10-Q 1 foundation10q_09-02.txt SETEMBER 30, 2002 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 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 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 September 30, 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) INDEX TO FINANCIAL STATEMENTS Part I - Financial Information Page No. Balance Sheets as of September 30, 2002 and December 31, 2001 3 Statements of Operations - For the Nine Months Ended September 30, 2002 and 2001 4 Statements of Operations - For the Three Months Ended September 30, 2002 and 2001 5 Statements of Partners' Equity (Deficit) - For the Nine Months Ended September 30, 2002 and 2001 6 Statements of Cash Flows - For the Nine Months Ended September 30, 2002 and 2001 7 Notes to Financial Statements 8-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-12 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) BALANCE SHEETS September 30, 2002 December 31, 2001 (Unaudited) (Audited) ASSETS Apartment Properties, at Cost $ 22,727,647 $ 22,631,101 Less - Accumulated Depreciation (8,971,797) (8,559,129) ------------ ------------ 13,755,850 14,071,972 Cash and Cash Equivalents 755,292 584,564 Restricted Cash 686,883 477,695 Prepaid Expenses 25,551 7,174 Deferred Loan Cost (Net of Accumulated Amortization of $207,771 and $176,605) 83,108 114,273 ------------ ------------ TOTAL ASSETS $ 15,306,684 $ 15,255,678 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Notes Payable $ 17,006,438 $ 17,169,423 Interest Expense Payable 109,004 0 Accounts Payable 354,784 42,203 Security Deposits 97,988 99,399 Unearned Rents 136,100 32,369 ------------ ------------ TOTAL LIABILITIES 17,704,314 17,343,394 ------------ ------------ Partners' Equity (Deficit) Limited Partners' Equity (Deficit) (9,407 units outstanding @ September 30, 2002 and December 31, 2001) (2,143,972) (1,835,443) General Partners' Equity (Deficit) (253,658) (252,273) ------------ ------------ TOTAL PARTNERS' EQUITY (DEFICIT) (2,397,630) (2,087,716) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 15,306,684 $ 15,255,678 ============ ============ 3 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30 2002 2001 Property Operations: Rental Income $2,608,213 $2,838,252 Miscellaneous 136,556 116,598 ---------- ---------- 2,744,769 2,954,850 ---------- ---------- Expenses: Depreciation 412,668 412,668 Payroll 327,399 342,410 Real Estate Taxes 242,145 235,962 Utilities 126,341 126,738 Repairs & Maintenance 291,908 455,535 Management Fee - General Partner 137,307 148,336 Insurance 29,930 38,523 Landscaping 59,201 62,397 Other 100,184 117,017 ---------- ---------- 1,727,083 1,939,586 ---------- ---------- Income from Property Operations 1,017,686 1,015,264 Interest Income 3,957 21,380 ---------- ---------- 1,021,643 1,036,644 ---------- ---------- Other Expenses: Interest 983,798 996,599 Amortization 31,166 31,166 General & Administrative - Affiliate 1,080 1,030 Other General & Administrative 33,303 111,851 ---------- ---------- 1,049,347 1,140,646 ---------- ---------- Net Income (Loss) ($27,704) ($104,002) ========== ========== Allocation of Net Income (Loss) - Limited Partners ($26,319) ($98,802) General Partners (1,385) (5,200) ---------- ---------- ($27,704) ($104,002) ========== ========== Net Income (Loss) Per Limited Partnership Unit ($ 2.80) ($10.50) Number of Limited Partnership Units 9,407 9,407 4 FOUNDATION REALTY FUND, LTD. (a Florida Limited Partnership) STATEMENT OF OPERATIONS (Unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 30 2002 2001 Property Operations: Rental Income $ 897,074 $ 940,223 Miscellaneous 35,012 43,255 --------- --------- 932,086 983,478 --------- --------- Expenses: Depreciation 137,556 137,556 Payroll 116,509 119,639 Real Estate Taxes 80,715 78,654 Utilities 45,275 47,505 Repairs and Maintenance 114,420 93,964 Property Management - General Partner 45,010 48,579 Insurance 6,315 12,841 Landscaping 12,962 18,487 Other 35,243 72,984 --------- --------- 594,005 630,209 --------- --------- Income from Property Operations 338,081 353,269 Interest Income 1,417 6,672 --------- --------- 339,498 359,941 --------- --------- Other Expenses: Interest 327,060 331,769 Amortization 10,389 10,389 General and Administrative -Affiliate 80 0 Other General and Administrative 25,422 10,289 --------- --------- 362,951 352,447 --------- --------- Net Income (Loss) ($ 23,453) $ 7,494 ========= ========= Allocation of Net Income (Loss)- Limited Partners ($ 22,280) $ 7,119 General Partners (1,173) 375 --------- --------- ($ 23,453) $ 7,494 ========= ========= Net Income (Loss) Per Limited Partnership Unit ($ 2.37) $ .76 Number of Limited Partnership Units 9,407 9,407 5 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) STATEMENTS OF PARTNERS' EQUITY (DEFICIT) (Unaudited) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Limited General Total Partners' Partners' Partners' Equity Equity Equity (Deficit) (Deficit) (Deficit) Balance, December 31, 2000 ($1,375,820) ($250,362) ($1,626,182) Distribution to Partners (317,486) 0 (317,486) Net Income (Loss) (98,802) (5,200) (104,002) ----------- --------- ----------- Balance, September 30, 2001 ($1,792,108) ($255,562) ($2,047,670) =========== ========= =========== Balance, December 31, 2001 ($1,835,443) ($252,273) ($2,087,716) Distribution to Partners (282,210) 0 (282,210) Net Income (Loss) (26,319) (1,385) (27,704) ----------- --------- ----------- Balance, September 30, 2002 ($2,143,972) ($253,658) ($2,397,630) =========== ========= =========== 6 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (Unaudited) 2002 2001 Net Cash Provided by Operating Activities: Net Income (Loss) ($ 27,704) ($104,002) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation 412,668 412,668 Amortization 31,166 31,166 Changes in Operating Assets and Liabilities: (Increase) in Prepaids (18,377) (16,717) Increase in Accounts Payable 421,585 251,875 Increase (Decrease) in Security Deposits (1,411) 3,480 Increase (Decrease) in Unearned Rents 103,731 (12,455) (Increase) in Restricted Cash (209,189) (158,678) --------- --------- Net Cash Provided by Operating Activities 712,469 407,337 --------- --------- Cash Flows From Investing Activities: Improvements to Apartment Properties (96,546) (60,061) --------- --------- Net Cash Used in Investing Activities (96,546) (60,061) --------- --------- Cash Flow from Financing Activities: Payments from Notes Payable (162,985) (150,803) Distributions to Partners (282,210) (317,486) --------- --------- Net Cash Used by Financing Activities (445,195) (468,289) --------- --------- Increase (Decrease) in Cash 170,728 (121,013) Cash and Cash Equivalents at Beginning of Period 584,564 698,333 --------- --------- Cash and Cash Equivalents at End of Period $ 755,292 $ 577,320 ========= ========= Supplemental Cash Flow Information: Interest Paid $ 983,798 $ 996,599 7 FOUNDATION REALTY FUND, LTD A Florida Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 they 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 state that cash distribution 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 equal amount 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 revenues are recognized when earned and expenses are recognized as obligations are 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. 8 Restricted Cash Restricted cash include $588,895 at September 30, 2002 and $378,296 at December 31, 2001 of cash held in escrow for the payment of real estate taxes, insurance premiums and capital replacement items. Restricted cash also include $97,988 at September 30, 2002 and $99,399 at December 31, 2001 of tenant security deposits held in an escrow account. Income Taxes No provisions for income taxes has been made in these financial statements, as income taxes are a liability of the partners rather than of the Partnership. Depreciation The apartment buildings are being depreciated over 35 years using the straight-line method. Furniture and fixtures are being depreciated over 8 years using the straight-line method. 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 nine months ended September 30, 2002. Property Management Fees $137,307 General and Administrative Costs 1,080 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 $11,100 are due to the Corporate General Partner at September 30, 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 September 30, 2002 or December 31, 2001. NOTE 4 - LEASES AND APARTMENT PROPERTIES: The Partnership owns two apartment complexes leased to residents under short term operating leases. A summary of the apartment properties is as follows: September 30, December 31, 2002 2001 Land $ 3,141,510 $ 3,141,510 Buildings 17,298,118 17,298,118 Furniture & Fixtures 2,288,019 2,191,473 ----------- ----------- Apartment Properties, at Cost 22,727,647 22,631,101 Less: Accumulated Depreciation (8,971,797) (8,559,129) ----------- ----------- $13,755,850 $14,071,972 =========== =========== NOTE 5 - NOTES PAYABLE: The notes payable are secured by the apartment properties. 9 NOTE 6 - BASIS OF PREPARATION: The unaudited financial statements presented herein have been pre- pared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principals. These statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's Form 10-K for the year ended December 31, 2001. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjust- ments, necessary to summarize fairly the Partnership's financial position and results of operations. The results of operations for the periods may not be indicative of the result to be expected for the year. NOTE 7 - SUBSEQUENT EVENT: On or about October 31, 2002, the Partnership will pay distributions of $70,552 to the Limited Partners. NOTE 8 - OTHER MATTERS: In June 2001, the Limited Partners of the Partnership voted for a plan of liquidation and dissolution that authorizes the Managing General Partner of the Partnership to sell all of the assets of the Partnership and effectuate the orderly liquidation and winding-up of the business of the Partnership. Marketing materials and property brochures have been made to begin the liquidation process. The Partnership has entered into a binding, non- contingent contract for the sale of the Oakwood Village Apartments. If the buyer's due diligent progresses as expected, we anticipate the sale to occur before the end of the year. 10 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) Management's Discussion and Analysis of Financial Condition and Results of Operations Rental income for the nine months ended September 30, 2001 was $2,838,252 as compared to $2,608,213 for the comparable period ended September 30, 2002. Income from property operations for the nine months ended September 30, 2001 was $1,015,264 as compared to $1,017,686 for the comparable period ended September 30, 2002. The large rental income differential of $230,039 or 8.1% was primarily a result of an increase in the number of vacant units at the two properties which resulted in a rental income decrease of $144,545 and an $153,453 increase in the rental concessions offered because of the competitive rental markets in Atlanta and Durham. The much smaller differential in income from property operations was a result of higher repair and maintenance costs primarily at the Springfield Apartments in the prior year. In 2001, the Springfield Apartments were painted and had some wood replacement at a cost of $110,000. In addition, approximately $40,000 was spent for roof repairs and replacements at the property. Finally, the partnership experienced a positive income variance of $24,698 in telephone service commissions earned at both properties. Rental income for the three months ended September 30, 2001 was $940,223 as compared to $897,074 for the comparable period ended September 30, 2002. Income from property operations remained relatively stable and totaled $353,269 for the three months ended September 30, 2001 verse $338,081 for the three months ended September 30, 2002. Interest expense decreased from $996,599 for the nine months ended September 30, 2001 to $983,798 for the nine months ended September 30, 2002. Other general and administrative costs decreased $78,548 from September 30, 2001 to September 30, 2002. The general and administrative expense decrease is solely attributable to the costs incurred as a result of last year's proxy and consent statement sent to all limited partners and filed with the Securities and Exchange Commission. Net loss for the nine months ended September 30, 2001 was $104,002 or $10.50 per Limited Partnership Unit outstanding as compared to a net loss of $27,704 or $2.80 per Limited Partnership Unit for the comparable period ended September 30, 2002. The $76,298 positive variance is attributable to decreases in the Springfield repair and maintenance items mentioned above, and the proxy expense and many other small expense variances offset by a $210,088 decrease in total property income which resulted because of a higher vacancy rate and the prevalence of rental concessions. A net income of $7,494 occurred for the three months ended September 30, 2001 versus a net loss of $23,453 for the three months ended September 30, 2002. This change was a result a $15,188 decrease in income from property operations caused by the higher vacancy rate and the prevalence of rental concessions, a $5,255 decrease in interest income due to a lower interest yield and approximately $15,000 in legal costs relative to the sale contract work for the Oakwood Village Apartments. 11 Liquidity and Capital Resources In management's opinion, working capital reserves and liquidity are sufficient to meet the short-term operating needs of the Partnership. Cash provided by operating activities increased by $305,132 for the nine month period ended September 30, 2002 as compared to the nine month period ended September 30, 2001. The change resulted primarily from a $76,298 decrease in the net loss caused by lower operating expenses in the repair and maintenance and proxy expense areas coupled with a $116,186 increase in prepaid rents and a $169,710 increase in accounts payable. These items were offset by a $50,511 increase in the restricted cash balance. Cash used by investing activities totaled $60,061 at September 30, 2001 as compared to $96,546 at September 30, 2002. The primary reasons for the current year increase were the purchase of $12,650 of fitness center equipment for both apartment communities and a $16,847 increase in the purchases of new carpets at the two apartment communities. Cash used by financing activities decreased by $23,094 from the nine month period ended September 30, 2002 when compared to the nine month period ended September 30, 2001. The increase is attributed to a $12,182 increase in principal payments on the partnership's notes payable offset by a $35,276 reduction in limited partner distributions. ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K a) Exhibits - NONE b) Reports on Form 8-K - NONE 12 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 By: RJ PROPERTIES, INC. a General Partner 11/06/02 J. Robert Love - President Date (Signature) 11/06/02 Alan G. Lee - Secretary Date (Signature) 13 CERTIFICATION ------------- I John R. Luckett certify that: 1. I have reviewed this quarterly report on Form 10-Q of Foundation Realty Fund, Ltd.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 functions); 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 quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal 14 controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 6, 2002 Simpson Property Group - Submanager John R. Luckett ------------------------ Vice President - Finance 15 CERTIFICATION I J. Robert Love certify that: 1. I have reviewed this quarterly report on Form 10-Q of Foundation Realty Fund, Ltd.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 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 quarterly 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 quarterly report (the "Evaluation Date"); and c) presented in this quarterly 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 functions); 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 quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal 16 controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. November 6, 2002 RJ Properties, Inc. - Managing General Partner J. Robert Love -------------- President 17

ASSETS June 30,2002 December 31, 2001 (Unaudited) (Audited) ------------ ----------------- Apartment Properties at Cost $ 22,695,137 $ 22,631,101 Less Accumulated Depreciation (8,834,241) (8,559,129) ------------ ------------ 13,860,896 14,071,972 Cash and Cash Equivalents 550,027 584,564 Restricted Cash 670,636 477,695 Prepaid Expenses 25,426 7,174 Deferred Loan Cost (Net of Accumulated 93,496 114,273 ------------ ------------ Amortization of $207,771 and $176,605 TOTAL ASSETS $ 15,200,481 $ 15,255,678 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities Notes Payable $ 17,061,639 $ 17,169,423 Accounts Payable 210,402 42,203 Security Deposits 105,255 99,399 Unearned Rent 126,810 32,369 ------------ ------------ TOTAL LIABILITIES 17,504,106 17,343,394 Partners' Equity (Deficit) Limited Partners' Equity (Deficit) (9,407 units (2,051,139) (1,835,443) outstanding @ June 30,2002 and December 31, 2001 General Partners' Equity (Deficit) (252,486) (252,273) ------------ ------------ Total Partners' Equity (Deficit) (2,303,625) (2,087,716) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 15,200,481 $ 15,255,678 ============ ============

Property Operations: 2002 2001 ----------- ----------- Rental Income $ 1,711,139 $ 1,898,029 Miscellaneous 101,544 73,343 ----------- ----------- 1,812,683 1,971,372 Expenses: Depreciation 275,112 275,112 Payroll 210,890 222,771 Real Estate Taxes 161,430 157,308 Utilities 81,066 79,233 Repairs and Maintenance 177,488 361,571 Property Management 92,297 99,757 Landscaping 46,239 43,910 Other 88,556 69,715 ----------- ----------- Income from Property Operations 679,605 661,995 Interest Income 2,540 14,708 ----------- ----------- 682,145 676,703 ----------- ----------- Other Expenses: Amortization 20,777 20,777 Interest 656,738 664,830 General & Administrative-Affiliate 1,000 1,030 Other General & Administrative 7,881 101,562 ----------- ----------- 686,396 788,199 ----------- ----------- Net Income (Loss) $ (4,251) $ (111,496) =========== =========== Allocation of Net Income (Loss) - Limited Partners $ (4,038) $ (105,921) General Partners $ (213) $ (5,575) ----------- ----------- $ (4,251) $ (111,496) =========== =========== Net Income (Loss) Per Limited Partnership Unit ($ .43) ($ 11.26) Number of Limited Partnership Units 9,407 9,407

Property Operations: 2002 2001 --------- --------- Rental Income $ 825,793 $ 934,034 Miscellaneous 65,831 41,136 --------- --------- 891,624 975,170 Expenses: Depreciation 137,556 137,556 Payroll 107,192 113,060 Real Estate Taxes 80,715 78,654 Utilities 39,531 43,977 Repairs and Maintenance 104,248 246,311 Property Management 45,500 49,939 Landscaping 24,684 21,427 Other 43,888 23,846 --------- --------- Income from Property Operations 308,310 260,400 Interest Income 1,316 4,968 --------- --------- 309,626 265,368 --------- --------- Other Expenses: Amortization 10,388 10,388 Interest 327,854 332,017 General & Administrative-Affiliate 0 915 Other General & Administrative 5,589 99,640 --------- --------- 343,831 442,960 --------- --------- Net Income (Loss) $ (34,205) $(177,592) ========= ========= Allocation of Net Income (Loss) - Limited Partners $ (32,495) $(168,712) General Partners $ (1,710) $ (8,880) --------- --------- $ (34,205) $(177,592) ========= ========= Net Income (Loss) Per Limited Partnership Unit $ (3.45) $ (17.93) Number of Limited Partnership Units 9,407 9,407

Limited Partners' General Partners' Total Partners' Equity (Deficit) Equity (Deficit) Equity (Deficit) ---------------- ---------------- ---------------- Balance, December 31, 2000 $(1,375,820) $ (250,362) $(1,626,182) Distribution to Partners (211,658) 0 (211,658) Net Income (Loss) (105,921) (5,575) (111,496) ----------- ----------- ----------- Balance, June 30, 2001 $(1,693,399) $ (255,937) $(1,949,336) =========== =========== =========== Balance December 31, 2001 $(1,835,443) $ (252,273) $(2,087,716) Distribution to Partners (211,658) 0 (211,658) Net Income (Loss) (4,038) (213) (4,251) ----------- ----------- ----------- Balance, June 30, 2002 $(2,051,139) $ (252,486) $(2,303,625) =========== =========== ===========

2002 2001 ---------- ---------- Net Cash Provided By Operating Activities: Net Income (Loss) $ (4,251) $(111,496) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation 275,112 275,112 Amortization 20,777 20,777 Changes in Operating Assets and Liabilities: (Increase)in Prepaids (18,252) (17,939) Increase in Accounts Payable 168,199 181,080 Increase in Security Deposits 5,856 4,177 Increase (Decrease)in Unearned Rents 94,441 3,825 (Increase) in Restricted Cash (192,941) (132,821) --------- --------- Net Cash Provided by Operating Activities: 348,941 222,715 --------- --------- Cash Flows from Investing Activities: Improvements to Apartment Properties (64,036) (41,567) --------- --------- Net Cash used in Investing Activities: (64,036) (41,567) --------- --------- Cash Flows from Financing Activities: Payments from Notes Payable (107,784) (99,691) Distributions to Partners (211,658) (211,658) --------- --------- Net Cash used by Financing Activities: (319,442) (311,349) --------- --------- Increase (Decrease) in Cash (34,537) (130,201) Cash and Cash Equivalents at Beginning of Period 584,564 698,333 --------- --------- Cash and Cash Equivalents at End of Period $ 550,027 $ 568,132 ========= ========= Supplemental Cash Flow Information: Interest Paid $ 656,738 $ 664,830 ========= =========

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