PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO FINANCIAL STATEMENTS, SUPPLEMENTAL

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1 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO FINANCIAL STATEMENTS, SUPPLEMENTAL INFORMATION AND INDEPENDENT AUDITOR S REPORT DECEMBER 31, 2010 AND 2009

2 President John Adams Manor Apartments, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO TABLE OF CONTENTS Independent Auditor s Report 1 Financial Statements: Page Balance Sheets 2 Statements of Operations 3 Statements of Changes in Partners Capital (Deficit) 4 Statements of Cash Flows 5-6 Notes to Financial Statements 7-14 Supplemental Information Schedules of Distributable Cash Schedule I 16 Supplemental Data Required by HUD Independent Auditor s Report on Internal Control Combined Report Applicable to Internal Control Over Financial Reporting Based on an Audit of Financial Statements and Internal Control Over Compliance for HUD-Assisted Programs Independent Auditor s Report on Compliance with Specific Requirements Applicable to Major HUD Program Transactions 39 Independent Auditor s Report on Compliance with Specific Requirements Applicable to Fair Housing and Non-Discrimination 40 Schedule of Findings and Questioned Costs 41 Corrective Action Plan Prior Year 42 Independent Auditor s Information Required by HUD 43 Mortgagor s Certification 44 Managing Agent s Certification 45

3 Independent Auditor s Report To the Partners of: President John Adams Manor Apartments, L.P. We have audited the accompanying balance sheets of President John Adams Manor Apartments, L.P. as of December 31, 2010 and 2009, and the related statements of operations, changes in partners capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 President John Adams Manor Apartments, L.P. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated May 2, 2011, on our consideration of President John Adams Manor Apartments, L.P. s internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated May 2, 2011, on President John Adams Manor Apartments, L.P. s compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information shown on pages is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Westlake Village, California May 2, Cloverfield Boulevard, Suite 300 South, Santa Monica, CA E. Thousand Oaks Blvd., Suite 100, Westlake Village, CA Oceangate, Suite 800, Long Beach, CA East Colorado Boulevard, 6 th Floor, Pasadena, CA Von Karman, Suite 200, Irvine, CA Ventura Boulevard, Suite 1700, Encino, CA 91436

4 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO BALANCE SHEETS DECEMBER 31, 2010 AND 2009 Assets Property, at cost Land $ 2,046,020 $ 2,046,020 Land improvements 1,535,134 1,406,956 Buildings and improvements 8,435,024 8,347,657 Furniture and equipment 624, ,701 12,641,163 12,408,334 Less: accumulated depreciation (3,682,120) (3,346,427) Total rental property 8,959,043 9,061,907 Cash 398,383 31,846 Tenant receivables, net of allowances of $10,293 for 2010 and 2009, 10,778 5,963 respectively Utility deposits 21,291 20,367 Prepaid expenses 68,752 63,970 Restricted cash: Tenant security deposits 194, ,132 Community center fund - 154,124 Reserve/escrow accounts 571, ,456 Deferred costs 467, ,478 Total assets $ 10,692,118 $ 10,560,243 Liabilities and Partners' Capital Liabilities Bonds payable $ 8,649,287 $ 8,821,254 Bond premium, net of accumulated amortization of $92,089 and $85,224 for 2010 and 2009, respectively 93, ,763 Accrued interest payable 42,719 44,262 Accounts payable and accrued expenses 75,496 77,178 Partnership Management Fee payable 218, ,188 LP Asset Management Fee payable 436, ,376 GP Resident Relations payable 236, ,200 Prepaid rent 10,781 10,260 Tenant security deposits 194, ,500 Total liabilities 9,957,479 9,885,981 Commitments and contingencies (Notes 1, 3, 4, 5, 6 and 7) Partners' capital 734, ,262 Total liabilities and partners' capital $ 10,692,118 $ 10,560,243 See notes to financial statements. 2

5 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND Rental revenue Tenant rents - residential $ 2,262,105 $ 2,181,934 Tenant rents - subsidies 672, ,892 Less: vacancy loss (128,232) (179,227) Net residential rental revenue 2,806,008 2,716,599 Laundry and vending 21,840 25,476 Miscellaneous tenant charges 34,872 49,276 Miscellaneous revenue 25,121 12,235 Total rental revenue 2,887,841 2,803,586 Operating expenses Administrative 463, ,551 Marketing and leasing 37,840 42,050 Utilities 374, ,707 Operating and maintenance 749, ,048 Taxes and insurance 142, ,221 Total operating expenses 1,769,208 1,919,577 Operating income 1,118, ,009 Other income (expense) Interest expense (523,054) (534,588) Mortgage insurance (40,065) (44,565) Bond premium amortization 6,865 7,000 Bond issue expense (21,114) (22,128) Depreciation (335,693) (326,627) Amortization (26,616) (26,616) Partnership management fee (40,026) (38,487) LP asset management fee (80,052) (76,973) State income taxes (800) (800) Interest income 2,299 2,522 Total other expenses (1,058,256) (1,061,262) Net income (loss) $ 60,377 $ (177,253) See notes to financial statements. 3

6 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 General Limited Partner Partner Total Balance, December 31, 2008 $ 56,544 $ 794,971 $ 851,515 Net loss (177) (177,076) (177,253) Balance, December 31, , , ,262 Net income 60 60,317 60,377 Balance, December 31, 2010 $ 56,427 $ 678,212 $ 734,639 See notes to financial statements. 4

7 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) Cash flows from operating activities: Receipts: Rental $ 2,745,098 $ 2,622,233 Interest 2,299 2,522 Other 81, ,217 Total receipts 2,829,230 2,746,972 Disbursements: Administrative 137, ,105 Management fees 125, ,741 Utilities 384, ,707 Salaries and wages 347, ,936 Operating and maintenance 533, ,112 Real estate taxes ,493 Property insurance 69,886 63,473 Miscellaneous taxes and insurance 4,530 8,518 Interest and fees on mortgages 545, ,716 Tenant security deposits (4,632) 4,632 Mortgage insurance premium 40,065 44,565 Total disbursements 2,183,724 2,337,998 Net cash provided by operating activities 645, ,974 Cash flows from investing activities: HUD PROJECT NO STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 Net withdrawals from reserve/escrow accounts 125,827 10,401 Expenditures for property (232,829) (316,225) Net cash used in investing activities. (107,002) (305,824) Cash flows from financing activities: Repayment of mortgage (171,967) (161,977) Refund of advance to MAAC Project - 62,324 Net cash used in financing activities (171,967) (99,653) Net change in cash 366,537 3,497 Cash at beginning of year 31,846 28,349 Cash at end of year $ 398,383 $ 31,846 See notes to financial statements. 5

8 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 Reconciliation of net loss to net cash provided by operating activities: Net income (loss) $ 60,377 $ (177,253) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 335, ,627 Amortization 26,616 26,616 Bond premium amortization (6,865) (7,000) Changes in operating assets and liabilities: Tenant security deposits (10,124) (26,506) Tenant receivables (4,815) 12,057 Utility deposits (924) 224 Insurance receivable - 35,230 Prepaid expenses (4,782) 2,236 Accounts payable and accrued expenses (1,682) - Due to general partner 118,200 92,093 Accrued interest payable (1,543) - Due to partners 120, ,459 Prepaid rent 521 (12,683) Tenant security deposit liability 14,756 21,874 Net cash provided by operating activities $ 645,506 $ 408,974 See notes to financial statements. 6

9 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization President John Adams Manor Apartments, L.P. (the Partnership) is a California limited partnership, which was formed April 14, 1998 and subsequently amended on August 11, 1998 and September 21, The General Partner is PJAM Inc., a California nonprofit corporation. The original limited partner was Edison Capital Housing Investments. On May 31, 1999, Edison Capital Housing Investments VIII replaced Edison Capital Housing Investments as the limited partner (the Limited Partner). The Partnership owns and manages 300-units in 38 residential buildings in the City of San Diego, California, consisting of affordable rental housing (the Project). The Partnership commenced rehabilitation of the Project in 1998 and completed the rehabilitation in The Partnership has entered into regulatory agreements, which govern the ownership, maximum rental rates, occupancy, management, maintenance and operations of the residential buildings. The Partnership Agreement, as amended, has various provisions which determine, among other things, allocations of profits, losses, distributions to partner, the ability to sell or refinance the Project, loans and guarantees, the rights and duties of the General Partner and other Partnership matters. Allocation of Profits and Losses The Partnership s allocation of profits and losses is as follows: Method of Accounting General Partner 0.1% Limited Partner 99.9% The Partnership s financial statements are presented in accordance with accounting principles generally accepted in the United States of America. The accrual method of accounting is used which reflects revenue when earned and expenses as incurred. Residential vacancies are shown separately as a reduction in residential rental revenue. Allowable Distributions to Partners Under the regulatory agreement for Section 211(d)(4) projects, distributions to partners from funds provided by rental operations are allowed, provided: 1) Surplus Cash, as defined by the U.S. Department of Housing and Urban Development (HUD) is available for such purposes, 2) the Project is in compliance with all outstanding notices of requirements for property maintenance, and 3) there is no default under the regulatory agreement or the mortgage note. 7

10 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Allowable Distributions to Partners (Continued) In accordance with the Partnership Agreement, distributions to the partners of certain fees are based on the Partnership generating Excess Cash, as defined. Excess Cash is distributed (see Schedule I) in the following priorities: a) Deferred Developer Fee b) Operating Reserve c) LP Asset Management Fee d) Partnership Management Fee e) Incentive Partnership Management Fee f) Repayment of loans made by partners. g) Remaining cash distributed to the partners in accordance with their ownership interests. Property Property is stated at cost. Depreciation expense is provided primarily using the straight-line method over the following estimated useful lives: Description Buildings and improvements Land improvements Furniture and equipment Life 40 years 20 years 12 years The Partnership capitalizes expenditures or betterments that materially increase asset lives and charges ordinary repairs and maintenance to operations as incurred. When assets are sold or otherwise disposed of, the costs and related reserves are removed from the accounts and any resulting gain or loss is included in operations. Impairment losses are 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 in 2010 and Deferred Costs Deferred costs consist of financing costs. Financing costs are amortized over the life of the loan. Bond Premium The Partnership received a $10,180,300 mortgage from GMAC Commercial Mortgage Corporation (GMAC). In connection with the GMAC mortgage, $9,180,000 of bonds were issued by the Housing Authority of the City of San Diego at a premium of $185,987, which is amortized over the life of the bonds using the effective interest method (See Note 4). 8

11 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Rental Subsidies Certain tenants of the Project receive rental assistance from the Housing Authority of the City of San Diego and the amounts of the subsidies vary depending on the income of the tenant. HUD subsidies of $672,135 and $713,892 were received by the Project in 2010 and 2009, respectively. Rental Increases The Project is prohibited from making rental increases without HUD approval. During 2009, tenant rents were increased with the approval of HUD. Statements of Cash Flows For purposes of the statements of cash flows, the Partnership considers all highly liquid unrestricted investments with an original maturity of three months or less to be cash equivalents. Reserve/Escrow Accounts Concurrent with the Limited Partner s final contribution, as defined, the Partnership is required to establish and fund on a monthly basis an operating reserve (the Operating Reserve). The initial deposit into the Operating Reserve shall be $170,700 plus a minimum monthly deposit of $471 until the Operating Reserve balance is equal to $500,000. In addition, the Partnership established a replacement reserve in the amount of $120,000 plus monthly deposits of $6,269. The General Partner has agreed to make annual payments in the amount of $60,000 into a Community Center reserve account dedicated to the development of a new community center. The fund was established during During 2010, the partners agreed to transfer this reserve to operating cash. A summary of the reserve activity for the year ended December 31, 2010 and 2009 is as follows: January 1, December 31, 2010 Additions Interest Withdrawals 2010 Replacement reserve $ 258,751 $ 75,227 $ 437 $ (56,185) $ 278,230 Operating reserve 234,699 5, ,185 Community center fund 154, (154,498) - Tax escrow 416 3,584 - (2,559) 1,441 Insurance escrow 41,325 66,834 - (65,440) 42,719 FHA/MIP escrow 8,265 44,271 - (44,358) 8,178 $ 697,580 $ 195,568 $ 1,645 $ (323,040) $ 571,753 9

12 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Reserve/Escrow Accounts (Continued) January 1, December 31, 2009 Additions Interest Withdrawals 2009 Replacement reserve $ 341,560 $ 76,493 $ 609 $ (159,911) $ 258,751 Operating reserve 228,592 5, (93) 234,699 Community center fund 91,560 62, ,124 Tax escrow 1,009 2,125 - (2,718) 416 Insurance escrow 36,914 68, (64,038) 41,325 FHA/MIP escrow 8,346 45,071 - (45,152) 8,265 $ 707,981 $ 260,111 $ 1,400 $ (271,912) $ 697,580 Concentration of Credit Risk The Partnership s cash and cash equivalents are maintained in various banks. The Partnership has exposure to credit risk to the extent that its cash and cash equivalents exceed amounts covered by federal deposit insurance. The Partnership believes that its credit risk is not significant. Concentration of Business Risk The Partnership s sole asset is the Project. The Partnership rents to people with qualifying levels of income who work primarily in San Diego. The Partnership is subject to business risks associated with the economy and level of unemployment in San Diego, which affects occupancy as well as the tenants ability to make rental payments. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of congress or an administrative change mandated by HUD and may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Estimates 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, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates. 10

13 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Property Management Fees Pursuant to the Property Management Agreement, dated May 19, 2009, Solari Enterprises Inc. (the Property Manager) is entitled to a monthly property management fee equal to 4.5% of Gross Collections, as defined. In addition, the Property Manager shall receive $250 per on-site employee, annually. In 2010 and 2009, the Property Manager charged property management fees of $125,373 and $72,240, respectively. As of December 31, 2010 and 2009, $10,562 and $10,686, respectively, of property management fees remain unpaid. Reclassifications Certain 2009 financial statement amounts have been reclassified to conform to the 2010 financial statements classifications. NOTE 2. DEFERRED COSTS The costs incurred to obtain financing have been capitalized and consist of the following: Financing costs $ 931,553 $ 931,553 Less: accumulated amortization (463,691) (437,075) Net deferred costs $ 467,862 $ 494,478 NOTE 3. RELATED PARTY TRANSACTIONS Partnership Management Fee and Incentive Partnership Management Fee The General Partner has entered into a Management Agreement with the Partnership, in which it is entitled to receive a partnership management fee of $25,000 per year (the Partnership Management Fee), which increases 4.0% annually. The General Partner is also entitled to an Incentive Partnership Management Fee (the Incentive Fee) equal to 10.0% of Excess Cash, as defined, not to exceed $100,000. During 2010 and 2009, the General Partner earned Partnership Management Fees of $40,026 and $38,487, respectively, and no Incentive Fees were earned. As of December 31, 2010 and 2009, the Partnership owes $218,214 and $178,188, respectively, in Partnership Management Fees and no Incentive Fee. General Partner Advance The Partnership advanced the General Partner $196,271 from cash flow operations for 2002 and 2003, to be repaid in future years. As of December 31, 2009, the advance was completely repaid. The General Partner has agreed to make minimum annual payments of $60,000 commencing in 2006 to be deposited into a community center reserve account dedicated for the development of a new community center. During 2009, $62,324 was deposited in the fund. 11

14 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 3. RELATED PARTY TRANSACTIONS (Continued) LP Asset Management Fee In accordance with the Partnership Agreement, the Limited Partner is to receive an annual LP Asset Management Fee (the LP Asset Management Fee) equal to $50,000, increasing 4.0% annually. The LP Asset Management Fee shall be payable only from Excess Cash, as defined (see Schedule I). During 2010 and 2009, the Partnership recorded $80,052 and $76,973 as an LP Asset Management Fee, respectively. As of December 31, 2010 and 2009, $436,428 and $356,376, respectively, of the LP Asset Management Fee has not been paid. Resident Relations During 2010 and 2009, MAAC provided various resident services including training, education and sporting activities. MAAC charged the property a monthly fee of $9,850. In connection with these services, the Partnership was charged $118,200 and $118,200 in 2010 and 2009, respectively. As of December 31, 2010 and 2009, $236,400 and $118,200 of the Resident Relations fee has not been paid. Property Management Fee The Partnership entered into a property management agreement with the Metropolitan Area Advisory Committee on Anti-Poverty of San Diego (MAAC), an affiliate of the General Partner. In accordance with the agreement, the Partnership was charged $45 per unit monthly in In addition, MAAC was entitled to a fee of 6% of the gross rents collected from any commercial tenant. During 2009, MAAC charged the Partnership $67,500 in property management fees. Effective May 19, 2009, the Partnership entered into a property management agreement with an unrelated entity. IT Services During 2010 and 2009, the Managing General Partner charged the Partnership zero and $8,450, respectively, for IT services. This charge is included in other administrative expenses. NOTE 4. BONDS PAYABLE Note payable to Capmark in the amount of $10,180,300, secured by a first deed of trust, assignment of rents, insured by HUD under the provision of Section 207, pursuant to Section 223(f) of the National Housing Act, interest payable at 6.0 percent, interest and principal are payable in monthly installments of $58,047, unpaid interest and principal due September 1, 2033, subject to prepayment penalties. $ 8,649,287 $ 8,821,254 The Capmark note payable is being funded by mortgage back securities of which $9,180,000 is guaranteed by GNMA. 12

15 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 4. BONDS PAYABLE (Continued) Norwest Bank Minnesota, National Association acts as the trustee for the bondholders. In accordance with the bond agreement, the Partnership is required to maintain in a separate bank account the preceding months Net Cash Flow, as defined, while the bonds are outstanding. Principal payments on bonds and note payable are required as follows: Year Amount 2011 $ 183, , , , ,117 Thereafter 7,611,488 $ 8,649,287 An analysis of 2010 and 2009 accrued interest is as follows: January 1, Interest Interest December 31, 2010 Expense Paid 2010 Capmark $ 44,262 $ 523,054 $ (524,597) $ 42,719 January 1, Interest Interest December 31, 2009 Expense Paid 2009 Capmark $ 44,262 $ 534,588 $ (534,588) $ 44,262 NOTE 5. INCOME TAXES AND LOW-INCOME HOUSING TAX CREDITS No provision for income taxes has been made, as any income or loss will be included in the tax returns of the partners. As a limited partnership, the Partnership is required to pay an $800 fee to the California Franchise Tax Board. 13

16 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2010 AND 2009 NOTE 5. INCOME TAXES AND LOW-INCOME HOUSING TAX CREDITS (Continued) The Partnership has been allocated federal tax credits from TCAC, which are available only to the extent the Partnership complies with the Internal Revenue Service's tax credit regulations. In order to qualify for such tax credits, the Project must comply with various federal compliance and state agency regulatory requirements. These requirements include, but are not limited to, renting to low-income tenants at rental rates which do not exceed specified percentages of area median gross income for the first 15 years of operation of the Project. The Partnership also has agreed to maintain and operate the Project as low-income housing for another 40 years after the 15-year compliance period ends. Because the tax credits are subject to complying with certain requirements, there can be no assurance that the aggregate amount of tax credits will be realized and failure to meet all such requirements may result in generating a lesser amount of tax credits than the expected amount. The General Partner is responsible to ensure that the Partnership satisfies such requirements and has made certain guarantees to the Limited Partner, which is defined in the Partnership Agreement. NOTE 6. COMMITMENTS In connection with the development and operations of the Project, MAAC, has made certain guaranties regarding the Project s operations and tax benefits. NOTE 6. SUBSEQUENT EVENTS The Partnership has evaluated subsequent events that have occurred from December 31, 2010 through May 2, 2011, which is the date that the financial statements were available to be issued, and determined that there were no subsequent events or transactions that required recognition or disclosure in the financial statements. 14

17 SUPPLEMENTAL INFORMATION

18 SCHEDULE I PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO SCHEDULES OF DISTRIBUTABLE CASH FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 The calculation of distributable cash is as follows: Gross Revenues: Total revenue $ 2,887,841 $ 2,803,586 Change in accounts receivables (4,815) 12,057 Change in prepaid tenant rent 521 (12,683) Total gross receipts 2,883,547 2,802,960 Partnership Expenses: Total operating expenses, excluding resident services] 1,651,008 1,919,577 Net deposits to (withdrawals from) reserves, excluding interest (125,827) (10,401) Property additions 232, ,611 Utility deposits 924 (224) State taxes Bond debt service 756, ,258 Prior year negative surplus cash and other 94,900 - Total Partnership expenses 2,610,834 2,830,621 Distributable Cash $ 272,713 $ (27,661) See auditor's report. 16

19 Owner: President John Adams Manor, LP TIN: Reporting From: 01/01/2010 Reporting To: 12/31/2010 FHA/Contract Number(s): Submission Type: AUD Assets 1120 Cash - Operations $ 398, Tenant/Member Accounts Receivable (Coops) $ 7, N Net Tenant Accounts Receivable $ 7, Accounts Receivable - HUD $ 3, Prepaid Expenses $ 68, T Total Current Assets $ 477, Tenant/Patient Deposits Held in Trust $ 194, Escrow Deposits $ 52, Replacement Reserve $ 278, Other Reserves $ 241, T Total Deposits $ 571, Land $ 3,581, Buildings $ 8,435, Furniture for Project/Tenant Use $ 624, T Total Fixed Assets $ 12,641, Accumulated Depreciation $ 3,682, N Net Fixed Assets $ 8,959, Deferred Financing Costs $ 467, Miscellaneous Other Assets $ 21,291 Detail - Miscellaneous Other Assets Type of Asset Other Type of Asset Other Description - Miscellaneous Detail for 1590 Deposits Amount - Miscellaneous Detail for 1590 $ 19, Description - Deposits - Workers Comp Miscellaneous Detail for Amount - Miscellaneous Detail for 1590 $ 1,830 Assets 1500T Total Other Assets $ 489, T Total Assets $ 10,692,118 Liabilities 17

20 2110 Accounts Payable - Operations $ 75, Accounts Payable - Entity $ 454, Accrued Management Fee Payable $ 436, Accrued Interest Payable - First Mortgage (or Bonds) $ 42, Mortgage (or Bonds) Payable - First Mortgage (Bonds) $ 183,486 (Short Term) 2210 Prepaid Revenue $ 10, T Total Current Liabilities $ 1,203, Tenant/Patient Deposits Held In Trust (Contra) $ 194, Mortgage (or Bonds) Payable - First Mortgage (or Bonds) $ 8,465, Miscellaneous Long Term Liabilities $ 93,898 Detail - Miscellaneous Long-term Liabilities Description - Bond Premium Miscellaneous Detail for Amount - Miscellaneous Detail for 2390 $ 93, T Total Long Term Liabilities $ 8,559, T Total Liabilities $ 9,957,479 Equity Data - Entities other than Corporations 3130 Total Equity $ 734, T Total Liabilities and Equity $ 10,692,118 Rent Revenue 5120 Rent Revenue - Gross Potential $ 2,262, Tenant Assistance Payments $ 672, T Total Rent Revenue $ 2,934,240 Vacancies 5220 Apartments $ 128, T Total Vacancies $ 128, N Net Rental Revenue (Rent Revenue Less Vacancies) $ 2,806,008 Financial Revenue 5440 Revenue from Investments - Replacement Reserve $ Revenue from Investments - Miscellaneous $ 1,862 Details - Miscellaneous Revenue from Investments Description Other Reserve and Security Deposit Interest Amount $ 1, T Total Financial Revenue $ 2,299 Other Revenue 18

21 5910 Laundry and Vending Revenue $ 21, Tenant Charges $ 34, Miscellaneous Revenue $ 25,121 Details - Miscellaneous Revenue Description Real estate tax refund Amount $ 20, Description Misc Amount $ 4, T Total Other Revenue $ 81, T Total Revenue $ 2,890,140 Administrative Expenses 6204 Management Consultants $ 3, Advertising and Marketing $ 37, Other Renting Expenses $ 4, Office Expenses $ 39, Management Fee $ 125, Manager or Superintendent Salaries $ 66, Administrative Rent Free Unit $ 35, Legal Expense - Project $ 8, Audit Expense $ 27, Bad Debts $ 21, Miscellaneous Administrative Expenses $ 131,926 Details - Miscellaneous Administrative Expenses Description Education, Misc Amount $ 13, Description Tenant Services Fee Amount $ 118, T Total Administrative Expenses $ 501,678 Utilities Expenses 6450 Electricity $ 38, Water $ 135, Gas $ 58, Sewer $ 142, T Total Utilities Expense $ 374,823 Operating & Maintenance Expenses 6510 Payroll $ 206, Supplies $ 1, Contracts $ 154, Garbage and Trash Removal $ 55, Security Payroll/Contract $ 108, Heating/Cooling Repairs and Maintenance $ 3, Vehicle and Maintenance Equipment Operation and $ 4,212 Repairs 6590 Miscellaneous Operating and Maintenance Expenses $ 215,859 19

22 6500T Details - Miscellaneous Operating and Maintenance Expenses Description Misc Amount $ 5, Description Painting repairs Amount $ 4, Description Landscape maintenance Amount $ 105, Description Repairs and maintenance Amount $ 100,824 Total Operating and Maintenance Expenses $ 749,809 Taxes & Insurance 6710 Real Estate Taxes $ Payroll Taxes (Project's Share) $ 31, Property & Liability Insurance (Hazard) $ 65, Workmen's Compensation $ 20, Health Insurance and Other Employee Benefits $ 21, Miscellaneous Taxes, Licenses, Permits and $ 3,730 Insurance Details - Miscellaneous Taxes, Licenses, Permits and Insurance Description Misc Taxes Amount $ 3, T Total Taxes and Insurance $ 142,898 Financial Expenses 6820 Interest on First Mortgage (or $ 523,054 Bonds) Payable 6850 Mortgage Insurance $ 54,314 Premium/ Service Charge 6800T Total Financial Expenses $ 577,368 Operating Results 6000T Total Cost of Operations before Depreciation $ 2,346, T Profit (Loss) before Depreciation $ 543, Depreciation Expenses $ 335, Amortization Expense $ 26, N Operating Profit or (Loss) $ 181,255 Corporate or Mortgagor Revenue/Expenses 7130 Federal, State, and Other $ 800 Income Taxes 7190 Other Expenses $ 120,078 Details - Other Expenses Description Partnership management fee Amount $ 40, Description LP asset management fee Amount $ 80,052 20

23 7100T Net Entity Expenses $ 120,878 Profit or Loss 3250 Profit or Loss (Net Income or Loss) Part II S Total first mortgage (or bond) principal payments required during the audit period (usually 12 months). This applies to all direct loans, HUD-held and HUD-insured first mortgages. S The total of all monthly reserve for replacement deposits (usually 12 months) required during the audit period even if deposits have been temporarily waived or suspended. $ 60,377 $ 171,967 $ 75,227 Equity Data - Entities other than Corporations S Beginning of Year Balance $ 674, Net Income or Loss $ 60, End of Year $ 734,639 Cash Flow from Operating Activities S Rental Receipts $ 2,745,098 S Interest Receipts $ 2,299 S Other Operating Receipts $ 81,833 S Total Receipts $ 2,829,230 S Administrative $- 137,546 S Management Fee $- 125,373 S Utilities $- 384,560 S Salaries and Wages $- 347,204 S Operating and Maintenance $- 533,228 S Real Estate Taxes $- 253 S Property Insurance $- 69,886 S Miscellaneous Taxes and $- 4,530 Insurance S Tenant Security Deposits $ 4,632 S Interest on First Mortgage $- 524,597 S Mortgage Insurance Premium $- 40,065 (MIP) S Miscellaneous Financial $- 21,114 S Total Disbursements $- 2,183,724 S Net Cash provided by (used in) Operating Activities Cash Flow from Investing Activities S Net Deposits to the Reserve for Replacement account S Net Deposits to Other $ 645,506 $- 19,479 21

24 Reserves $ 145,306 S Net Purchase of Fixed Assets $- 232,829 S Net Cash used in Investing Activities $- 107,002 Cash Flow from Financing Activities S Principal Payments - First Mortgage (or Bonds) $- 171,967 S Net Cash used in Financing Activities $- 171,967 S Net increase (decrease) in Cash and Cash Equivalents $ 366,537 Cash and Cash Equivalents S Beginning of Period Cash $ 31,846 S1200T End of Period Cash $ 398,383 Reconciliation of Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 3250 Profit or Loss (Net Income or $ 60,377 Loss) Adjustments to Reconcile Net Profit (Loss) to Net Cash Provided by (Used in) Operating Activities 6600 Depreciation Expenses $ 335, Amortization Expense $ 26,616 S Decrease (increase) in Tenant/Member Accounts Receivable S Decrease (increase) in Accounts Receivable - Other S Decrease (increase) in Prepaid Expenses S Decrease (increase) in Cash Restricted for Tenant Security Deposits S Increase (decrease) in Accounts Payable S Increase (decrease) in Accrued Interest Payable S Increase (decrease) in Tenant Security Deposits held in trust S Increase (decrease) in Prepaid Revenue S Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities $- 4,815 $- 924 $- 4,782 $- 10,124 $- 1,682 $- 1,543 $ 14,756 $ 521 $ 231,413 Details - Other adjustments to reconcile net profit (loss) to Net Cash provided by (used in) Operating Activities S Description - Other adjustments to reconcile net profit (loss) to Net Cash provided by (used Bond premium amortization 22

25 in) Operating Activities S Amount - Other adjustments to reconcile net profit (loss) to Net Cash $- 6,865 provided by (used in) Operating Activities S Description - Other adjustments to reconcile net profit (loss) to Due to general partner Net Cash provided by (used in) Operating Activities S Amount - Other adjustments to reconcile net profit (loss) to Net Cash $ 118,200 provided by (used in) Operating Activities S Description - Other adjustments to reconcile net profit (loss) to Due to partners Net Cash provided by (used in) Operating Activities S Amount - Other adjustments to reconcile net profit (loss) to Net Cash $ 120,078 provided by (used in) Operating Activities Net Cash provided by (used in) Operating Activities S Net Cash provided by (used in) Operating Activities Notes S Organization and Presentation Note $ 645,506 Organization President John Adams Manor Apartments, L.P. (the Partnership) is a California limited partnership, which was formed April 14, 1998 and subsequently amended on August 11, 1998 and September 21, The General Partner is PJAM Inc., a California nonprofit corporation. The original limited partner was Edison Capital Housing Investments. On May 31, 1999, Edison Capital Housing Investments VIII replaced Edison Capital Housing Investments as the limited partner (the Limited Partner). The Partnership owns and manages 300-units in 38 residential buildings in the City of San Diego, California, consisting of affordable rental housing (the Project). The Partnership commenced rehabilitation of the Project in 1998 and completed the rehabilitation in The Partnership has entered into regulatory agreements, which govern the ownership, maximum rental rates, occupancy, management, maintenance and operations of the residential buildings. The Partnership Agreement, as amended, has various provisions which determine, among other things, allocations of profits, losses, distributions to partner, the ability to sell or refinance the Project, loans and guarantees, the rights 23

26 S Summary of Significant Accounting Policies Note and duties of the General Partner and other Partnership matters. Allocation of Profits and Losses The Partnership?s allocation of profits and losses is as follows: General Partner 0.1% Limited Partner 99.9% Method of Accounting The Partnership?s financial statements are presented in accordance with accounting principles generally accepted in the United States of America. The accrual method of accounting is used which reflects revenue when earned and expenses as incurred. Residential vacancies are shown separately as a reduction in residential rental revenue. Allowable Distributions to Partners Under the regulatory agreement for Section 211(d)(4) projects, distributions to partners from funds provided by rental operations are allowed, provided: 1) Surplus Cash, as defined by the U.S. Department of Housing and Urban Development (HUD) is available for such purposes, 2) the Project is in compliance with all outstanding notices of requirements for property maintenance, and 3) there is no default under the regulatory agreement or the mortgage note. In accordance with the Partnership Agreement, distributions to the partners of certain fees are based on the Partnership generating Excess Cash, as defined. Excess Cash is distributed (see Schedule I) in the following priorities: a) Deferred Developer Fee b) Operating Reserve c) LP Asset Management Fee d) Partnership Management Fee e) Incentive Partnership Management Fee f) Repayment of loans made by partners. g) Remaining cash distributed to the partners in accordance with their ownership interests. Property Property is stated at cost. Depreciation expense is provided primarily using the straight-line method over the following estimated useful lives: Description Life Buildings and improvements 40 years Land improvements 20 years Furniture and equipment 12 years The Partnership capitalizes expenditures or betterments that materially increase asset lives and charges ordinary repairs and maintenance to operations as incurred. When assets are sold or otherwise disposed of, the costs and related reserves are removed from the accounts and any resulting gain or loss is included in operations. Impairment losses are recorded on longlived 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 in 2010 and Deferred Costs Deferred costs consist of financing costs. Financing costs are amortized over the life of the loan. Bond Premium The Partnership received a $10,180,300 mortgage from GMAC 24

27 Commercial Mortgage Corporation (GMAC). In connection with the GMAC mortgage, $9,180,000 of bonds were issued by the Housing Authority of the City of San Diego at a premium of $185,987, which is amortized over the life of the bonds using the effective interest method (See Note 4). Rental Subsidies Certain tenants of the Project receive rental assistance from the Housing Authority of the City of San Diego and the amounts of the subsidies vary depending on the income of the tenant. HUD subsidies of $672,135 and $713,892 were received by the Project in 2010 and 2009, respectively. Rental Increases The Project is prohibited from making rental increases without HUD approval. During 2009, tenant rents were increased with the approval of HUD. Statements of Cash Flows For purposes of the statements of cash flows, the Partnership considers all highly liquid unrestricted investments with an original maturity of three months or less to be cash equivalents. Reserve/Escrow Accounts Concurrent with the Limited Partner?s final contribution, as defined, the Partnership is required to establish and fund on a monthly basis an operating reserve (the Operating Reserve). The initial deposit into the Operating Reserve shall be $170,700 plus a minimum monthly deposit of $471 until the Operating Reserve balance is equal to $500,000. In addition, the Partnership established a replacement reserve in the amount of $120,000 plus monthly deposits of $6,269. The General Partner has agreed to make annual payments in the amount of $60,000 into a Community Center reserve account dedicated to the development of a new community center. The fund was established during During 2010, the partners agreed to transfer this reserve to operating cash. A summary of the reserve activity for the year ended December 31, 2010 and 2009 is as follows: January 1, December 31, 2010 Additions Interest Withdrawals 2010 Replacement reserve $ 258,751 $ 75,227 $ 437 $ (56,185) $ 278,230 Operating reserve 234,699 5, ,185 Community center fund 154, (154,498) - Tax escrow 416 3,584 - (2,559) 1,441 Insurance escrow 41,325 66,834 - (65,440) 42,719 FHA/MIP escrow 8,265 44,271 - (44,358) 8,178 $ 697,580 $ 195,568 $ 1,645 $ (323,040) $ 571,753 Reserve/Escrow Accounts (Continued) January 1, December 31, 2009 Additions Interest Withdrawals 2009 Replacement reserve $ 341,560 $ 76,493 $ 609 $ (159,911) $ 258,751 Operating reserve 228,592 5, (93) 234,699 Community center fund 91,560 62, ,124 Tax escrow 1,009 2,125 - (2,718) 416 Insurance escrow 36,914 68, (64,038) 41,325 FHA/MIP escrow 8,346 45,071 - (45,152) 8,265 $ 707,981 $ 260,111 $ 1,400 $ (271,912) $ 697,580 Concentration of Credit Risk The Partnership?s cash and cash equivalents are 25

28 S Mortgages (or Bond) Payable Note maintained in various banks. The Partnership has exposure to credit risk to the extent that its cash and cash equivalents exceed amounts covered by federal deposit insurance. The Partnership believes that its credit risk is not significant. Concentration of Business Risk The Partnership?s sole asset is the Project. The Partnership rents to people with qualifying levels of income who work primarily in San Diego. The Partnership is subject to business risks associated with the economy and level of unemployment in San Diego, which affects occupancy as well as the tenants? ability to make rental payments. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies, including, but not limited to, HUD. Such administrative directives, rules and regulations are subject to change by an act of congress or an administrative change mandated by HUD and may occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change. Estimates 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, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates. Property Management Fees Pursuant to the Property Management Agreement, dated May 19, 2009, Solari Enterprises Inc. (the Property Manager) is entitled to a monthly property management fee equal to 4.5% of Gross Collections, as defined. In addition, the Property Manager shall receive $250 per on-site employee, annually. In 2010 and 2009, the Property Manager charged property management fees of $125,373 and $72,240, respectively. As of December 31, 2010 and 2009, $10,562 and $10,686, respectively, of property management fees remain unpaid. Reclassifications Certain 2009 financial statement amounts have been reclassified to conform to the 2010 financial statements classifications. Note payable to Capmark in the amount of $10,180,300, secured by a first deed of trust, assignment of rents, insured by HUD under the provision of Section 207, pursuant to Section 223(f) of the National Housing Act, interest payable at 6.0 percent, interest and principal are payable in monthly installments of $58,047, unpaid interest and principal due September 1, 2033, subject to prepayment penalties. $ 8,649,287 $ 8,821,254 The Capmark note payable is being funded by mortgage back securities of which $9,180,000 is 26

29 Details - Mortgages Payable S Principal Payments in the next 12 months - Year 1 S Principal Payments in the next 12 months - Year 2 S Principal Payments in the next 12 months - Year 3 S Principal Payments in the next 12 months - Year 4 S Principal Payments in the next 12 months - Year 5 S Principal Payments remaining after Year 5 S Related Party Transactions Note guaranteed by GNMA. Norwest Bank Minnesota, National Association acts as the trustee for the bondholders. In accordance with the bond agreement, the Partnership is required to maintain in a separate bank account the preceding months Net Cash Flow, as defined, while the bonds are outstanding. Principal payments on bonds and note payable are required as follows: Year Amount 2011 $ 183, , , , ,117 Thereafter 7,611,488 $ 8,649,287 An analysis of 2010 and 2009 accrued interest is as follows: January 1, Interest Interest December 31, 2010 Expense Paid 2010 Capmark $ 44,262 $ 523,054 $ (524,597) $ 42,719 January 1, Interest Interest December 31, 2009 Expense Paid 2009 Capmark $ 44,262 $ 534,588 $ (534,588) $ 44,262 $ 183,486 $ 194,803 $ 206,818 $ 219,575 $ 233,117 $ 7,611,488 Partnership Management Fee and Incentive Partnership Management Fee The General Partner has entered into a Management Agreement with the Partnership, in which it is entitled to receive a partnership management fee of $25,000 per year (the Partnership Management Fee), which increases 4.0% annually. The General Partner is also entitled to an Incentive Partnership Management Fee (the Incentive Fee) equal to 10.0% of Excess Cash, as defined, not to exceed $100,000. During 2010 and 2009, the General Partner earned Partnership Management Fees of $40,026 and $38,487, respectively, and no Incentive Fees were earned. As of December 31, 2010 and 2009, the Partnership owes $218,214 and $178,188, respectively, in Partnership Management Fees and no Incentive Fee. LP Asset Management Fee In accordance with the Partnership Agreement, the Limited Partner is to receive an annual LP Asset Management Fee (the LP Asset Management Fee) equal to $50,000, increasing 4.0% annually. The 27

30 LP Asset Management Fee shall be payable only from Excess Cash, as defined (see Schedule I). During 2010 and 2009, the Partnership recorded $80,052 and $76,973 as an LP Asset Management Fee, respectively. As of December 31, 2010 and 2009, $436,428 and $356,376, respectively, of the LP Asset Management Fee has not been paid. Resident Relations During 2010 and 2009, MAAC provided various resident services including training, education and sporting activities. MAAC charged the property a monthly fee of $9,850. In connection with these services, the Partnership was charged $118,200 and $118,200 in 2010 and 2009, respectively. As of December 31, 2010 and 2009, $236,400 and $118,200 of the Resident Relations fee has not been paid. Details - Related Party Transactions S Company Name PJAM, Inc S Amount $ 40,026 Received S Company Name Edison Capital Housing Investment VIII S Amount $ 80,052 Received S Company Name MAAC Project S Amount $ 118,200 Received S Management Fee Note Property Management Fee The Partnership entered into a property management agreement with the Metropolitan Area Advisory Committee on Anti-Poverty of San Diego (MAAC), an affiliate of the General Partner. In accordance with the agreement, the Partnership was charged $45 per unit monthly in In addition, MAAC was entitled to a fee of 6% of the gross rents collected from any commercial tenant. During 2009, MAAC charged the Partnership $67,500 in property management fees. Effective May 19, 2009, the Partnership entered into a property management agreement with an unrelated entity. Pursuant to the Property Management Agreement, dated May 19, 2009, Solari Enterprises Inc. (the Property Manager) is entitled to a monthly property management fee equal to 4.5% of Gross Collections, as defined. In addition, the Property Manager shall receive $250 per on-site employee, annually. In 2010 and 2009, the Property Manager charged property management fees of $125,373 and $72,240, respectively. As of December 31, 2010 and 2009, $10,562 and $10,686, respectively, of property management fees remain unpaid. S Additional Note DEFERRED COSTS The costs incurred to obtain financing have been capitalized and consist of the following: Financing costs $ 931,553 $ 931,553 Less: accumulated amortization (463,691) (437,075) Net deferred costs $ 467,862 $ 494,478 S Additional Note INCOME TAXES AND LOW-INCOME HOUSING TAX CREDITS No provision for income taxes has been 28

31 made, as any income or loss will be included in the tax returns of the partners. As a limited partnership, the Partnership is required to pay an $800 fee to the California Franchise Tax Board. The Partnership has been allocated federal tax credits from TCAC, which are available only to the extent the Partnership complies with the Internal Revenue Service's tax credit regulations. In order to qualify for such tax credits, the Project must comply with various federal compliance and state agency regulatory requirements. These requirements include, but are not limited to, renting to low-income tenants at rental rates which do not exceed specified percentages of area median gross income for the first 15 years of operation of the Project. The Partnership also has agreed to maintain and operate the Project as low-income housing for another 40 years after the 15-year compliance period ends. Because the tax credits are subject to complying with certain requirements, there can be no assurance that the aggregate amount of tax credits will be realized and failure to meet all such requirements may result in generating a lesser amount of tax credits than the expected amount. The General Partner is responsible to ensure that the Partnership satisfies such requirements and has made certain guarantees to the Limited Partner, which is defined in the Partnership Agreement. S Additional Note COMMITMENTS In connection with the development and operations of the Project, MAAC, has made certain guaranties regarding the Project?s operations and tax benefits. Report on the Financial Statement S Opinion UNQUALIFIED S Going Concern Issue N S Opinion Explanation To the Partners of: President John Adams Manor Apartments, L.P. We have audited the accompanying balance sheets of President John Adams Manor Apartments, L.P. as of December 31, 2010 and 2009, and the related statements of operations, changes in partners? capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership?s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 29

32 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 President John Adams Manor Apartments, L.P. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated May 2, 2011, on our consideration of President John Adams Manor Apartments, L.P.?s internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated May 2, 2011, on President John Adams Manor Apartments, L.P.?s compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information shown on pages is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Westlake Village, California May 2, 2011 Report on Supplemental Data S Opinion UNQUALIFIED Report on Internal Controls S Significant Deficiencies N Indicator S Material Weaknesses N Indicator S Comments on Internal Controls To the Owner of President John Adams Manor Apartments, L.P.: We have audited the financial statements of President John Adams Manor Apartments, L.P., HUD Project No (the Project), as of and for the year ended December 31, 2010, and have 30

33 issued our report thereon dated May 2, We have also audited the Project?s compliance with specific program requirements that could have a direct and material effect on each of its major U.S. Department of Housing and Urban Development (HUD)-assisted programs for the year ended December 31, 2010 and have issued our reports thereon dated May 2, We conducted our audits in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide), issued by the HUD Office of the Inspector General. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether the Project complied with the compliance requirements referred to above that could have a direct and material effect on a major HUD-assisted program. Management of the Project is responsible for establishing and maintaining effective internal control over financial reporting and internal control over compliance. In planning and performing our audits of the financial statements and compliance, we considered the Project?s internal control over financial reporting and its internal control over compliance with requirements that could have a direct and material effect on a major HUDassisted program as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements and compliance, but not for the purpose of expressing an opinion on the effectiveness of the Project?s internal control over financial reporting and internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Project?s internal control over financial reporting and internal control over compliance. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct (1) misstatements of the entity?s financial statements or (2) noncompliance with applicable requirements of a HUDassisted program on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that (1) a material misstatement of the entity? s financial statements or (2) material noncompliance with applicable requirements of a HUD-assisted program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over financial reporting and internal control over compliance was for the limited purpose described in the third 31

34 paragraph of this report and was not designed to identify all deficiencies, in internal control that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. We also noted other matters that we reported to the management of the Project in a separate communication dated May 2, This report is intended solely for the information and use of the Owner, management, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2, 2011 Report on Compliance - Major Programs S Opinion UNQUALIFIED S Material Non-Compliance N Indicator S Comments on Noncompliance To the Partners of: President John Adams Manor Apartments, L.P. We have audited President John Adams Manor Apartments, L.P.?s HUD Project No (the Partnership), compliance with the specific program requirements governing fair housing and nondiscrimination, mortgage status, replacement reserve, distributions to owners, equity skimming, cash receipts, cash disbursements, tenant application, eligibility and recertification, tenant security deposits, management functions, unauthorized change of ownership/acquisition of liabilities, unauthorized loans of project funds, unauthorized transfer of beneficial interest, and electronic submission verification that are applicable to each of its major HUD-assisted programs for the year ended December 31, Compliance with those requirements is the responsibility of the Partnership?s management. Our responsibility is to express an opinion on the Partnership?s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the?guide?), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the requirements referred to above that could have a direct and material effect on a major HUD-assisted program occurred. An audit includes examining, on a test basis, evidence about the Partnership?s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We 32

35 believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Partnership?s compliance with those requirements. The results of our audit procedures disclosed an immaterial instance of noncompliance with the requirements referred to above, which are described in the accompanying Schedule of Findings and Questioned Costs. We considered those instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. In our opinion, the Partnership complied, in all material respects, with the requirements referred to above that are applicable to each of its major HUD-assisted programs for the year ended December 31, This report is intended solely for the information and use of the Partners, management, individuals charged with governance, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2, 2011 Report on Compliance - Non-Major Programs S Material Non-Compliance N Indicator Report on Compliance - Affirmative Fair Housing S Material Non-Compliance N Indicator S Comments on Noncompliance Detail - Schedule of Findings & Questioned Costs To the Partners of: President John Adams Manor Apartments, L.P. We have applied procedures to test President John Adams Manor Apartments, L.P.?s, HUD Project No (the Partnership), compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted programs as of December 31, 2010, and the related statements of income, changes in partners? capital, and cash flows for the year then ended. Our procedures were limited to the applicable compliance requirement described by the Consolidated Audit Guide for Audits of HUD Programs (the?guide?) issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Partnership?s compliance with the Fair Housing and Non- Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended solely for the information and use of the Partners, management, individuals charged with governance, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2,

36 S Finding Reference Number S Statement of Condition The Project has not received HUD approval of the affirmative fair housing. S Criteria The Project is required to obtain HUD approval of the affirmative fair housing marketing plan. S Effect Partnership is not in compliance with HUD regulations and the HUD regulatory agreement. S Cause The Project has submitted the affirmative fair housing marketing plan to HUD during 2008 whihc was not approved by HUD. S Recommendation The project should obtain HUD approval of the affirmative fair housing marketing plan. S Auditor Non- Z Compliance Code S Amount of $ 0 Questioned Costs Detail - Questioned Costs by Property S FHA/Contract Number S Questioned $ 0 Costs S Auditor's Summary of Auditee's Comments on the Findings and Recommendations Management has submitted the affirmative fair housing marketing plan to HUD for approval. S Response Indicator A S Completion Date 12/31/2010 S Response Agreed Schedule of Findings and Questioned Costs S Contact Person First Name David S Contact Person Middle Initial Lowell S Contact Person Last Name Bierhorst Detail - Auditee's Comments on Audit Resolution Matters S Previous Finding Reference Number S Narrative Unauthorized monthly distributions of Project funds in excess of Surplus Cash, as defined. S Reporting Period 12/31/2009 S Previous Finding Reference Number S Narrative HUD Physical Inspection score of 56 and ongoing property issues including low Physical Inspection scores. This has flagged the Project as a troubled property in the HUD database. S Status CLEARED S Reporting Period 12/31/2009 S Previous Finding Reference Number S Narrative The Project has not received HUD approval of the affirmative fair housing marketing plan. S Status CLEARED 34

37 S Reporting Period 12/31/2009 Schedule of Reserve for Replacement 1320P Balance at Beginning of Year $ 258, DT Total Monthly Deposits $ 75, INT Interest on Replacement Reserve Accounts $ WT Approved Withdrawals $ 56, Balance at End of Year, Confirmed by Mortgagee $ 278, R Deposits Suspended or Waived Indicator N Computation of Surplus Cash, Distributions, and Residual Receipts (Annual) S Cash $ 592, Accounts Receivable - HUD $ 3,326 S Total Cash $ 595,965 S Accrued Mortgage (or Bond) Interest Payable $ 42,719 S Accounts Payable - 30 days $ 75, Prepaid Revenue $ 10, Tenant/Patient Deposits Held $ 194,256 In Trust (Contra) S Total Current Obligations $ 323,252 S Surplus Cash (Deficiency) $ 272,713 S Amount Available for distribution during next fiscal period $ 272,713 Schedule of Changes in Fixed Asset Accounts 1410P Beginning Balance for 1410 $ 3,452, AT Additions for 1410 $ 128,178 Details - Additions for A Item Purchased asphalt, gate/fence 1410A Total Amount $ 128, Land $ 3,581, P Beginning Balance for 1420 $ 8,347, AT Additions for 1420 $ 87,367 Details - Additions for A Item Purchased roofing, stairs, doors, water heaters 1420A Total Amount $ 87, Buildings $ 8,435, P Beginning Balance for 1450 $ 607, AT Additions for 1450 $ 17,284 Details - Additions for A Item Purchased appliances 1450A Total Amount $ 17, Furniture for Project/Tenant $ 624,985 Use 1400PT Total Beginning Balance for Fixed Assets $ 12,408, AT Total Asset Additions $ 232, T Total Fixed Assets $ 12,641, P Beginning Balance for 1495 $ 3,346,427 35

38 6600 Total Provisions $ 335, Ending Balance for Accumulated Depreciation $ 3,682, N Total Net Book Value $ 8,959,043 Mortgagor's Certification S Narrative I/we hereby certify that I/we have examined the accompanying financial statements AND supplemental data and, to the best of my/our knowledge and belief, the same is complete AND accurate. S Name of Signatory #1 Austin Foye S Title of Certifying Official #1 Chief Financial Officer of The Metropolitan Area Advisory Committee, as general partner in PJAM, Inc. S Auditee Telephone Number (619) S Date of Certification 05/02/2011 Managing Agent's Certification S Narrative I/we hereby certify that I/we have examined the accompanying financial statements AND supplemental data and, to the best of my/our knowledge and belief, the same is complete AND accurate. S Name of Managing Agent Solari Enterprises, Inc. S Name of Signatory DeEtta Clark S Managing Agent TIN S Name of Property Manager DeEtta Clark Auditor's Transmittal Letter S Audit Firm ID (UII) S Audit Firm Holthouse Carlin & Van Trigt LLP S Lead Auditor First Name David S Lead Auditor Middle Name Lowell S Lead Auditor Last Name Bierhorst S Auditor Street Address Line W. Olympic Boulevard S Auditor Street Address Line 2 11th Floor S Auditor City Los Angeles S Auditor State CA S Auditor Zip Code S Telephone Number S Audit Firm TIN S Date of Independent Auditor's Report 05/02/ end of statement - 36

39 Independent Auditor s Report on Internal Control Combined Report Applicable to Internal Control Over Financial Reporting Based on an Audit of Financial Statements and Internal Control Over Compliance for HUD-Assisted Programs To the Owner of President John Adams Manor Apartments, L.P.: We have audited the financial statements of President John Adams Manor Apartments, L.P., HUD Project No (the Project), as of and for the year ended December 31, 2010, and have issued our report thereon dated May 2, We have also audited the Project s compliance with specific program requirements that could have a direct and material effect on each of its major U.S. Department of Housing and Urban Development (HUD)-assisted programs for the year ended December 31, 2010 and have issued our reports thereon dated May 2, We conducted our audits in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States of America, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide), issued by the HUD Office of the Inspector General. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether the Project complied with the compliance requirements referred to above that could have a direct and material effect on a major HUDassisted program. Management of the Project is responsible for establishing and maintaining effective internal control over financial reporting and internal control over compliance. In planning and performing our audits of the financial statements and compliance, we considered the Project s internal control over financial reporting and its internal control over compliance with requirements that could have a direct and material effect on a major HUD-assisted program as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements and compliance, but not for the purpose of expressing an opinion on the effectiveness of the Project s internal control over financial reporting and internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Project s internal control over financial reporting and internal control over compliance. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct (1) misstatements of the entity s financial statements or (2) noncompliance with applicable requirements of a HUD-assisted program on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that (1) a material misstatement of the entity s financial statements or (2) material noncompliance with applicable requirements of a HUDassisted program will not be prevented, or detected and corrected, on a timely basis Cloverfield Boulevard, Suite 300 South, Santa Monica, CA E. Thousand Oaks Blvd., Suite 100, Westlake Village, CA Oceangate, Suite 800, Long Beach, CA East Colorado Boulevard, 6 th Floor, Pasadena, CA Von Karman, Suite 200, Irvine, CA Ventura Boulevard, Suite 1700, Encino, CA 91436

40 Independent Auditor s Report on Internal Control Combined Report Applicable to Internal Control Over Financial Reporting Based on an Audit of Financial Statements and Internal Control Over Compliance for HUD-Assisted Programs (Continued) Our consideration of internal control over financial reporting and internal control over compliance was for the limited purpose described in the third paragraph of this report and was not designed to identify all deficiencies, in internal control that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. We also noted other matters that we reported to the management of the Project in a separate communication dated May 2, This report is intended solely for the information and use of the Owner, management, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2, 2011

41 Independent Auditor s Report on Compliance with Specific Requirements Applicable to Major HUD Programs To the Partners of: President John Adams Manor Apartments, L.P. We have audited President John Adams Manor Apartments, L.P. s HUD Project No (the Partnership), compliance with the specific program requirements governing fair housing and nondiscrimination, mortgage status, replacement reserve, distributions to owners, equity skimming, cash receipts, cash disbursements, tenant application, eligibility and recertification, tenant security deposits, management functions, unauthorized change of ownership/acquisition of liabilities, unauthorized loans of project funds, unauthorized transfer of beneficial interest, and electronic submission verification that are applicable to each of its major HUD-assisted programs for the year ended December 31, Compliance with those requirements is the responsibility of the Partnership s management. Our responsibility is to express an opinion on the Partnership s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide ), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the requirements referred to above that could have a direct and material effect on a major HUD-assisted program occurred. An audit includes examining, on a test basis, evidence about the Partnership s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the Partnership s compliance with those requirements. The results of our audit procedures disclosed immaterial instances of noncompliance with the requirements referred to above, which are described in the accompanying Schedule of Findings and Questioned Costs. We considered those instances of noncompliance in forming our opinion on compliance, which is expressed in the following paragraph. In our opinion, the Partnership complied, in all material respects, with the requirements referred to above that are applicable to each of its major HUD-assisted programs for the year ended December 31, This report is intended solely for the information and use of the Partners, management, individuals charged with governance, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2, Cloverfield Boulevard, Suite 300 South, Santa Monica, CA E. Thousand Oaks Blvd., Suite 100, Westlake Village, CA Oceangate, Suite 800, Long Beach, CA East Colorado Boulevard, 6 th Floor, Pasadena, CA Von Karman, Suite 200, Irvine, CA Ventura Boulevard, Suite 1700, Encino, CA 91436

42 Independent Auditor s Report on Compliance with Specific Requirements Applicable To Fair Housing and Non-Discrimination To the Partners of: President John Adams Manor Apartments, L.P. We have applied procedures to test President John Adams Manor Apartments, L.P. s, HUD Project No (the Partnership), compliance with the Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted programs as of December 31, 2010, and the related statements of income, changes in partners capital, and cash flows for the year then ended. Our procedures were limited to the applicable compliance requirement described by the Consolidated Audit Guide for Audits of HUD Programs (the Guide ) issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Partnership s compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended solely for the information and use of the Partners, management, individuals charged with governance, and HUD and is not intended to be and should not be used by anyone other than these specified parties. Westlake Village, California May 2, Cloverfield Boulevard, Suite 300 South, Santa Monica, CA E. Thousand Oaks Blvd., Suite 100, Westlake Village, CA Oceangate, Suite 800, Long Beach, CA East Colorado Boulevard, 6 th Floor, Pasadena, CA Von Karman, Suite 200, Irvine, CA Ventura Boulevard, Suite 1700, Encino, CA 91436

43 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO SCHEDULE OF FINDINGS AND QUESTIONED COSTS DECEMBER 31, 2010 AND 2009 Summary of Audit Results Findings Financial Statements Audit None Findings and Questioned Costs Major Federal Award Programs Audit Finding No Statement of Condition The Project has not received HUD approval of the affirmative fair housing marketing plan. Criteria The Project is required to obtain HUD approval of the affirmative fair housing marketing plan. Effect Partnership is not in compliance with HUD regulations and the HUD regulatory agreement. Cause The Project has submitted the affirmative fair housing marketing plan to HUD during 2008 which was not approved by HUD. Recommendation The project should obtain HUD approval of the affirmative fair housing marketing plan. Actions taken or planned Management has submitted the affirmative fair housing marketing plan to HUD for approval. 41

44 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO CORRECTIVE ACTION PLAN PRIOR YEAR DECEMBER 31, 2010 AND 2009 Prior Year s Audit Findings Finding No Unauthorized monthly distributions of Project funds in excess of Surplus Cash, as defined. Finding No HUD Physical Inspection score of 56 and ongoing property issues including low Physical Inspection scores. This has flagged the Project as a troubled property in the HUD database. Finding No The Project has not received HUD approval of the affirmative fair housing marketing plan. Status of Corrective Actions on Prior Findings Finding No Finding was corrected. Finding No Effective June 1, 2009, the Project s management replaced the prior management agent with a HUD approved management agent to manage the property. The replacement management agent has submitted a corrective action plan to address the failed inspection scores. Finding No Effective June 1, 2009, the Project s management replaced the prior management agent with a HUD approved management agent to manage the property. The replacement management agent is in the process of obtaining HUD approval on the affirmative fair housing marketing plan 42

45 PRESIDENT JOHN ADAMS MANOR APARTMENTS, L.P. (A CALIFORNIA LIMITED PARTNERSHIP) HUD PROJECT NO INDEPENDENT AUDITOR S INFORMATION DECEMBER 31, 2010 AND 2009 INDEPENDENT AUDITOR S INFORMATION REQUIRED Name and Number of Project: President John Adams Manor Apartments, L.P. HUD Project No Auditor/Audit Firm: David L. Bierhorst/Holthouse Carlin & Van Trigt LLP Audit Period: December 31, 2010 FEIN

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