FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT SAN DIEGO HOUSING COMMISSION SCATTERED SITES HOUSING DEVELOPMENT PROJECT NO.

FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS REPORT SAN DIEGO HOUSING COMMISSION SCATTERED SITES HOUSING DEVELOPMENT PROJECT NO. 80-RHC-002 JUNE 30, 2005

San Diego Housing Commission Scattered Sites Housing Development Project No. 80-RHC-002 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS REPORT 3 STATEMENT OF PROJECT OPERATIONS 5 SUPPLEMENTAL INFORMATION REQUIRED BY THE CALIFORNIA DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT CASH FLOW ANALYSIS 8 OPERATING REVENUE AND EXPENSES 10 OPERATING EXPENSES 12

INDEPENDENT AUDITORS REPORT To the Board of Commissioners of the San Diego Housing Commission RE: Scattered Sites Housing Development Project No. 80-RHC-002 We have audited the accompanying statement of project operations of the San Diego Housing Commission s Scattered Sites Housing Development Project No. 80-RHC-002 (the Project) for the year ended June 30, 2005. This statement is the responsibility of the Project s management. Our responsibility is to express an opinion on the statement based on our audit. We conducted our audit 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of project operations was prepared in conformity with the accounting and reporting practices prescribed by the California Department of Housing and Community Development, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the statement of project operations referred to above presents fairly, in all material respects, the results of operations of the San Diego Housing Commission s Scattered Sites Housing Development Project No. 80-RHC-002 for the year ended June 30, 2005, on the basis of accounting described in note 1. Our audit was conducted for the purpose of forming an opinion on the statement of project operations. The accompanying supplemental information required by the California Department of Housing and Community Development on pages 8 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statement. Such information, except for that portion marked unaudited, on which we express no opinion has been subjected to the auditing procedures applied in the audit of the basic financial statement and, in our opinion, is fairly stated in all material respects in relation to the basic financial statement taken as a whole. - 3 -

This report is intended solely for the information and use of the San Diego Housing Commission and the California Department of Housing and Community Development and is not intended to be and should not be used by anyone other than these specified parties. Sacramento, California December 15, 2005-4 -

San Diego Housing Commission Scattered Sites Housing Development Project No. 80-RHC-002 STATEMENT OF PROJECT OPERATIONS Year ended June 30, 2005 Revenue Total gross potential rents $ 135,740 Less vacancy loss (756) Total rental income 134,984 Other income Annuity grant income 80,019 Laundry income 6,158 Interest 558 Total revenue 221,719 Operating expenses Management fee 15,368 Administrative expenses 57,899 Utility expenses 31,440 Operating and maintenance expenses 75,984 Insurance and employee benefits 27,574 Total operating expenses 208,265 Income from operations $ 13,454-5 -

San Diego Housing Commission Scattered Sites Housing Development Project No. 80-RHC-002 NOTE TO STATEMENT OF PROJECT OPERATIONS June 30, 2005 NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The statement of project operations of San Diego Housing Commission s Scattered Sites Housing Development Project No. 80-RHC-002 was prepared in conformity with the accounting and reporting practices prescribed by the California Department of Housing and Community Development. These practices differ from accounting principles generally accepted in the United States of America (GAAP). Specifically, the statement of operations does not reflect depreciation expense and interest income earned on restricted reserves. Use of Estimates The preparation of the Statement of Project Operations, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Annuity Grant Income Grant income is recorded as revenue when received from the State of California to fund budget deficits. Rental Income Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Project and the tenants of the Project are operating leases. NOTE 2 - MANAGEMENT FEE The Project incurs a management fee to the San Diego Housing Commission for central office services and includes, but is not limited to bookkeeping, clerical and management overhead expenses, such as salaries and benefits, office supplies and equipment, data processing or computer services, postage, training and telephone services. This does not include the salary of the project manager whether onsite or offsite. - 6 -

SUPPLEMENTAL INFORMATION REQUIRED BY THE CALIFORNIA DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT

STATE OF CALIFORNIA HCD RLM 1.4 (REV. 4/01) DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT CASH FLOW ANALYSIS Reporting Period: 7/01/2004 to 6/30/2005 Contract: 80-RHC-002 Units/Sq. Ft. - Assisted: 38 Project Name: San Diego Housing Commission's Scattered Sites Units/Sq. Ft. - Total: 38 Prepared by: Judy F. Elizondo Unit Months: 456 Date Prepared: 09/30/2005 ACCOUNT NAME TOTAL PROJECT Account Unaudited Budget Actual Unaudited Variance Codes (A) (B) (C) REVENUE ACCOUNTS/RENT REVENUE: 5100 1 Rent revenue - gross potential 5120 136,210 135,740 (470) 2 Tenant assistance payments 5121 0 0 0 3 Rent revenue - stores and commercial 5140 0 0 0 4 Garage and parking spaces 5170 0 0 0 5 Flexible subsidy revenue 5180 0 0 0 6 Miscellaneous rent revenue 5190 0 0 0 7 Excess rent 5191 0 0 0 8 Rent revenue/insurance 5192 0 0 0 9 Special claims revenue 5193 0 0 0 VACANCIES: 5200 Vacancy Percentages: 3.00% 0.56% 2.44% 11 Apartments 5220 4,086 756 3,330 12 Stores and commercial 5240 0 0 0 13 Rental concessions 5250 0 0 0 14 Garage and parking spaces 5270 0 0 0 15 Miscellaneous 5290 0 0 0 Total vacancies 5200T 4,086 756 3,330 Net rental revenue 5152T 132,124 134,984 2,860 ASSISTED LIVING/BOARD & CARE REVENUES: 5300 16 Food 5332 0 0 0 17 Recreation (activities) and rehabilitation 5380 0 0 0 18 Rehabilitation 5385 0 0 0 19 Other service revenue 5390 0 0 0 Total living revenue 6300T 0 0 0 FINANCIAL REVENUE: 5400 20 Financial revenue - project operations 5410 668 558 (110) 21 Revenue from investments - operating reserves 5420 0 0 22 Revenue from investments - residual receipts 5430 0 0 0 23 Revenue from investments - replacement reserves 5440 0 0 0 24 Revenue from investments - miscellaneous 5490 0 0 0 Total financial revenue 5400T 668 558 (110) OTHER REVENUE: 5900 25 Laundry and vending revenue 5910 3,005 6,158 3,153 26 NSF and late charges 5920 0 0 0 27 Damages and cleaning fees 5930 0 0 0 28 Forfeited tenant security deposits 5940 0 0 0 29 Other revenue 5990 0 0 0 30 Transfer from replacement reserve account 5991 0 0 0 31 Transfer from operating reserve account 5992 0 0 0 Total other revenue 5900T 3,005 6,158 3,153-8 -

STATE OF CALIFORNIA HCD RLM 1.4 (REV. 4/01) DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT CASH FLOW ANALYSIS Reporting Period: 7/01/2004 to 6/30/2005 Contract: 80-RHC-002 Units/Sq. Ft. - Assisted: 38 Project Name: San Diego Housing Commission's Scattered Sites Units/Sq. Ft. - Total: 38 Prepared by: Judy F. Elizondo Unit Months: 456 Date Prepared: 09/30/2005 ACCOUNT NAME TOTAL PROJECT Account Unaudited Budget Actual Unaudited Variance Codes (A) (B) (C) EFFECTIVE GROSS RENT (EGR) 5152T 135,797 141,700 5,903 TOTAL OPERATING EXPENSES 6000 208,259 208,265 6 NET OPERATING INCOME (NOI) 5000 (72,462) (66,565) 5,897 FINANCIAL EXPENSES: 6800 32 Debt service 1st Mortgage = 6820 0 0 0 2nd Mortgage= 6830 0 0 0 3rd Mortgage= 6840 0 0 0 33 HCD required payments 6890 0 0 0 34 Lease payment 6890 0 0 0 35 Miscellaneous financial expenses 6890 0 0 0 Total financial expenses 6800T 0 0 0 FUNDED RESERVES: 1300 36 Escrow deposits 1310 0 0 0 37 Replacement reserve - deposit 1320 7,557 7,557 0 38 Operating reserve- deposit 1300 0 0 0 39 Other reserves #1 1330 0 0 0 #2 1330 0 0 0 #3 1330 0 0 0 40 Revenue from investments - operating reserves 5420 0 0 0 41 Revenue from investments - replacement reserves 5440 0 0 0 42 Revenue from investments - miscellaneous 5490 0 0 0 Total reserves 7,557 7,557 0 43 TOTAL OPERATING EXPENSES 6000T 208,259 208,265 (6) 43 TOTAL CASH FLOW (80,019) (74,122) 5,897 44 HCD interest payments 0 0 0 45 Asset management fee (CHRP-R/SUHRP/HOME only) 0 0 0 46 Annuity fund request (RHCP- original only) 80,019 80,019 0 47 Borrower contributions 0 0 0 48 Borrower distributions 0 0 0 49 Residual receipt loan payments 0 0 0 HCD Use Only: Annuity payment of $80,019 for the fiscal year from July 1, 2004 to June 30, 2005 is approved for payment from the RHCP Annuity Monitoring and Management Program Representative Department of Housing and Community Development Date Monitoring and Management Program Manager Department of Housing and Community Development Date - 9 -

HCD RLM 1.2 (REV. 7/01) Operating Revenue and Expenses Reporting Period: 07/01/2004 to 06/30/2005 Contract: 80-RHC-002 Units/Sq. Ft. - Assisted: 38 Project Name: San Diego Housing Commission's Scattered Sites Units/Sq. Ft. - Total: 38 Prepared by: Judy F. Elizondo Unit Months: 456 Date Prepared: 09/30/2005 TOTAL REVENUE ACCOUNT NAME UNAUDITED BUDGET ACTUAL UNAUDITED VARIANCE ANNUAL ANNUAL ANNUAL (A) (B) (C) Rental revenue 132,124 134,984 2,860 Financial revenue 668 558 (110) Laundry revenue 3,005 6,158 3,153 RHCP annuity payment 80,019 80,019 0 Interest income 0 0 0 Transfer from replacement reserve 0 0 0 Recovery of uncollectible rent (net) 0 0 0 Total income 215,816 221,719 5,903 TOTAL EXPENSES MANAGEMENT FEE: 6200/6300 1 Management fee 15,367 15,368 (1) ADMINISTRATIVE EXPENSES: 6200/6300 2 Advertising and marketing 55 0 55 3 Apartment resale expense (cooperatives) 0 0 0 4 Other renting expenses (credit checks, photography) 303 0 303 5 Office salaries 20,758 22,062 (1,304) 6 Office supplies 2,445 3,431 (986) 7 Office or model apartment rent 0 0 0 8 Manager and superintendent salaries 10,978 10,978 0 9 Manager's and superintendent's rent free unit 0 0 0 10 Legal expense - project 188 64 124 11 Audit expense- project 330 0 330 12 Bookkeeping fees/accounting services 16,009 16,010 (1) 13 Telephone and answering service expenses 0 0 0 14 Bad debt expense 1,350 1,658 (308) 15 Miscellaneous administrative expenses (specify) 4,176 3,696 480 16 TOTAL ADMINISTRATIVE EXPENSES 56,592 57,899 (1,307) UTILITIES EXPENSES: 6400 17 Fuel oil/coal 0 0 0 18 Electricity 2,155 1,266 889 19 Water 21,777 17,602 4,175 20 Gas 12,594 12,572 22 21 Sewer 0 0 0 22 TOTAL UTILITIES EXPENSES 36,526 31,440 5,086 OPERATING AND MAINTENANCE EXPENSES: 6500 23 Janitor and cleaning payroll 0 0 0 24 Janitor and cleaning supplies 0 0 0 25 Janitor and cleaning contracts 6,780 11,014 (4,234) 26 Exterminating payroll/contract 1,000 913 87 27 Exterminating supplies 0 0 0 28 Garbage and trash removal 2,280 3,142 (862) 29 Security payroll/contract 600 280 320 30 Grounds payroll 0 0 0 31 Grounds supplies 0 0 0 32 Grounds contract 3,400 5,114 (1,714) 33 Repairs payroll 17,696 18,895 (1,199) 34 Repairs materials 8,412 5,020 3,392 35 Repairs contract 14,255 21,285 (7,030) 36 Elevator maintenance/contract 0 0 0 37 Heating/cooling repairs and maintenance 0 0 0 38 Swim pool maintenance/contract 0 0 0 39 Snow removal 0 0 0 40 Decorating/payroll contract 4,000 6,833 (2,833) 41 Decorating supplies 0 0 0 42 Vehicle and maint. equipment operation/repairs 1,511 1,347 164 43 Misc. operating and maintenance expenses 6,300 2,141 4,159 44 TOTAL OPERATING AND MAINTENANCE EXPENSES 66,234 75,984 (9,750) - 10 -

STATE OF CALIFORNIA HCD RLM 1.2 (REV. 7/01) DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT Operating Expenses Reporting Period : 07/01/2004 to 06/30/2005 Contract: 80-RHC-002 Units/Sq. Ft. - Assisted: 38 Project Name: San Diego Housing Commission's Scattered Sites Units/Sq. Ft. - Total: 38 Prepared by: Judy F. Elizondo Unit Months: 456 Date Prepared: 09/30/2005 ACCOUNT NAME TOTAL EXPENSES UNAUDITED APPROVED BUDGET ACTUAL ACCOUNT ANNUAL PUM ANNUAL PUM CODES (A) (B) (C) (D) MANAGEMENT FEE: 6200/6300 1 Management fee 6320 15,367 33.70 15,368 33.70 ADMINISTRATIVE EXPENSES: 6200/6300 2 Advertising and marketing 6210 55 0.12 0 0.00 3 Apartment resale expense (cooperatives) 6235 0 0.00 0 0.00 4 Other renting expenses (credit checks, photography) 6250 303 0.66 0 0.00 5 Office salaries 6310 20,758 45.52 22,062 48.38 6 Office supplies 6311 2,445 5.36 3,431 7.52 7 Office or model apartment rent 6312 0 0.00 0 0.00 8 Manager and superintendent salaries 6330 10,978 24.07 10,978 24.07 9 Manager's and superintendent's rent free unit 6331 0 0.00 0 0.00 10 Legal expense - project 6340 188 0.41 64 0.14 11 Audit expense- project 6350 330 0.72 0 0.00 12 Bookkeeping fees/accounting services 6351 16,009 35.11 16,010 35.11 13 Telephone and answering service expenses 6360 0 0.00 0 0.00 14 Bad debt expense 6370 1,350 2.96 1,658 3.64 15 Miscellaneous administrative expenses (specify) 6390 4,176 9.16 3,696 8.11 16 TOTAL ADMINISTRATIVE EXPENSES 6200/6300T 56,592 124.11 57,899 126.97 UTILITIES EXPENSES: 6400 17 Fuel oil/coal 6420 0 0.00 0 0.00 18 Electricity 6450 2,155 4.73 1,266 2.78 19 Water 6451 21,777 47.76 17,602 38.60 20 Gas 6452 12,594 27.62 12,572 27.57 21 Sewer 6453 0 0.00 0 0.00 22 TOTAL UTILITIES EXPENSES 6400T 36,526 80.10 31,440 68.95 OPERATING AND MAINTENANCE EXPENSES: 6500 23 Janitor and cleaning payroll 6510 0 0.00 0 0.00 24 Janitor and cleaning supplies 6515 0 0.00 0 0.00 25 Janitor and cleaning contracts 6517 6,780 14.87 11,014 24.15 26 Exterminating payroll/contract 6519 1,000 2.19 913 2.00 27 Exterminating supplies 6520 0 0.00 0 0.00 28 Garbage and trash removal 6525 2,280 5.00 3,142 6.89 29 Security payroll/contract 6530 600 1.32 280 0.61 30 Grounds payroll 6535 0 0.00 0 0.00 31 Grounds supplies 6536 0 0.00 0 0.00 32 Grounds contract 6537 3,400 7.46 5,114 11.21 33 Repairs payroll 6540 17,696 38.81 18,895 41.44 34 Repairs materials 6541 8,412 18.45 5,020 11.01 35 Repairs contract 6542 14,255 31.26 21,285 46.68 36 Elevator maintenance/contract 6545 0 0.00 0 0.00 37 Heating/cooling repairs and maintenance 6546 0 0.00 0 0.00 38 Swim pool maintenance/contract 6547 0 0.00 0 0.00 39 Snow removal 6548 0 0.00 0 0.00 40 Decorating/payroll contract 6560 4,000 8.77 6,833 14.98 41 Decorating supplies 6561 0 0.00 0 0.00 42 Vehicle and maint. equipment operation/repairs 6570 1,511 3.31 1,347 2.95 43 Misc. operating and maintenance expenses 6590 6,300 13.82 2,141 4.70 44 TOTAL OPERATING & MAINTENANCE EXPENSES 6500T 66,234 145.25 75,984 166.63-12 -