposition price of properties sold by the
Partnership. Cash distributions from sales will be distributed fourth, the
balance, if any, 85% to the Limited Partners and 15% to the General Partners.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting/Revenue Recognition
The Partnership utilizes the accrual basis of accounting whereby rental revenues
and other fees are recognized when earned and expenses are recognized as
obligations when incurred. The Partnership does not recognize revenue upon the
collection of security deposits but sets up a liability for the amount received.
Cash and Cash Equivalents
It is the Partnership's policy to include short-term investments with an
original maturity of three months or less in cash and cash equivalents. These
short-term investments are comprised of money market funds and repurchase
agreements. Restricted cash is not included in cash and cash equivalents.
14
Restricted Cash
Restricted cash includes $50,611 at December 31, 2002 and $378,296 at December
31, 2001 of cash held in escrow for the payment of real estate taxes and capital
replacement items. Restricted cash also includes $42,163 at December 31, 2002
and $99,399 at December 31, 2001 of tenant security deposits held in escrow
account.
Income Taxes
No provision for income taxes has been made in these financial statements, as
income taxes are a liability of the partners rather than of the Partnership.
Concentrations of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash investments in high
credit quality financial institutions.
Depreciation
The apartment buildings are being depreciated over 35 years using the
straight-line method. Furniture and fixtures are being depreciated over eight
years using the straight-line method.
Reclassifications
Certain accounts in the prior year financial statements have been reclassified
for comparison purposes to conform with the presentation in the current year
financial statements.
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates that affect certain reported
amounts and disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these estimates.
NOTE 3 - COMPENSATION, REIMBURSEMENTS, AND ACCRUALS TO THE GENERAL PARTNERS AND
AFFILIATES:
The General Partners and affiliates are entitled to the following types of
compensation and reimbursement for costs and expenses incurred for the
Partnership for the years ended December 31:
2002 2001 2000
---- ---- ----
Property Management Fees $183,542 $197,363 $190,347
General and Administrative Costs 1,160 1,030 1,998
The terms of the property management agreement call for the Corporate General
Partner to receive a monthly fee of up to 5% of the monthly gross receipts from
residential property operations.
Property management fees in the amount of $9,000 are due to the Corporate
General Partner at December 31, 2002. Property management fees in the amount of
$15,801 were due to the Corporate General Partner at December 31, 2001. There
were no amounts due from related parties at December 31, 2002 or December 31,
2001.
15
NOTE 4 - LEASES AND APARTMENT PROPERTIES:
The Partnership owns apartment complexes leased to residents under short-term
operating leases. A summary of the apartment properties is as follows:
December 31, 2002 December 31, 2001
----------------- -----------------
Land $ 2,154,136 $ 3,141,510
Buildings 9,613,912 17,298,118
Furniture & Fixtures 1,461,093 2,191,473
------------ ------------
Apartment Properties at
Cost 13,229,141 22,631,101
Less: Accumulated Depreciation (5,178,983) (8,559,129)
------------ ------------
$ 8,050,158 $ 14,071,972
============ ============
NOTE 5 - TAXABLE INCOME:
The Partnership's taxable income differs from financial income primarily due to
depreciation which is recorded under the Modified Accelerated Cost Recovery
System (MACRS) and the presentation of prepaid rents. The following is a
reconciliation between net income (loss) as reported and partnership income
(loss) for tax purposes:
2002 2001 2000
---- ---- ----
Net income(loss) per financial
statements $4,659,236 $ (38,218) $ 89,573
Gain on sale reduced for tax in
excess of financial gain 869,875 -0- -0-
Tax depreciation in excess of or
(less than) financial depreciation (116,868) (131,635) (140,113)
Increase (decrease) in prepaid rents
added to taxable income 68,592 (17,826) 11,680
---------- ---------- ---------
Partnership income(loss) for tax
purposes $5,480,835 $ (187,679) $ (38,860)
========== ========== =========
NOTE 6 - NOTES PAYABLE:
The notes payable at December 31, 2002 and 2001 consist of the following:
2002 2001
---- ----
Oakwood Village
The first mortgage note, which has
an interest rate of 7.67%, is
payable in monthly installments
including principal and interest of
$52,777 through October 2004. This
note was paid in full including a
prepayment penalty of $700,280 when
the property was sold on November
27, 2002. $-0- $ 7,111,459
16
2002 2001
---- ----
Springfield
The first mortgage note, which has
an interest rate of 7.67%, is
payable in monthly installments
including principal and interest of
$74,644 through October 2004. There
is a balloon payment of $9,666,045
due on this loan of the remaining
principal and any unpaid interest
in November 2004. 9,940,331 10,057,964
---------- -----------
$9,940,331 $17,169,423
========== ===========
The aggregate amount of principal payments due in the years after December 31,
2002 are:
2003 $ 138,088
2004 9,802,243
----------
$9,940,331
==========
NOTE 7 - SALE OF PROPERTY:
On November 27, 2002, the Partnership sold the Oakwood Village Apartments in
Atlanta, Georgia for $11,150,000. Marketing efforts continue for the sale of the
Springfield Apartments in Durham, North Carolina.
A table of the summarized operations of the sold property follows:
2002 2001 2000
---- ---- ----
(11 Months)
-----------
Total Operating Revenues $1,464,810 $1,725,186 $1,686,525
Total Operating Expenses (1,013,807) (1,070,717) (988,868)
Interest Income 3,791 18,616 28,440
Interest Expense (497,240) (548,993) (555,200)
---------- ---------- ----------
Net Operating Income (Loss) $ (42,446) $ 124,092 $ 170,897
========== ========== ==========
NOTE 8 - OTHER MATTERS:
A solicitation of proxy was made to the limited partners during 2001. The
subject matter of the proxy involved the Corporate General Partner seeking
approval from the limited partners to sell the assets owned by the partnership
and approval to windup partnership operations. A majority of limited partners
voted to approve the sale of the partnership assets and windup the partnership
operations.
NOTE 9 - SUBSEQUENT EVENT:
On February 10, 2003, the Partnership paid distributions of $264,431 to the
Limited Partners.
17
NOTE 10 - Selected Quarterly Financial Data (Unaudited)
2001 Q-1-01 Q-2-01 Q-3-01 Q-4-01
- ---- ------ ------ ------ ------
Rental Income $ 963,995 $ 934,034 $ 940,223 $ 933,156
Income from Property 389,169 149,457 332,591 386,674
Operations
Net Income (Loss) 66,096 (177,592) 7,494 65,784
Net Income (Loss)Per
Limited Partnership
Unit 6.68 (17.93) .75 6.64
2002 Q-1-02 Q-2-02 Q-3-02 Q-4-02
- ---- ------ ------ ------ ------
Rental Income $ 885,346 $ 825,793 $ 897,074 $ 753,926
Income from Property 357,614 292,333 302,190 137,825
Operations
Net Income (Loss) 29,954 (34,205) (23,453) 4,686,940
Net Income (Loss) Per
Limited Partnership
Unit 3.02 (3.45) (2.37) 471.28
The significant drop in income from property operations during the second
quarter of 2001 was a result of $87,588 of expenses incurred in connection with
the Proxy Solicitation and an increase in property expenditures of roof
replacements totaling $27,135 and painting and wood replacement of $90,578.
The drop in rental income and income from property operations during the fourth
quarter of 2002 was a result of the sale of the Oakwood Village Apartments on
November 27, 2002. This property sale, which resulted in a $5,527,029 gain, is
the cause for the significant increase in fourth quarter 2002 net income.
For comparability, the 2001 figures have been reclassified, where appropriate to
conform with the financial statement presentation used in 2002.
18
Item 9. Disagreements on Accounting and Financial Disclosures
Not applicable.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or officers.
Item 11. Executive Compensation
The Partnership has no directors or officers.
Item 12. Security Ownership of Certain Beneficial Owners & Management
The Registrant is a Limited Partnership and therefore does not have voting
shares of stock. To the knowledge of the Partnership, no person owns a record or
beneficially, more than 5% of the Partnership's outstanding units.
Item 13. Certain Relationships and Related Transactions
The General Partners and affiliates are entitled to the following types of
compensation and reimbursements for costs and expenses: Total Incurred by the
Partnership for the period ended December 31,
2002 2001 2000
---- ---- ----
Property management fees are paid to
the General Partners for services
performed in connection with, among
other things, the day to day
management to the Limited
Partnership's properties. As
compensation for management services
they perform, the General Partners
are paid a monthly fee equal to 5% of
the monthly gross receipts from
residential property. These fees
are included in the Statement of
Operations. $ 183,542 $ 197,363 $ 190,347
Affiliates of the General Partners
are reimbursed for general and
administrative expenses of the
partnership on an accountable basis.
This expense is included in the
Statement of Operations. Direct costs
are paid by the Partnership. 1,160 1,030 1,998
The General Partners receive 5% of
cash from operations subject to
certain subordination agreements. In
addition, the General Partners are
allocated 5% of all tax items. -0- -0- -0-
19
Item 14. Controls and Procedures
Within 90 days prior to the filing of this report, under the supervision and
with the participation of the Partnership's management, including the
Partnership's chief executive and chief financial officers, an evaluation of the
effectiveness of the Partnership's disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) was
performed. Based on this evaluation, such officers have concluded that the
Partnership's disclosure controls and procedures were effective as of the date
of that evaluation in alerting them in a timely manner to material information
relating to the Partnership required to be included in this report and the
Partnership's other reports that it files or submits under the Securities
Exchange Act of 1934. There were no significant changes in the Partnership's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART 4
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements - see accompanying index to financial statements, Item
8.
2. Financial Statements Schedules - Schedule III Real Estate and Accumulated
Depreciation
3. Exhibit Index -
Table Number Page
1.1 Form of Soliciting Dealer Agreement *
1.2 Form of Escrow Agreement between Foundation Realty Fund, Ltd.
and Southeast Bank, NA *
2 Plan of acquisition, organization, arrangement, liquidation
or succession **
3.1 The form of Partnership Agreement of the Partnership *
3.2 Articles of Incorporation of RJ Properties, Inc. *
3.2.1 By-laws of RJ Properties, Inc. *
3.3 Certificate of Limited Partnership of Foundation Realty Fund, Ltd. *
4 Instruments defining the rights of security holders
including debentures **
5.1 Summary of appraisal of Oakwood Village Apartments **
8.1 Tax opinion and consent of Schifino, Fleischer & Neal, P.A. *
9 Voting Trust Agreement **
10.1 Oakwood Village Apartments Real Estate Acquisition Contract
and Exhibits thereto *
11 Computation of per share earnings **
12 Computation of ratios **
13 Annual report to security holders **
18 Letter re: change in accounting principles **
19 Previously unfiled documents **
22 Subsidiaries of the Registrant **
23 Published report regarding matters submitted to vote of
security holders **
24 Consents of experts and counsel
24.1 The consent of Spence, Marston & Bunch *
24.2 The consent of Charles Smallwood, CPA *
24.3 The consent of Schifino, Fleischer & Neal, PA to all references
made to them in the Prospectus included as part of the
Registration Statement of Foundation Realty Fund, Ltd., and
20
all amendments thereto, is included in their opinions
filed as Exhibit 8.1 to the Registration Statement *
25 Power of Attorney **
28.1 Table 6 (Acquisition of Properties by Program) of Appendix
2 to Industry Guide 5, Preparation of Registration
Statements Relating to Interests in Real Estate Limited
Partnerships *
29 Information from reports furnished to state insurance
regulatory authorities **
* Included with Form S-11, Registration No. 33-13849, previously
filed with the Securities and Exchange Commission.
** Exhibits were omitted as not required, not applicable or the
information required to be shown therein is included elsewhere
in this report.
B. Reports filed on Form 8-K - None
C. Exhibits filed with this Report - None
21
Foundation Realty Fund, Ltd.
(A Florida Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation for the Years Ended
December 31, 2002, 2001 and 2000
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
----------- ------
For the Oakwood Village First Mortgage note
year ended Apartments with 7.67% interest
12/31/2000 Atlanta, GA rate. Balance
$7,111,459 at December
31, 2001 $ 9,038,120 $ 384,724 $ 9,422,844
Springfield First mortgage note
Apartments with 7.67% interest
Durham, NC rate. Balance
$10,057,964 at
December 31, 2001 12,767,861 363,087 13,130,948
----------- --------- -----------
TOTAL $21,805,981 $ 747,811 $22,553,792
=========== ========= ===========
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
----------- ------
For the Oakwood Village First Mortgage note
year ended Apartments with 7.67% interest
12/31/2001 Atlanta, GA rate. Balance
$7,111,459 at
December 31, 2001 $ 9,038,120 $ 427,997 $ 9,466,117
Springfield First mortgage note
Apartments with 7.67% interest
Durham, NC rate. Balance
$10,057,964 at
December 31, 2001 12,767,861 397,123 13,164,984
----------- --------- -----------
TOTAL $21,805,981 $ 825,120 $22,631,101
=========== ========= ===========
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
----------- ------
For the Oakwood Village Property Sold
year ended Apartments November 27, 2002
12/31/2002 Atlanta, GA
Springfield First mortgage note
Apartments with 7.67% interest
Durham, NC rate. Balance
$10,057,964 at
December 31, 2001
$12,767,861 $ 461,280 $13,229,141
----------- --------- -----------
TOTAL $12,767,861 $ 461,280 $13,229,141
=========== ========= ===========
22
Foundation Realty Fund, Ltd.
(A Florida Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation for the Years Ended
December 31, 2002, 2001 and 2000
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Oakwood Building-35 years
year ended Village Appliances &
12/31/2000 Apartments Equipment-8 years
Atlanta, GA $3,444,558 1/22/88 1982
Springfield Building-35 years
Apartments Appliances &
Durham, NC 4,542,327 9/22/88 1986 Equipment-8 years
----------
TOTAL $7,986,885
==========
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Oakwood Building-35 years
year ended Village Appliances &
12/31/2001 Apartments Equipment-8 years
Atlanta, GA $3,699,824 1/22/88 1982
Springfield Building-35 years
Apartments Appliances &
Durham, NC 4,859,305 9/22/88 1986 Equipment-8 years
----------
TOTAL $8,559,129
==========
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Oakwood Property
year ended Village sold
12/31/2002 Apartments November 27,
Atlanta, GA 2002
Springfield Building-35 years
Apartments Appliances &
Durham, NC $5,178,983 9/22/88 1986 Equipment-8 years
----------
TOTAL $5,178,983
==========
23
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - Real Estate and Accumulated Depreciation
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Balance at (Deletions) Balance at
Beginning Additions Close
of Year --------- of Year
------- -------
2000
Land $ 3,141,510 $ -0- $ 3,141,510
Buildings 17,298,118 -0- 17,298,118
Equipment 2,045,294 68,870 2,114,164
----------- ----------- -----------
Total $22,484,922 $ 68,870 $22,553,792
=========== =========== ===========
2001
Land $ 3,141,510 $ -0- $ 3,141,510
Buildings 17,298,118 -0- 17,298,118
Equipment 2,114,164 77,309 2,191,473
----------- ----------- -----------
Total $22,553,792 $ 77,390 $22,631,101
=========== =========== ===========
2002
Land $ 3,141,510 $ (987,374) $ 2,154,136
Buildings 17,298,118 (7,684,206) 9,613,912
Equipment 2,191,473 (730,380) 1,461,093
----------- ----------- -----------
Total $22,631,101 $(9,401,960) $13,229,141
=========== =========== ===========
The significant drop in the 2002 real estate and accumulated depreciation is a
result of the property sale of the Oakwood Village Apartments on November 27,
2002.
24
SCHEDULE III -
Real Estate and Accumulated Depreciation
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Balance at Depreciation Sale of Balance at
Beginning Expense Property Close of Year
of Year ------- -------- -------------
-------
2000
Buildings $5,723,423 $494,232 $6,217,655
Equipment 1,693,495 75,735 1,769,230
---------- -------- ----------
Total $7,416,918 $569,967 $ -0- $7,986,885
========== ======== ========== ==========
2001
Buildings $6,217,655 $494,232 $6,711,887
Equipment 1,769,230 78,012 1,847,242
---------- -------- ----------
Total $7,986,885 $572,244 $ -0- $8,559,129
========== ======== ========== ==========
2002
Buildings $6,711,887 $475,936 $(3,267,567) $3,920,256
Equipment 1,847,242 73,408 (661,923) 1,258,727
---------- -------- ---------- ----------
Total $8,559,129 $549,344 $(3,929,490) $5,178,983
========== ======== =========== ==========
25
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
(Registrant)
By: RJ PROPERTIES, INC.
a General Partner
Date: March 21, 2003 By: J. Robert Love President
(Signature)
Date: March 21, 2003 By: Alan G. Lee Secretary
(Signature)
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
(Registrant)
By: RJ PROPERTIES, INC.
a General Partner
Date: March 21, 2003 By: J. Robert Love President
(Signature)
Date: March 21, 2003 By: Alan G. Lee Secretary
(Signature)
26
CERTIFICATION
-------------
I John R. Luckett certify that:
1. I have reviewed this annual report on Form 10-K of Foundation Realty Fund,
Ltd.;
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 to make
the statements made, in light of the circumstances under which such 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 represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosures controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function);
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant'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 registrant's internal controls; and
6. The registrant's other certifying officers and 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 our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
March 21, 2003
Simpson Property Group - Submanager
- -----------------------------------
John R. Luckett
Vice President - Finance
27
CERTIFICATION
I J. Robert Love certify that:
1. I have reviewed this annual report on Form 10-K of Foundation Realty Fund,
Ltd.;
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 to make
the statements made, in light of the circumstances under which such 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 represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have;
a) designed such disclosures controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function);
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant'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 registrant's internal controls; and
6. The registrant's other certifying officers and 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 our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
March 21, 2003
RJ Properties, Inc. - Managing General Partner
- ----------------------------------------------
J. Robert Love
President
28