Item 1.	Business.
	Gulledge Realty Investors II, L.P., ("Registrant" or "Partnership") is a Virginia limited partnership formed to invest as a limited partner in other limited partnerships ("Project Partnerships") that own and operate apartment complexes ("Projects") that are financed and/or operated under federal or state housing assistance programs. Part of the original objective of the Registrant was to generate tax losses for investors. However, due to changes in the tax regulations, the use of these losses has been restricted for most investors.
	Gull-AGE Properties, Inc. ("General Partner"), a Delaware corporation, is the General Partner of the Registrant. The stock of the General Partner is owned by Gull-AGE Capital Group, Inc., whose stock was originally owned 50% by the Gulledge Corporation ("Gulledge"), the former general partner, and 50% by A.G. Edwards, Inc. ("Edwards"), a St. Louis-based financial services holding company. In March of 1988, Edwards, through an affiliate, acquired all the shares of Gull-AGE Capital Group, Inc. formerly held by Gulledge. Edwards' principal subsidiary, A.G. Edwards & Sons, Inc., a securities and commodities broker-dealer, was a principal distributor of Units of the Registrant. As a result, neither the General Partner nor Gull-AGE Capital Group, Inc. has any current affiliation with Gulledge.
	On November 1, 1990, Gull-AGE Properties, Inc. was approved by a majority-of-interest of holders of limited partner units to become the sole General Partner of the Registrant. Gull-AGE Properties, Inc. replaced the Gulledge Corporation as Managing General Partner and Eugene A. Gulledge and Keith A. Gulledge as individual General Partners.
	Pursuant to the Securities Act of 1933, the Registrant filed a Form S-11 Registration Statement with the Securities and Exchange Commission. Reference is made to the Prospectus contained in said Registration Statement declared effective April 30, 1984.
	Commencing on April 30, 1984, the Registrant began offering through Gulledge Securities Corporation ("Selling Agent") and other broker-dealers up to 10,000 units (with an option to sell up to 25,000 units) of limited partnership interest (the "Units") at $1,000 per unit ("Offering"), with a minimum purchase of five Units ($5,000).
	As of September 30, 1985, the date that the offering terminated, the Registrant had accepted subscriptions for 11,458 units from 1,038 Investor Limited Partners and 356 units from General and Special Limited Partners.
	As of December 31, 2001, the Registrant has investments in Project Partnerships which own the Projects listed below:
Year
Housing
Original
Offering
Acquisition
Government
PROJECT
Completed
Units
Mortgages
Proceeds
Fees
Programs
1.
Olympic Village Apts.
Chicago Heights, IL
$ 5,989,253
$2,720,000
$244,800
HUD Sections
8 and
221(d)(4);
Illinois HDA
2.
Hawthorn Ridge Apts.
Woodbridge, IL
$ 4,196,243
$1,836,000
$164,700
HUD Section
223(F)
3.
Colony Place Apts.
Fayetteville, NC
$ 1,744,265
$ 598,750
$ 53,950
HUD Sections
8 and 236
4.
Country Oaks Apts.
Somerville, TN
$ 1,054,350
$ 264,000
$ 23,760
FmHA 515
______
__________
_________
________
$12,984,111
$5,418,750
$487,210
	Although each Project must compete in the market place for tenants, interest subsidies and/or rent supplements from governmental agencies make it possible to offer certain of these dwelling units to eligible tenants at a cost significantly below the market rate for comparable conventionally-financed dwelling units.
	The Registrant is attempting to sell its assets and liquidate. The ability to sell the Registrant's assets, i.e. the Project Partnerships, is limited by the overall market conditions in the geographic areas where the Projects operate and, potentially, by the ability of the Projects to qualify for Low Income Housing Tax Credits. For those Project Partnerships for which the Registrant's ownership interest is pledged as collateral in connection with promissory notes, the Registrant must also consider the outstanding balances of the notes and in some cases negotiate a reduced payoff on the notes. The sale of the assets will cause capital gains to be passed through to its partners as a result of negative tax bases in each of the investments from the accumulation of previous years losses.
Item 2.
Item 2.	Properties.
	Other than its interests in the Project Partnerships, the Registrant does not own any property. The General Partner believes that the Projects described below are all in satisfactory physical condition.
Item 3.
Item 3. Legal Proceedings.
The Registrant is not currently subject to any pending material legal proceeding.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters.
As of December 31, 2001, the number of holders of units was 1,011.
The Registrant is a limited partnership and thus has no common stock. There is no ready market for the Units and it is not anticipated that there will be any market. Any acquisitions or dispositions of Units that have occurred have been the result of private transactions, usually between related parties, and the Registrant has no knowledge of the prices bid for or asked with respect to the Units. The General Partner has no plans to offer any services that would match prospective buyers with prospective sellers of Units.
Item 6.
Item 6. Selected Financial Data.
Item 7.
Item 7.	Management's Discussion and Analysis of Financial Condition and
Result of Operations.
	The net loss for 2001 was $329,969 compared to net loss of $309,098 for 2000 and net income for 1999 of $84,440 (see Items 6 and 14(a)1). Net income for 1999 was primarily due to a distribution from the sale of the assets of Greentree Housing Limited Partnership ("Greentree") compared to the net losses for 2001 and 2000 described in the following paragraphs.
	Pine West, Ltd., ("Pine West") and Rancho Vista Associates ("Rancho Vista") project partnership interests were sold August 14, 2001 and December 19, 2001, respectively. The gain on the sale of the interests is included in Gain on Sale of Project Partnerships in the Statement of Operations.
	The assets of Florence Housing Associates ("Florence") and Greentree were sold on November 30, 2000 and October 15, 1999, respectively. As a result of the sales, the Registrant recorded an Investment in Project Partnerships equal to its proportionate share of the gain on the sales. Following the equity method of accounting, the Registrant was then required to reduce its investment balance by previously unrecognized losses from Florence and Greentree, which reduced the Registrant's investment in the projects back to zero. In 1999, the Registrant received a $347,596 distribution from Greentree due in large part to proceeds from the sale. The distribution is recorded in Distributions from zero-basis Project Partnerships in the Statement of Operations.
	Distribution income from zero-basis Project Partnerships was $96,370 in 2001 compared to $24,489 in 2000 and $383,005 in 1999. The increase in Distributions from zero-based Project Partnerships in 2001 as compared to 2000 was mainly the result of recognizing $86,911 of distributions from Hawthorn as distribution income because the Registrant's investment balance in Hawthorn went below zero. Under the equity method, as applied to interests in Limited Liability Partnerships, once an investment balance reaches zero, distributions no longer reduce the investment account, but instead are recognized as distribution income (see Note F to the Financial Statements). Income from distributions was greater in 1999 compared to 2000 and 2001 primarily due to the $347,596 distribution from Greentree.
	Equity in income of Project Partnerships was $32,323 in 2001 as compared to $173,537 in 2000 and $180,464 in 1999. Equity income decreased in 2001 due to a decrease in equity income from Hawthorn, because the investment balance had been reduced to zero (see Note F to the Financial Statements).
	The Gain on Sale of Project Partnerships of $31,867 in 2001 was due to the sale of the limited partner interests of Rancho Vista Associates and Pine West, Ltd.
	Expenses decreased in 2001 compared to 2000 primarily because of a decrease in operating expenses and professional fees. The decrease in professional fees was due to a $10,000 decrease in legal fees. The decrease in operating expenses was due to a $5,000 decrease in bad debts from the Project Partnerships. Expenses increased in 2000 compared to 1999 due to an increase in bad debts expense.
	The accounting for an investment in a Project Partnership involves increasing and decreasing the Registrant's investment in each Project Partnership by the Registrant's share of the Project Partnership's income and loss, respectively. If losses accumulate greater than gains plus capital contributions and less distributions to date, the investment is reduced until that investment reaches zero. Losses incurred by a Project Partnership subsequent to the Registrant's investment reaching zero are not reflected in the Registrant's financial statements until such time as the Project Partnership reports net income. Losses reported from the Project Partnerships are primarily the result of depreciation expense and interest expense incurred on non-recourse government backed debt and non-recourse secondary financing loans. These losses, in and of themselves, do not accurately portray the surplus cash or excess cash (as defined by the United States Department of Housing and Urban Development ("HUD") and Farmers' Home Administration regulations) generating potential of the projects, such surplus cash being available for distribution to the partners of the Project Partnerships. The Registrant treats distributions as income, if the investment in the Project Partnership is zero, or as a return or withdrawal of capital invested in the Project Partnership, if the investment is above zero.
	The Registrant is attempting to sell its assets and liquidate the Partnership. The ability to sell the Registrant's assets, i.e. the Project Partnerships, is limited by the overall market conditions in the geographic areas where the Projects operate and, potentially, by the ability of the Projects to qualify for Low Income Housing Tax Credits. For those Project Partnerships for which the Registrant's ownership interest is pledged as collateral in connection with promissory notes, the Registrant must also consider the outstanding balances of the notes and in some cases negotiate a reduced payoff on the notes. The sale of the assets will cause capital gains to be passed through to its partners as a result of negative tax bases in each of the investments from the accumulation of previous years losses.
	The assets of the Registrant are illiquid. The primary source of cash to finance day-to-day operations is from distributions, if any, to the Registrant from the Project Partnerships. Due to a low volume of transactional activity, the Registrant's need for cash to finance day-to-day operations is minimal.
	The distributions received from Project Partnerships in a given year is affected by regulatory restrictions and limitations and by the operations of the Project Partnerships. Operations of the Project Partnerships is, in turn, affected by several factors, among which are:
Inflation and changing economic conditions involving the management and ownership of rental real estate.
Vacancy levels, rental payment defaults and operating expenses which are all dependent on general and local economic conditions.
The need for capital additions or improvements which may limit the amount of cash available for distribution.
Shifts in these conditions could impact operating results of the Project Partnerships.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is exposed to interest rate risk related to changes in fair value on its fixed rate debt. As of December 31, 2001, the partnership had $3,726,843 of principal and accrued interest on a fixed rate note bearing interest at 9% (See Note F to the Financial statements).
Item 8.
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Registrant are filed herewith (See Item 14(a)1). The supplementary financial information specified by Item 302 of Regulation S-K is not applicable.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no officers or directors. The General Partner is Gull-AGE Properties, Inc. The following is information concerning the officers and directors of the General Partner, all of which are compensated by A.G. Edwards & Sons, Inc., an affiliate of the General Partner:
Name
Position
Douglas L. Kelly
Director, President, Treasurer
and Secretary
Robert J. Herleth
Vice President and
Assistant Secretary
Joseph G. Porter
Vice President, Assistant Treasurer
and Assistant Secretary
Douglas L. Kelly, age 53, is President, Secretary and Treasurer of the General Partner. Mr. Kelly succeeds Robert L. Proost who retired March 1, 2001. Mr. Kelly joined A.G. Edwards & Sons, Inc. on January 1, 1994 and serves as Director, Corporate Vice President, Corporate Secretary, Director of Law and Compliance and Chief Financial Officer. Prior to joining A.G. Edwards & Sons, Inc., Mr. Kelly was a partner in Peper, Martin, Jensen, Maichel & Hetlage, a St. Louis area law firm, where he served as outside counsel to A.G. Edwards & Sons, Inc. for eight years.
Robert J. Herleth, age 49, is a Vice President and Assistant Secretary of the General Partner. Mr. Herleth joined A.G. Edwards & Sons, Inc. in 1980. Since then he has specialized in the areas of real estate and finance. He is also Vice President of A.G.E. Realty Corp., the Special Limited Partner, which owns other real estate properties and interests. Prior to joining A.G. Edwards & Sons, Inc., Mr. Herleth was employed by Pantheon Corporation, a St. Louis area real estate development firm.
Joseph G. Porter, age 41, is a Vice President, Assistant Treasurer and Assistant Secretary of the General Partner. Mr. Porter manages the operations of the General Partner. Mr. Porter succeeds Eugene J. King who retired on February 28, 1999. Mr. Porter joined A.G. Edwards & Sons, Inc. in 1982 and serves as Vice President and Principal Accounting Officer.
The General Partner does not have any standing audit, nominating or compensation committees.
Item 11.
Item 11. Executive Compensation.
Under the provisions of the Registrant's Limited Partnership Agreement, the General Partner is entitled to receive an asset management fee (an annual cumulative amount of $114,580) and a program management fee (an annual noncumulative amount up to $59,250). No such fees were paid during 2001 or 2000. The accumulated amount of these fees accrued but not paid to the General Partner at December 31, 2001 are $774,880 of asset management fees and $0 of program management fees. The ability to pay the program management fee is limited by payment of priority items as outlined in the Registrant's Limited Partnership Agreement.
The General Partner is also to receive a fee of 1% of the gross capital proceeds generated by the Project Partnerships for services connected with the disposition of Partnership investments. This payment is limited by payment of priority items as outlined in the Registrant's Limited Partnership Agreement. In addition, the General Partner will receive any fees to which the prior General Partners would be entitled for performing services with respect to the Project Partnerships of which the Registrant is the limited partner.
Please refer to Note C of the financial statements referenced under Item 14(a)1 for additional information.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The General Partner owns a 1.1% interest in the Registrant and its affiliate, A.G.E. Realty Corporation, owns a 0.10% interest in the Partnership as Special Limited Partner. As of December 31, 2001, no person was known by the Registrant to be the beneficial owner of more than a 5% interest in the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions.
An affiliate of Gull-AGE Properties, Inc., A.G.E. Realty Corp. holds a .10% interest in the Registrant as a Special Limited Partner.
Please refer to Item 11 for additional information.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
April 12, 2002 GULLEDGE REALTY INVESTORS II
(Registrant)
By: Gull-AGE Properties, Inc.
(General Partner)
By: /s/ Douglas L. Kelly
Douglas L. Kelly
President, Secretary,
Treasurer & Director
By: /s/ Robert J. Herleth
Robert J. Herleth
Vice President & Assistant Secretary
By: /s/ Joseph G. Porter
Joseph G. Porter
Vice President, Assistant Treasurer
& Assistant Secretary
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
INDEPENDENT AUDITORS' REPORT
To the Partners of
Gulledge Realty Investors II:
We have audited the accompanying balance sheets of Gulledge Realty Investors II (a limited Partnership) (the "Partnership") as of December 31, 2001 and 2000, and the related statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 2001. 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 did not audit the financial statements of Hawthorn Housing Limited Partnership, a majority owned Limited Partnership ("the Project Partnership"), the Partnership's investment in which is accounted for by use of the equity method. The Partnership's investment in the Project Partnership's net assets of $0 and $254,246 at December 31, 2001 and 2000, respectively, and its share of Project Partnership's net income of $32,323, $173,537 and $180,464 for each of the three years in the period ended December 31, 2001 are included in the accompanying financial statements. The financial statements of the Project Partnership were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for such Project Partnership is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 audits and the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, such financial statements present fairly, in all material respects, the financial position of Gulledge Realty Investors II as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
April 8, 2002
RBG&CO.
Independent Auditors' Report
S2100-020
To The Partners
Hawthorn Housing Limited Partnership
We have audited the accompanying balance sheet of Hawthorn Housing Limited Partnership, Project No. 071-11069, a limited partnership, as of December 31, 2001 and the related statements of profit and loss, partners' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hawthorn Housing Limited Partnership as of December 31, 2001 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated January 29, 2002 on our consideration of Hawthorn Housing Limited Partnership's internal control and reports dated January 29, 2002 on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering 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 supplementary information (shown on Pages 14 through 16) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Rubin, Brown, Gornstein & Company LLP
January 29, 2002
Rubin, Brown, Gornstein & Co. LLP 230 South Bemiston Avenue
Certified Public Accountants/Business Consultants St. Louis, MO 63105
314/727-8150 TEL www.rbgco.com 314/727-9195 FAX
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
Balance Sheets
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
Statements of Operations
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
Statements of Changes in Partners' Deficit
Three Years Ended December 31, 2001
Special
Total
General
Limited
Limited
Balances at January 1, 1999
$ (3,967,099)
$ (52,259)
$ (91,544)
$ (3,823,296)
Net income for 1999
84,440
1,604
81,907
Balances at December 31, 1999
(3,882,659)
(51,330)
(89,940)
(3,741,389)
Net loss for 2000
(309,098)
(3,400)
(5,873)
(299,825)
Balances at December 31, 2000
(4,191,757)
(54,730)
(95,813)
(4,041,214)
Net loss for 2001
(329,969)
(3,630)
(6,269)
(320,070)
Balances at December 31, 2001
$ (4,521,726)
$ (58,360)
$(102,082)
$ (4,361,284)
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
Statements of Cash Flows
See Notes to Financial Statements.
GULLEDGE REALTY INVESTORS II
(A Virginia Limited Partnership)
Notes To Financial Statements
Three Years Ended December 31, 2001
Note A Summary of Significant Accounting Policies
Partnership Organization
Gulledge Realty Investors II (the "Partnership") is a limited partnership organized on December 1, 1983 under the laws of the Commonwealth of Virginia for the purpose of acquiring limited partner interests in real estate limited partnerships ("Project Partnerships"). These Project Partnerships include Colony Place Associates, Ltd. ("Colony"), Country Oaks Apartments Limited Partnership, Hawthorn Housing Limited Partnership ("Hawthorn") and Olympic Housing Limited Partnership ("Olympic"). The Project Partnerships previously included Pine West, Ltd., ("Pine West") and Rancho Vista Associates ("Rancho Vista"), which limited partner interests were sold in 2001, and Florence Housing Associates ("Florence") and Greentree Housing Limited Partnership ("Greentree"), which assets were sold in 2000 and 1999, respectively. Each of the remaining Project Partnerships is an operating real estate project which receives mortgage interest subsidies and/or rental assistance from the United States Department of Housing and Urban Development (HUD) or Farmer's Home Administration. The Registrant commenced operations in March 1984.
The Partnership owns 100% of the limited partner interests in the Project Partnerships, which represents 99%, 94.9%, 99% and 99% of the total ownership interests in Colony, Country Oaks, Hawthorn and Olympic, respectively. GULL-AGE Realty Advisors, Inc., ("GARA") an entity related to GULL-AGE Properties, Inc., ("GAP") the General Partner of the Partnership, is the General Partner or the agent for the General Partner or Special General Partner of Colony, Hawthorn, Olympic and Country Oaks. GARA owns or controls through its agency agreement .1%, .01%, .1% and .1% of Colony, Hawthorn, Olympic and Country Oaks, respectively. The remaining partnership interests of the Project Partnerships are owned by unrelated individuals or entities.
The financial statements include only those assets, liabilities, and results of operations which relate to the business of the Partnership and do not include any assets, liabilities, or operating results attributable to the partners' individual activities.
In November 1988, the General Partners (Eugene A. Gulledge, Keith A. Gulledge and The Gulledge Corporation) filed for bankruptcy. The Limited Partnership Agreement allows for the replacement of a general partner in such circumstances subject to Limited Partner approval.
In November 1990, by approval of a majority vote of the limited partnership units, GAP replaced Eugene A. Gulledge, Keith A. Gulledge and The Gulledge Corporation as the sole General Partner. GAP is not affiliated with the Gulledges or their affiliates. GAP had been performing certain administrative duties on behalf of the Gulledges since the bankruptcy filing. As General Partner, GAP will continue the operation of the Partnership in accordance with the Limited Partnership Agreement.
The Partnership is attempting to sell its assets and liquidate. The ability to sell the Partnership's assets, i.e. the Project Partnerships, is limited by the overall market conditions in the geographic areas where the Projects operate and, potentially, the ability of the Projects to qualify for Low Income Housing Tax Credits. For those Project Partnerships for which the Partnership's ownership interest is pledged as collateral in connection with promissory notes, the Partnership must also consider the outstanding balances of the notes and in some cases negotiate a reduced payoff on the notes. The sale of the assets will cause capital gains to be passed through to its partners as a result of negative tax bases in each of the investments from the accumulation of previous years losses.
Cash and Cash Equivalents
The Partnership considers interest bearing money market account balances to be cash equivalents.
Investment in Project Partnerships
The investment in Project Partnerships is accounted for using the equity method of accounting. Under the equity method, investments are reflected at cost, adjusted for the Partnership's share of the Project Partnerships' income or loss. The Partnership is under no obligation to contribute additional capital, or to lend monies necessary to fund cash flow deficiencies of the Project Partnerships, because the Partnership is a limited partner in such partnerships. The investment account for a Project Partnership will not be reduced below zero because the Partnership is not liable for Project Partnership losses in excess of such investment. Losses in subsequent years will be maintained separately for tax purposes. These losses are available to be applied toward any possible future income from these Project Partnerships. Any distributions received from the Project Partnerships subsequent to reducing the investment account to zero, will be recognized as income in the year received.
Income Taxes
No provision has been made for current or deferred income taxes since they are the responsibility of each partner. Profits (or gains) and losses of the Partnership are allocated to the partners in accordance with the partnership agreement.
Use of 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimated.
Segment Reporting
The Partnership's principal line of business is investing in Project Partnerships that own and operate Projects that are financed and/or operated under federal or state housing assistance programs. Management believes that the Partnership operates in one business segment.
Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS Nos. 137 and 138. This adoption did not have an impact on the Partnership's financial statements.
Reclassifications
Where appropriate, prior years' financial information has been reclassified to conform with the current year presentation.
Note B Partners' Deficit
Profits and losses of the Partnership are allocated pro-rata to the partners in accordance with their interest as follows:
General partner (131 units)
1.1%
Special limited partners (225 units)
1.9
Investor limited partners (11,458 units)
97.0
100.0%
Upon dissolution and termination of the Partnership, the net proceeds resulting from the sale of Partnership assets are first used to pay all debts and liabilities of the Partnership; next, to repay capital contributions of the partners less any prior cash distributions from capital proceeds; then, to the payment of a cumulative disposition fee to the General Partner, with any remaining funds allocated as follows:
General partner
4.0%
Special limited partners
6.0
Investor limited partners
90.0
100.0%
In the event that net operating revenues, as defined, are realized during any fiscal year, an annual noncumulative program management fee of up to $59,250 is payable to the managing General Partner. The fee represents compensation for maintaining the Partnership's books, records and accounts per the Partnership agreement. The amount of the program management fee plus the asset management fee accrued each year shall not exceed .5% of invested assets, as defined in the Partnership's Limited Partnership Agreement (the "Agreement").
Upon the distribution of capital proceeds by the Partnership, the General Partner is authorized to receive a cumulative disposition fee equal to 1% of the capital proceeds generated through the sale of Project Partnerships to the extent such proceeds exceed priority payments as defined in the Agreement.
Note C Reconciliation of Operations: Financial Statement Versus Income Tax Return
The financial statement (loss)/income is reconciled to income tax loss for the years ended December 31, 2001, 2000 and 1999 as follows:
Net (loss)/income per financial statements
$ (329,969)
$ (309,098)
$ 84,440
Less: equity in income of Project
Partnership for financial statement
purposes
(32,323)
(173,537)
(180,464)
Less: gain on sale of Project Partnerships
(31,867)
Less: distributions received from
zero-basis Project Partnership
(96,370)
(24,489)
(383,005)
Add: equity in income/(losses) of
Project Partnerships for tax
return purposes (unaudited)
1,335,563
5,878,335
(14,775)
Net income/(loss) per income tax return
$ 845,034
$ 5,371,211
$ (493,804)
Note D Escrow Deposit
The escrow deposit represents money received related to a contract to sell Colony. Subsequent to year end, the deposit reverted to the Partnership under the terms of the contract.
Note E Payable To Affiliates
	In accordance with the Agreement, the Partnership is required to pay to the General Partner an annual asset management fee of $114,580. Amounts due in accordance with the Agreement at December 31, 2001 and 2000 are $774,880 and $660,300, respectively. The Partnership also pays annual consulting fees of $19,000 out of the distributions from Hawthorn to GAP. Amounts due for consulting fees at December 31, 2001 and 2000 are $19,000.
Note F Project Partnerships
The Partnership's limited partner interests in Pine West and Rancho Vista were sold on August 14, 2001 and December 19, 2001, respectively. The gain on the sale of the interests are included in gain on sale of Project Partnerships in the Statement of Operations.
The assets of Florence and Greentree were sold on November 30, 2000 and October 15, 1999, respectively. As a result of the sales, the Registrant recorded an Investment in Project Partnerships equal to its proportionate share of the gain on the sales.
Note F Project Partnerships (continued)
Following the equity method of accounting, the Registrant was then required to reduce its investment balance by previously unrecognized losses from Florence and Greentree, which reduced the Registrant's investment in the projects back to zero. In 1999, the Registrant received a $347,596 distribution from Greentree due in large part to proceeds from the sale. The distribution was recorded in Distributions from zero-basis Project Partnerships in the Statement of Operations.
The Partnership's limited partner interests in the following Project Partnerships (the "Projects") serves as collateral in connection with promissory notes issued by the Projects as described below:
Project Partnership
(Debtor)
Pomissory Note,
Including Accrued Interest
Payment Terms
Colony
$2,635,000
9% interest due annually.
Principal plus unpaid interest
due on November 30, 1999.
Note is currently in default.
Olympic
$9,256,000
10% interest due annually.
Principal plus unpaid interest
due on December 31, 2000.
Note is currently in default.
Colony's promissory note was originally due December 31, 1995, but was extended until June 30, 1997, while a sale of the project was being pursued under the Low Income Housing Preservation and Resident Homeownership Act ("LIHPRHA"). LIHPRHA was a program administered by the Department of Housing and Urban Development ("HUD"). Unfortunately, funds are no longer available under the LIHPRHA program.
The promissory note had been extended to November 30, 1999, while the general partner attempted to locate a buyer for the project. A buyer was not located before November 30, 1999. This note is currently in default. Therefore, the noteholder may demand payment and the project may revert to the noteholder at any time.
Note F Project Partnerships (continued)
Olympic's promissory note was originally due December 31, 1995, but was extended to December 31, 2000. In addition, the interest rate on Olympic's note was reduced from 12% to 10% and payment terms were changed to allow more of Olympic's available surplus cash to be paid to the noteholder as partial payment of the annual interest due on the promissory note. This note is currently in default. The noteholder has notified Olympic of its demand for payment. Therefore, the project may revert to the noteholder at any time.
Though the Partnership's investment in these Project Partnerships is zero, the impact on future operations could be significant as distributions from Project Partnerships is the primary source of revenue for the Partnership.
Hawthorn refinanced its mortgage during 1997. Proceeds from the refinancing were used to make a partial payment on the promissory note which had come due December 31, 1996. The remaining balance of the promissory note was renegotiated. The mortgage was refinanced under HUD regulations which limit the amount of debt that can be collateralized by the project. Accordingly, HUD would not approve the mortgage refinance unless the promissory note was no longer a liability of the project. Therefore, the General Partner of the Partnership and the noteholder agreed to have the promissory note assumed by the Partnership. The promissory note is now collateralized by the Partnership's interest in Hawthorn. Principal and interest are only payable from surplus cash received by the Partnership from Hawthorn. Under the terms of the promissory note, the Partnership pays an annual consulting fee of $19,000 to GAP and $25,000 to the noteholder. The consulting fees are only payable out of distributions from Hawthorn.
The Partnership is not required to make any payments from surplus cash it receives from any other project. The promissory note plus accrued interest totaled $3,726,843 at December 31, 2001, and bears simple interest at a rate of 9%. Any principal and interest remaining unpaid on June 30, 2002, will be due upon demand. If the Partnership is unable to pay the principal and accrued interest on June 30, 2002, the interest rate on the note increases to 11% and the Project Partnership may revert to the noteholder.
Note F Project Partnerships (continued)
In conjunction with assuming the liability for the promissory note, the Partnership also recorded a corresponding investment in Hawthorn. The investment account was then reduced by previously unrecorded losses of Hawthorn in accordance with the equity method of accounting. The investment account was adjusted in subsequent years by the Partnership's share of any additional income or loss from Hawthorn. This investment account was also reduced when the Partnership received distributions from Hawthorn. In 2001, the Partnership's share of income and distributions from Hawthorn were $105,970 and $373,481, respectively. Income of $32,323 was recorded as Equity in income of Project Partnerships in the Statements of Operations, prior to receipt of the distribution. The distribution was recorded as a reduction of Investment in Project Partnerships of $286,569 on the Balance Sheet and Distributions from zero-basis Project Partnerships of $86,912 in the Statement of Operations.
None of the Project Partnerships are experiencing significant operating cash flow deficiencies after adding back non-cash items such as depreciation, amortization and accrued interest on promissory notes not currently payable to the operating losses of the Project Partnerships.
Note G Condensed Financial Data of Project Partnerships
The following is a summary of the condensed financial position and results of operations of the remaining Project Partnerships and the Project Partnerships that were disposed of in the current year which have been obtained from audited financial statements and are not covered by the accompanying independent auditors' report (dollars in thousands):
Colony Place Associates, Ltd.
Condensed Balance Sheets
Condensed Statements of Operations
Note G Condensed Financial Data of Project Partnerships (continued)
Country Oaks Apartments Limited Partnership.
Condensed Balance Sheets
Condensed Statements of Operations
Note G Condensed Financial Data of Project Partnerships (continued)
Hawthorn Housing Limited Partnership
Condensed Balance Sheets
Condensed Statements of Operations
Note G Condensed Financial Data of Project Partnerships (continued)
Olympic Housing Limited Partnership
Condensed Balance Sheets
Condensed Statements of Operations
Note G Condensed Financial Data of Project Partnerships (continued)
Pine West, Ltd.
Condensed Balance Sheets
(Partnership Interest Sold in 2001)
December 31, 2000
Assets:
Rental Property (Net)
$ 969
Other Assets
$ 1,099
Liabilities and Partners' Deficit:
Mortgage Notes Payable
$ 1,248
Other Liabilities
Partners' Deficit
(191)
$ 1,099
Condensed Statements of Operations
Note G Condensed Financial Data of Project Partnerships (continued)
Rancho Vista Associates
Condensed Balance Sheets
(Partnership Interest Sold in 2001)
Condensed Statements of Operations
Note G	Condensed Financial Data of Project Partnerships (continued)
Combined Total of Project Partnerships
Condensed Balance Sheets
Condensed Statements of Operations