Note 2 - Investments in and Advances To Local Limited Partnerships

12 Months Ended

Dec. 31, 2013

Notes

Note 2 - Investments in and Advances To Local Limited Partnerships

NOTE 2 – INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS

As of December 31, 2013 and 2012, the Partnership holds limited partnership interests in one and four Local Limited Partnerships, respectively. As of December 31, 2013, the Local Limited Partnership owns a residential low income rental project consisting of 48 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies.

The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from most of the Local Limited Partnerships are restricted by the Local Limited Partnerships’ Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”) and/or are restricted by the terms of the mortgages encumbering the Projects. These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership.

The individual investments are carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. Operating distributions from the Local Limited Partnerships in which the Partnership’s investment in the Local Limited Partnerships has been reduced to zero were approximately $9,000 and $60,000 for the years ended December 31, 2013 and 2012, respectively.

At times, advances are made to the Local Limited Partnerships. Advances made by the Partnership to the individual Local Limited Partnerships are considered part of the Partnership’s investment in limited partnerships. Advances made to Local Limited Partnerships for which the investment has been reduced to zero are generally charged to expense.

While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made this advance in order to protect its economic investment in the Local Limited Partnership. There were no advances made during the years ended December 31, 2013 and 2012, respectively.

For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships.  Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.

The Partnership has no carrying value in investments in Local Limited Partnerships as of December 31, 2013 and 2012.

In June 2012, Landmark Associates sold its investment property for a gross sale price of $1,500,000. The Partnership received distributions of approximately $1,199,000, which were recognized as distributions in excess of investment in this Local Limited Partnership during the year ended December 31, 2012. The Partnership had no investment balance remaining in Landmark Associates as of December 31, 2012.

In December 2012, Alabama Properties sold its investment property for a gross sale price of approximately $59,000 and release of the investment property’s mortgage debt. The Partnership did not receive any proceeds from the sale.  The Partnership had no investment balance remaining in Alabama Properties as of December 31, 2012.

In October 2013, the Partnership sold its limited partnership interest in Magnolia Estates to an affiliate of the Local Operating General Partner. The Partnership received $16,500 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.

In October 2013, the Partnership sold its limited partnership interest in Crystal Springs to an affiliate of the Local Operating General Partner. The Partnership received $7,700 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.

In October 2013, the Partnership sold its limited partnership interest in Azalea Court to an affiliate of the Local Operating General Partner. The Partnership received $13,200 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.

The difference between the investment per the accompanying balance sheets at December 31, 2013 and 2012 and the partners’ deficiency per the Local Limited Partnerships' condensed combined financial statements is due primarily to cumulative unrecognized equity in losses of certain Local Limited Partnerships, costs capitalized to the investment account, cumulative distributions recognized as income and recognition of impairment losses.

Although the Partnership’s recorded value of its investments and its equity in distributions from the Local Limited Partnerships are not individually material to the overall financial position of the Partnership, the unaudited condensed combined balance sheets of the aforementioned Local Limited Partnerships as of December 31, 2013 and 2012, and the unaudited condensed combined results of operations for each of the two years in the periods ended December 31, 2013 and 2012 are as follows (2013 and 2012 exclude the operations of Magnolia Estates, Crystal Springs and Azalea Court as the Partnership sold its limited partnership interest in October 2013; 2012 amounts exclude the operations of Landmark Associates and Alabama Properties, which sold their investment properties in June 2012 and December 2012,respectively):

Condensed Combined Balance Sheets of the Local Limited                     Partnerships
	December 31,
	2013	2012
Assets:	(in thousands - unaudited)
Land	$ 103	$ 103
Buildings and improvements	2,105	2,097
Accumulated depreciation	(1,726)	(1,689)
Other assets	365	422
Total Assets	$ 847	$ 933
Liabilities and Partners’ Deficiency:
Liabilities:
Mortgage notes payable	$ 1,409	$ 1,481
Other liabilities	169	150
Total Liabilities	1,578	1,631
Partners’ Deficiency	(731)	(698)
Total Liabilities & Partners' Deficiency	$ 847	$ 933

Condensed Combined Results of Operations of the Local Limited Partnerships
	Year Ended December 31, 2013	Year Ended December 31, 2012
	(in thousands – unaudited)
Revenues
Rental income	$ 435	$ 435
Other income	5	5
Total revenues	440	440
Expenses
Depreciation and amortization	38	35
Interest	55	56
Operating	367	287
Total expenses	460	378
Income (loss) from continuing operations	$ (20)	$ 62

Real Estate and Accumulated Depreciation of Local Limited Partnerships

The following unaudited data is a summary of real estate, accumulated depreciation and encumbrances of the Local Limited Partnership. (in thousands-unaudited)

Description	Encumbrances	Land	Buildings And Related Personal Property	Total	Accumulated Depreciation	Date of Construction
Lakeside Apartments	$ 1,409	$ 103	$ 2,105	$ 2,208	$ 1,726	10/80-6/81

Reconciliation of real estate (unaudited)

	Years Ended December 31,
	2013	2012
	(in thousands)
Balance at beginning of year	$ 2,200	$ 2,127
Additions during the year	7	73
Disposal of property
Balance at end of year	$ 2,207	$ 2,200

Reconciliation of accumulated depreciation (unaudited)

	Years Ended December 31,
	2013	2012
	(in thousands)
Balance at beginning of year	$ 1,689	$ 1,655
Disposal of property	--	--
Depreciation expense for the year	37	34
Balance at end of year	$ 1,726	$ 1,689

The current policy of the United States Department of Housing and Urban Development (“HUD”) is to not renew the Housing Assistance Payment (“HAP”) Contracts on a long term basis on the existing terms.  In connection with renewals of the HAP Contracts under current law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may not be the case under existing HAP Contracts.  The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD (“FHA”) unless such mortgage loans are restructured.  In order to address the reduction in payments under HAP Contracts as a result of current policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (“MAHRAA”) provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program.  Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan.  This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.

When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA.  In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.