BPA II, LTD. (A FLORIDA LIMITED PARTNERSHIP) FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT YEARS ENDED DECEMBER 31, 2015 AND 2014

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1 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR S REPORT

2 TABLE OF CONTENTS Page Independent Auditor s Report 1-2 Financial Statements Balance sheets 3-4 Statements of Operations 5 Statements of Changes in Partners Equity (Deficit) 6 Statements of Cash Flows 7 Notes to Financial Statements 8-18 Accompanying information Schedules of Other Income and Operating Expenses 19-20

3 INDEPENDENT AUDITOR S REPORT To the Partners of BPA II, Ltd. (A Florida Limited Partnership) Report on the Financial Statements We have audited the accompanying financial statements of BPA II, Ltd., which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, changes in Partners' equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to BPA II, Ltd. s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of BPA II, Ltd. s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4 BPA II, Ltd. Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BPA II, Ltd. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The schedules of other income and operating expenses are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. March 4, 2016 Carmel, Indiana Dauby O Connor & Zaleski, LLC Certified Public Accountants 2

5 BALANCE SHEETS DECEMBER 31, 2015 AND 2014 ASSETS Property and equipment on leased land (Note 1) Buildings and improvements $ 13,700,445 $ 13,700,445 Furniture and fixtures 559, ,151 14,259,596 14,259,596 Less: Accumulated depreciation (1,871,101) (1,362,730) Total property and equipment on leased land 12,388,495 12,896,866 Cash 192, ,118 Accounts receivable - 1 Prepaid expenses 54,456 22,062 Resident security deposits 72,933 70,908 Real estate tax and insurance escrows (Note 4) 68,290 73,895 Reserve for replacements (Note 4) 87,031 51,010 Interest rate cap reserve (Note 4) 21,450 15,759 Principal reserve (Note 4) 195, ,504 Bond funds (Note 5) 16,253 16,942 Ground lease escrow (Note 7) 20 29,809 Utility deposits 11,371 11,371 Deferred financing costs, net of accumulated amortization of $77,102 in 2015 and $56,468 in 2014 (Note 3) 676, ,908 Interest rate cap, net of accumulated amortization of $26,308 in 2015 and $15,422 in 2014 (Note 4) 28,122 39,008 Deferred tax credit fees, net of accumulated amortization of $33,218 in 2015 and $24,197 in 2014 (Note 3) 102, ,123 Deferred cost of ground lease, net of accumulated amortization of $16,155 in 2015 and $12,724 in 2014 (Note 7) 323, ,957 $ 14,238,216 $ 14,644,241 See notes to financial statements 3

6 LIABILITIES AND PARTNERS' EQUITY (DEFICIT) BALANCE SHEETS (CONTINUED) DECEMBER 31, 2015 AND HFA mortgage payable (Note 4) $ 8,545,000 $ 8,545,000 HFA promissory note (Note 4) 675, ,104 Fair market value of interest rate SWAP (Note 4) 2,193,525 2,183,962 Deferred developer fee (Note 6) 2,515,380 2,515,380 Accounts payable and accrued expenses 27,061 33,766 Accrued management fees (Note 6) 1,098 1,405 Accrued interest - HFA mortgage payable (Note 4) 2,000 2,000 Due to affiliates (Note 6) 2,878,296 3,001,296 Prepaid revenue 23,804 26,288 Resident security deposits 72,433 70,850 Total liabilities 16,933,701 17,055,051 Partners' equity (deficit) (Notes 2 and 8) (2,695,485) (2,410,810) $ 14,238,216 $ 14,644,241 See notes to financial statements 4

7 STATEMENTS OF OPERATIONS Rental income Rental income - gross potential $ 1,670,101 $ 1,611,400 Less: vacancies (72,920) (37,029) Less: rental concessions (4,859) (10,093) Less: employee concessions - (8,998) Less: bad debts (6,388) (3,216) Total net rental income 1,585,934 1,552,064 Financial revenue Other income 82,485 62,580 Total income 1,668,471 1,614,700 Operating expenses Payroll, taxes, benefits, and related costs 92,417 93,125 Administrative 163, ,708 Utilities 104, ,412 Operating and maintenance 228, ,761 Taxes and insurance 157, ,036 Total operating expenses 747, ,042 Net operating income (loss) 921, ,658 Other (income) expenses Interest expense - HFA mortgage payable (Note 4) 361, ,608 Interest rate cap amortization (Note 4) 10,886 10,886 Entity (income) expenses 3,918 1,681 Ground lease expense (Note 7) 29,796 29,796 Bond credit enhancement and other financing fees 248, ,685 Total other (income) expenses 654, ,656 Net income (loss) before depreciation and amortization and unrealized gain (loss) 266, ,002 Depreciation 508, ,153 Amortization 33,086 33,087 Net income (loss) before unrealized gain (loss) (275,112) (317,238) Unrealized gain (loss) on SWAP (Note 4) (9,563) (345,863) Net income (loss) $ (284,675) $ (663,101) See notes to financial statements 5

8 STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) General Limited Partner Partner Total Partners' equity (deficit) January 1, 2014 $ (18,086) $ (1,729,623) $ (1,747,709) Net income (loss) 147 (663,248) (663,101) Partners' equity (deficit) December 31, 2014 (17,939) (2,392,871) (2,410,810) Net income (loss) (28) (284,647) (284,675) Partners' equity (deficit) December 31, 2015 $ (17,967) $ (2,677,518) $ (2,695,485) Percentages 0.01% 99.99% % See notes to financial statements 6

9 STATEMENTS OF CASH FLOWS Cash flow from operating activities Net income (loss) $ (284,675) $ (663,101) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities for: Depreciation 508, ,153 Amortization 33,086 33,087 Interest rate cap amortization 10,886 10,886 Unrealized (gain) loss on SWAP 9, ,863 Change in assets: Accounts receivable 1 23 Prepaid expenses (32,394) 956 Resident security deposits (2,025) (4,829) Change in liabilities: Accounts payable and accrued expenses (6,705) 1,431 Accrued management fees (307) 695 Prepaid revenue (2,484) (11,006) Resident security deposits 1,583 5,271 Total adjustments 519, ,530 Net cash provided by (used in) operating activities 234, ,429 Cash flow from investing activities Net change in real estate tax and insurance escrows 35,394 (32,458) Net change in reserve for replacements (36,021) (36,009) Net change in interest rate cap reserve (5,691) (10,260) Net change in principal reserve (84,356) (79,654) Net change in bond funds 689 (4,350) Net cash provided by (used in) investing activities (89,985) (162,731) Cash flow from financing activities Repayment of affiliate advances (123,000) - Net cash provided by (used in) financing activities (123,000) - Net change in cash 21,915 64,698 Cash at beginning of year 170, ,420 Cash at end of year $ 192,033 $ 170,118 Supplemental disclosure of cash flow information Cash paid for interest $ 361,686 $ 355,608 See notes to financial statements 7

10 NOTES TO FINANCIAL STATEMENTS NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION BPA II, Ltd. (the Partnership ) was formed as a limited partnership under the laws of the State of Florida on February 10, 2009 for the purpose of developing, owning and operating a low-income rental housing community. The Property, known as Bayside Court Apartments, consists of 144 apartment units located in Clearwater, Florida (the Property ). There are 58 low income housing tax credit units ("Low Income Units") and 86 market rate units. The Partnership commenced rental operations in April The Partnership will continue in operations until December 31, 2069 unless dissolved earlier in accordance with the Partnership Agreement. The Property s Low Income Units qualify for low-income housing credits pursuant to Internal Revenue Code Section 42 ( Section 42 ) which regulates the use of the Low Income Units as to occupant eligibility and unit gross rent, among other requirements. The Low Income Units must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the credits. In addition, the Partnership has executed a land use restriction agreement with the Housing Finance Authority of Pinellas County ( HFA ), which governs the utilization of the Low Income Units until the later of the date 40 years after 50% of the units are first occupied or the date the HFA promissory note (Note 4) is repaid. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation of the financial statements The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Cash and cash equivalents For the statements of cash flow, all unrestricted investments with original maturities of three months or less are considered cash. As of December 31, 2015 and 2014, cash consists of an operating checking account, savings account, and a petty cash account. Resident receivable and bad debt policy Resident rent charges for the current month are due on the first of the month. Residents who are evicted or move-out are charged with damages and/or cleaning fees, if applicable. Resident receivables consist of amounts due for rental income, security deposit and the charges for damages and/or cleaning fees. The Partnership does not accrue interest on the resident receivable balances. Resident receivables are charged to bad debt expense when they are determined to be uncollectible based upon a monthly review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not material to the financial statements for the years ended December 31, 2015 and Bad debts expensed for the years ended December 31, 2015 and 2014 totaled $6,388 and $3,216, respectively. 8

11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Rental property Rental property is carried at cost. Depreciation is computed on the straight-line method with service lives of five to forty years. Deductions are made for retirements resulting from renewals or betterments. The cost of maintenance and repairs is charged to income as incurred. Significant renewals and betterments are capitalized. The Partnership is subject to the provisions of the Impairment or Disposal of Long-Lived Assets topic of the FASB Accounting Standards Codification ("ASC") Impairment or Disposal of Long-Lived Assets has no retroactive impact on the Partnership s financial statements. The standard requires impairment losses to be recorded on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets (excluding interest) are less than the carrying amount of the assets. In such cases, the carrying value of assets to be held and used are adjusted to their estimated fair value and assets held for sale are adjusted to their estimated fair value less selling expenses. No impairment losses were recognized during the years ended December 31, 2015 and Land lease The Partnership accounts for the land lease as an operating lease, see Note 7. Deferred costs Financing costs, tax credit monitoring fees, ground lease costs, and the interest rate cap costs incurred by the Partnership are amortized over their respective useful lives. See Notes 3, 4 and 7. Derivatives The Partnership accounts for the interest rate swap (the Swap or Swap Agreement ) as a free standing derivative as allowed under the applicable accounting standard to appropriately reflect the prospective intentions of holding the Swap. The fair value of the Swap is reported on the Partnership s balance sheets. Changes in fair value are included in unrealized gain (loss) on Swap in the Partnership s statements of operations. The valuation technique is classified as Level 3 (see below) under the fair value measurements fair value hierarchy. 9

12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair value The Partnership is subject to the provisions of the Fair Value Measurement topic of the FASB ASC (the "Codification") which provides guidance for assets and liabilities which are required to be measured at fair value and requires expanded disclosure for fair value measurement. The Codification clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing the asset or liability and establishes the following fair value hierarchy: Level 1 - Inputs utilize quoted prices in active markets for identical assets or liabilities that the Partnership has the ability to access; Level 2 - Inputs may include quoted prices for similar assets or liabilities in active markets; and Level 3 - Unobservable inputs for the asset or liability based on the best available information For instances in which the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the fair value measurement will fall within the lowest level input that is significant to the fair value measurement in its entirety. Rental income Rental income is recognized for residential units as they accrue. Advance receipts of rental income will be deferred until earned. All leases between the Partnership and residents of the property are operating leases. Advertising costs Advertising costs are expensed as incurred and are included in administrative expense in the statements of operations. Property taxes Property taxes are expensed in the year of the lien on the property such that twelve months of expense are charged to operations each year. Payroll and benefits All site personnel of the Property are employees of Richman Property Services, Inc., the Management Agent, an affiliate of the General Partner and the Limited Partner. All payroll and related expenses are recorded and paid by Richman Property Services, Inc. The Partnership reimburses Richman Property Services, Inc. for these expenses throughout the year as incurred. The reimbursed payroll and related expenses are included as payroll and benefits on the accompanying statements of operations. 10

13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 1-ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Concentration of credit risk The Partnership deposits its cash in financial institutions. At times, deposits may exceed federally insured limits. The Partnership has not experienced any losses in such accounts. The Partnership s operations are concentrated in the multifamily real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies. Such administrative directives, rules and regulations are subject to change by an act of Congress. Such changes may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, if any, to comply with a change. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounting for uncertainty in income taxes The Partnership is treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership's federal tax status as a pass-through entity is based on its legal status as a limited partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which it must consider for disclosure. There has been no interest or penalties recognized in the statements of operations or balance sheets for the years ended December 31, 2015 and Generally, the federal and state returns are subject to examination for three years after the later of the original or extended due date or the date filed with the applicable tax authority. Subsequent events Management performed an evaluation of the Partnership s activity through March 4, 2016, the audit report date, and has concluded that there are no significant subsequent events requiring disclosure through the date these financial statements were available to be issued. 11

14 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 2-CAPITAL CONTRIBUTIONS The Partnership has one General Partner, BPA II GP, LLC which has a 0.01% interest and is responsible for a capital contribution of $100, all of which has been received. The Partnership has one Limited Partner, Florida Tax Credit Investors, LLC, which has a 99.99% interest and is responsible for capital contributions totaling $1,670,705, all of which has been received. The General Partner and Limited Partner are affiliates. NOTE 3 DEFERRED COSTS Financing costs and letter of credit fees in the amount of $753,376 incurred in connection with the acquisition of the permanent loans and permanent phase letter of credit were capitalized and are being amortized over their respective lives. Generally accepted accounting principles require that the effective yield method be used to amortize financing costs; however, the effect of using the straight-line method is not material to the financial statements for the years ended December 31, 2015 and Amortization expense for the years ended December 31, 2015 and 2014 is $20,634 and $20,635, respectively. Accumulated amortization at December 31, 2015 and 2014 is $77,102 and $56,468, respectively. Tax credit monitoring fees in the amount of $135,320 were incurred and are being amortized on the straight-line basis over the term of the tax credit compliance period. Amortization expense for the years ended December 31, 2015 and 2014 totaled $9,021. Accumulated amortization at December 31, 2015 and 2014 is $33,218 and $24,197, respectively. Estimated amortization expense for each of the next five years and thereafter is as follows: Tax Credit Financing Monitoring Costs Fees Total 2016 $ 20,634 $ 9,021 $ 29, ,634 9,021 29, ,634 9,021 29, ,634 9,021 29, ,634 9,021 29,655 Thereafter 573,104 56, ,101 $ 676,274 $ 102,102 $ 778,376 12

15 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4-FINANCING The Partnership s mortgages payable at December 31, 2015 and 2014 are as follows: HFA mortgage payable The Partnership is obligated under the terms of a loan with the Housing Finance Authority of Pinellas County ( HFA ) in the original amount of $10,250,000. The HFA mortgage was funded on April 1, 2011 with proceeds from the issuance of $10,250,000 Housing Finance Authority of Pinellas County, Florida, Multifamily Housing Revenue Bonds, Series 2011 (Bayside Court) (the Bonds ) with credit enhancement provided by Freddie Mac. The mortgage is secured by real property and matures on October 1, The HFA loan currently bears interest at a weekly variable rate (0.03% at December 31, 2015). As a condition to conversion on August 1, 2013, the Partnership paid $1,705,000 of the outstanding Bonds and commenced monthly payments of principal and certain fees based on a 35 year amortization. All payments of principal will be held in a principal reserve escrow, with payments made to the bondholders in accordance with the Freddie Mac repayment agreement. At December 31, 2015 and 2014, the principal reserve balance totaled $195,860 and $111,504, respectively. The Partnership will pay all unpaid principal and accrued interest on October 1, Prepayment of the HFA loan is permitted under the terms of the loan agreement. As of December 31, 2015 and 2014, the outstanding principal is $8,545,000. The credit enhancement during the Permanent Phase is provided by Freddie Mac equal to the outstanding bonds plus accrued interest as provided by the credit documents. The fee for this credit enhancement is 0.83% of the letter of credit amount per annum. The letter of credit expires on August 6, 2048, unless terminated sooner in accordance with the agreement. The Partnership is required to make monthly escrow deposits for real estate taxes and property insurance. At December 31, 2015 and 2014, the balance in this account is $68,290 and $73,895, respectively. The Partnership is required to make monthly escrow deposits for replacement of the Property s assets in the amount of $3,000 per month. At December 31, 2015 and 2014, the balance in this account is $87,031 and $51,010, respectively. The HFA loan agreement requires the 58 Low Income Units to be rented to qualifying low-income residents in accordance with Section 42(d) of the Internal Revenue Code of 1986, as amended. The restrictions are evidenced by a Land Use Restriction Agreement which remains in effect until the end of the Qualified Project Period as defined in the agreement. 13

16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4-FINANCING (CONTINUED) Financial instruments The Partnership entered into the Swap Agreement as of April 12, 2011 with an affiliate of the General Partner ("the Swap Provider") to limit the potential impact of adverse changes in interest rate. The Partnership has agreed to pay the Swap Provider a fixed rate of 4.2% per annum exclusive of any fees, add-ons, or other trustee or bank charges while the Swap Provider has agreed to make the Partnership's required monthly mortgage payment. In the event the floating rate is greater than the fixed rate, the affiliate will reimburse the Partnership for the difference less the Cap Amortization amount as set forth in the agreement. The notional amount of the Swap Agreement is equal to the outstanding amount of the HFA mortgage. The Swap Agreement expires upon payment in full of the HFA mortgage. At any time following the expiration of the tax credit compliance agreement, the Swap Provider shall have the right to terminate the Swap Agreement by sending written notice to the Partnership of such termination together with a fee to the Partnership in the amount equal to 1% of the outstanding principal amount of the HFA mortgage on the date such notice is given. Interest incurred during the years ended December 31, 2015 and 2014 was $361,686 and $355,608, respectively. The Partnership made interest payments of $361,686 and $355,608 in connection with the Swap Agreement for the years ended December 31, 2015 and 2014, of which $356,268 and $354,016 was paid directly to the Swap Provider, all respectively. The balance was paid to HFA. At December 31, 2015 and 2014, accrued interest is $2,000. Valued separately, the interest rate swap agreement represented a liability as of December 31, 2015 and 2014 in the amount of $2,193,525 and $2,183,962, respectively. This value represents the fair value of the projected difference between interest paid and received by the Swap Provider under the Swap Agreement over the remaining term of the agreement. Changes in fair value are included in unrealized loss on Swap in the Partnership's statements of operations. The Partnership has entered into an interest rate cap agreement ( Rate Cap ) as of July 24, 2013 as required by the Freddie Mac. The Rate Cap was purchased for $54,430 and is being amortized over its useful life using the straight-line method. Pursuant to the Rate Cap, the maximum interest rate on the bonds is 5%. The Rate Cap expires on August 1, Amortization expense for the years ended December 31, 2015 and 2014 related to the Rate Cap totaled $10,886. Accumulated amortization at December 31, 2015 and 2014 is $26,308 and $15,422, respectively. The Partnership is funding an escrow to purchase another Rate Cap in The balance in the interest rate cap reserve at December 31, 2015 and 2014 is $21,450 and $15,759, respectively. Amortization expense for the remaining term of the interest rate cap is as follows: 2016 $ 10, , ,350 $ 28,122 14

17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 4-FINANCING (CONTINUED) HFA promissory note The Partnership is obligated under the terms of a promissory note with the HFA in the amount of $675,104. The loan is collateralized by a second mortgage on the property. The loan is noninterest bearing and matures on April 1, 2051, at which time all principal is due. As of December 31, 2015 and 2014, the principal balance is $675,104. NOTE 5-FUNDS HELD BY TRUSTEE In connection with the HFA mortgage and the indenture of trust, the Partnership proceeds of the Bonds were held on deposit with US Bank, National Association (the Trustee ). Amounts in these funds are restricted as to their use. As of December 31, 2015 and 2014, there is a balance of $16,253 and $16,942 in the bond trustee funds, respectively. NOTE 6-RELATED PARTIES Management fee The Partnership entered into an agreement with Richman Property Services, Inc., (the "Management Agent" or RPS ), an affiliate of the General Partner and Limited Partner, in connection with the management of the rental operations of the Property. In accordance with the agreement, the Management Agent earns a fee equal to 4% of gross receipts as defined in the agreement. In addition, 1% of gross receipts will be considered a bonus fee subordinated to any outstanding debt service payments and payable if there is excess available cash flow. For the years ended December 31, 2015 and 2014, the Management Agent earned $82,899 and $79,734, respectively. At December 31, 2015 and 2014, $1,098 and $1,405 remains payable, respectively. During the years ended December 31, 2015 and 2014, the Partnership reimbursed the Management Agent $18,000 and $18,856, respectively, for certain marketing, training, maintenance, information technology, and compliance related compensation and travel expenses. Insurance The Partnership is subject to a $100,000 deductible under its master insurance program. In order to reduce the Partnership s risk of loss associated with this deductible, in 2013 the Partnership paid a fee to Richman Property Services, Inc. ( RPS ) and RPS assumed the Partnership s risk of loss with respect to liability and casualty claims of between $10,000 and the $100,000 deductible limit. 15

18 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6-RELATED PARTIES (CONTINUED) Insurance (continued) On December 31, 2013, an affiliate of the General Partner, Richman Self Insurance, Inc., was organized and registered as a Delaware-licensed captive self-insurance corporation ( RSII ) pursuant to Section 831 (b) of the Internal Revenue Code. On or about April 25, 2014 the Partnership entered into an agreement with RSII to cover the same deductible buy-down coverage utilizing the same coverage parameters as the prior agreement with RPS for covered claims occurring on or after April 25, The insurance premium charged under this policy is regulated by the State of Delaware and independently determined by a state-approved actuarial firm. During the years ended December 31, 2015 and 2014, the Partnership paid $11,206 and $9,716, respectively, to the affiliates discussed above. In a separate transaction which did not involve the Partnership, on December 31, 2013, RPS paid RSII an insurance premium determined by an independent actuary and RSII assumed certain loss exposure of RPS with respect to claims arising from events after December 31, 2013 through the date of the new policy on April 24, Operating deficit obligation Pursuant to the Partnership Agreement, the General Partner is required to fund any operating deficits through the period ending December 31, 2018, the year in which the fifth year anniversary of the Property achieving breakeven operations occurs, to advance funds to cover operating deficits in the maximum amount of $500,000. Operating deficit obligations will bear interest at the prime rate (as announced by Wall Street Journal) plus 2%, and are repayable from net cash flow as defined in the Partnership Agreement. As of December 31, 2015 and 2014, no advances have been required. Development fee The Partnership is obligated under the terms of the Development Agreement with an affiliate of the General Partner and Limited Partner in the amount of $2,518,349 for their services in connection with the development and rehabilitation of the Property. In accordance with the Development Agreement, the development fee has been reduced to $2,515,380, the maximum amount allowed by the Florida Housing Finance Corporation. The entire amount has been earned and capitalized into property and equipment. The liability for this fee is non-interest bearing. Under the terms of the agreement the fee is payable from capital contributions, mortgage loan proceeds or net cash flow, as set forth in the Partnership Agreement. At December 31, 2015 and 2014, $2,515,380 remains payable. 16

19 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 6-RELATED PARTIES (CONTINUED) Due to affiliates The Partnership received advances from affiliates of $3,010,296 in prior years. The advances bear no interest and have no specified repayment terms. During the years ended December 31, 2015 and 2014, the Partnership repaid advances of $123,000 and $-0-, respectively. At December 31, 2015 and 2014, advances of $2,878,296 and $3,001,296 remain payable to affiliates, respectively. NOTE 7-GROUND LEASE The Partnership has entered into a Ground Lease as of April 12, 2011 with the Pinellas Community Housing Foundation, Inc. ( PCHF ). The Partnership agreed to designate PCHF as title holder of the land at the closing of the purchase of the property. PCHF agreed to enter into the Ground Lease with the Partnership in exchange for the land. The initial term of the Ground Lease is for 99 years, with one option to extend the lease for an additional 99 years. The Property shall pay to PCHF an annual fee of $29,800 commencing January 1, 2014, subject to an increase based on the Consumer Price Index every third year with a maximum 6% increase. The lease imposes certain restrictions on the Partnership with respect to obtaining additional mortgage debt. During the years ended December 31, 2015 and 2014, the Partnership incurred $29,796 related to the ground lease annual fee. The Partnership is making monthly escrow deposits for payment of the annual fee. At December 31, 2015 and 2014, the balance in this account is $20 and $29,809, respectively. The 2016 ground lease payment was made during the year ended December 31, 2015 and at December 31, 2015 $29,800 was prepaid and included in prepaid expenses on the balance sheet. Costs in the amount of $339,681 incurred in connection with the acquisition of the ground lease were capitalized and will be amortized over the term of the lease. Amortization expense for the years ended December 31, 2015 and 2014 totaled $3,431. Accumulated amortization at December 31, 2015 and 2014 is $16,155 and $12,724, respectively. Estimated amortization expense for each of the next five years and thereafter is as follows: 2016 $ 3, , , , ,431 Thereafter 306,371 $ 323,526 17

20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 8-PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS All profits, losses and credits other than from sales, refinancing or other dispositions are allocated pro-rata to the Partners, in accordance with Partnership interests. Net Cash Flow, as defined in the Partnership Agreement and the loan documents, subject to certain restrictions outlined in the Partnership Agreement, is to be distributed as follows: 1. To pay the minimum annual developer fee payment; 2. To reimburse all outstanding affiliate loans and General Partner loans, plus accrued interest; 3. To the repayment of any operating deficit loans; 4. To the payment of any outstanding deferred developer fee until paid in full; and 5. The balance, if any, 25% to the Limited Partner as a return of equity and 75% to pay interest on the city loan. Profits, losses, and cash flow from sales, refinancing or other dispositions are allocated in accordance with the Partnership Agreement. NOTE 9-VERIZON CONTRACT The Partnership entered into an agreement with Verizon Services Corp. ("Verizon") effective January 24, 2012 allowing Verizon to provide certain communications services to residents. The contract is for a period of 10 years, with successive 1 year renewal options. The Partnership is entitled to a revenue share of gross collected revenues on certain services, as defined in the agreement. During the years ended December 31, 2015 and 2014, the Partnership earned $11,908 and $9,083, respectively. NOTE 10-COMMITMENTS AND CONTINGENCIES The Property s low-income housing tax credits are contingent on its ability to maintain compliance with applicable sections of IRC Section 42. Failure to maintain compliance with occupant eligibility and/or unit gross rent, or to correct noncompliance within a specified time period could result in recapture of previously taken tax credits plus interest. 18

21 ACCOMPANYING INFORMATION SCHEDULES OF OTHER INCOME AND OPERATING EXPENSES Other income Laundry and vending $ 2,287 $ 2,530 Late charges and damages 51,304 30,143 Cable television revenue 11,908 9,083 Application fees 13,153 10,420 Miscellaneous other income 3,833 10,404 Total other income $ 82,485 $ 62,580 Payroll, taxes, benefits, and related costs Office salaries $ 39,244 $ 31,235 Leasing salaries 21,594 29,041 Payroll taxes 9,361 10,349 Workers compensation insurance 4,776 4,612 Health insurance and benefits 15,909 17,343 Other payroll, taxes, benefits, and related costs 1, Total payroll, taxes, benefits, and related costs $ 92,417 $ 93,125 Administrative Advertising $ 24,212 $ 50,306 Management fees (Note 6) 82,899 79,734 Legal expense 2,681 5,551 Office expenses 4,912 4,746 Licenses, fees, and permits 3,153 2,075 Audit expense 8,880 8,670 Telephone 7,058 6,984 Renting expenses 5,345 7,530 Computer expenses 16,314 8,223 Miscellaneous administrative 8,354 8,889 Total administrative $ 163,808 $ 182,708 Utilities Electricity $ 30,054 $ 28,982 Water and sewer 74,706 80,430 Total utilities $ 104,760 $ 109,412 19

22 ACCOMPANYING INFORMATION (CONTINUED) SCHEDULES OF OTHER INCOME AND OPERATING EXPENSES (CONTINUED) Operating and maintenance Supplies $ 25,156 $ 19,706 Maintenance contracts 43,443 38,701 Maintenance salaries 53,842 57,348 Garbage and trash removal 17,306 18,327 Security payroll/contract 34,304 28,578 Appliances 4,053 1,341 Grounds 24,561 22,045 Flooring 18,883 10,022 Exterminating 4,548 7,698 Miscellaneous operating and maintenance 2,365 3,995 Total operating and maintenance $ 228,461 $ 207,761 Taxes and insurance Property and liability insurance $ 56,750 $ 57,117 Real estate taxes 101,063 93,919 Total taxes and insurance $ 157,813 $ 151,036 20