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HomeMy WebLinkAboutD- 7 Financial Statement for year ended June 30, 2002, for Redevelopment Agency Cit of Azusa Residential Mortgage Bond ProgramTO: HONORABLE CHAIRPERSON AND BOARD OF DIRECTORS FROM: JOSE AMADOR, ASSISTANT ECONOMIC DEVELOPMENT/REDEVELOPMENT DIRECTOR ROSEANNA J. ]ARA, SR. ACCOUNTANT -REDEVELOPMENT VIA: RICK COLE, EXECUTIVE DIRECTOR DATE: MARCH 3, 2003 SUBJECT: FINANCIAL STATEMENTS FOR YEAR ENDED JUNE 30, 2002, FOR REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE BOND PROGRAMS I RECOMMENDATION It is recommended that the Board of Directors receive and file the Financial Statements for Year Ended June 30, 2002, for the Residential Mortgage Financing Program, $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992; and the Residential Mortgage Financing Program, $10,000,000 Single Family Mortgage Revenue Refunding Bonds, Series 1992A. BACKGROUND In October 1979, the Agency issued residential mortgage revenue bonds totaling $38,350,000 (Prior Bonds) used to purchase mortgage loans secured by first deeds of trust for various housing projects around the City. In March 1992, the $10,000,000 Single Family Mortgage Revenue Refunding Bonds, Series 1992Awere issued to refund the remainder of the Prior Bonds, and were guaranteed by FNMA. Subsequently, in June 1992, the Agency issued the $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992, to advance refund the $10,000,000 Refunding Bonds. The proceeds were used to acquire federal securities irrevocably pledged for payment of debt service on the $1 OM Refunding Bonds. Annually, the City's independent auditors audit these two bond issues in accordance with generally accepted auditing standards. Both issues were found to be in conformance with auditing standards. FISCAL IMPACT Although the Agency arranged the Residential Mortgage Financing Program and issued the bonds, these issues are special obligations and do not constitute a debt, nor a pledge of faith and credit of the Agency. The bondholders may look only to the assets of the bond issues for payment. As a result, there is no fiscal impact to the Agency. Prepared by: Roseannal.lara, Sr. Accountant -Redevelopment JA:RJJ/cs REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2002 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A TABLE OF CONTENTS Page Number INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Exhibit A - Combined Balance Sheet-All Fund Types and Account Groups 2 Exhibit B - Combined Statement of Revenues, Expenditures and Changes in Fund Balance - Debt Service Funds 3 Notes to Financial Statements 4 SUPPLEMENTAL SCHEDULES Schedule 1 - Combining Balance Sheet-All Fund Types and Account Groups 10 Schedule 2 - Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Debt Service Funds 11 203 North Brea Boulevard AA. Lance Suite 203 rEa00 , �1Soll & Brea, CA 92821-4056 �Lunghard (714) 672-0022 � LLP Fax (714) 672-0331 � CERTIFIED PUBLIC ACCOUNTANTS www.Islcpas.com pNNRY 1929-1999.1999 Brandon W.Burrows Donald L.Parker Michael K.Chu David E.Hale _ A Professional Corporation Donald G.Slater Richard K.Kikuchi Retired Robert C.Lance 1914-1994 INDEPENDENT AUDITORS' REPORT Fred J. charJ.Luu S Fred aa rd,Jr. 1928-1999 The Honorable Chairman and Board of Directors The Redevelopment Agency of the City of Azusa, California We have audited the accompanying combined balance sheet of the various fund types and account groups of the Residential Mortgage Financing Program, $10,000,000 Single Family Mortgage Revenue Refunding Bonds(Mortgage-Backed Securities Program), Issue of 1992,Series A,of the Redevelopment Agency of the City of Azusa at June 30, 2002, and the related statement of revenues, expenditures and changes in fund balances for the year then ended. These financial statements are the responsibility of the management of the Redevelopment Agency of the City of Azusa, California. 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. 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 the various fund types and account groups of the Residential Mortgage Financing Program, $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program), Issue of 1992, Series A, of the Redevelopment Agency of the City of Azusa at June 30, 2002, and the results of its operations for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules listed in the accompanying table of contents are presented for purposes of additional analysis and are not a required part of the financial statements of the Residential Mortgage Financing Program (Mortgage-Backed Securities Program), Issue of 1992, Series A, of the Redevelopment Agency of the City of Azusa. 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. Veeed, 442eg a�� January 23, 2003 MEMBER CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Exhibit A RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30, 2002 Totals GOVERNMENTAL ACCOUNT (Memorandum FUND TYPE GROUP Only) General Debt Long-Term ASSETS Service Debt June 30,2002 Cash and investments(Note 2) $ 10,544,357 $ - $ 10,544,357 Amount available in debt service funds - 4,065,470 4,065,470 Amount to be provided for retirement of debt - 5,334,530 5,334,530 Total Assets $ 10,544,357 $ 9,400,000 $ 19,944,357 LIABILITIES AND FUND BALANCES Liabilities: Mortgage revenue refunding bonds payable(Notes 3,4, and 5) $ - $ 9,400,000 $ 9,400,000 Total Liabilities - 9,400,000 9,400,000 Fund Balances: Reserved for debt service 4,065,470 - 4,065,470 Reserve for fair value of investments 6,478,887 - 6,478,887 Total Fund Balances 10,544,357 - 10,544,357 Total Liabilities and Fund Balances $ 10,544,357 $ 9,400,000 $ 19,944,357 See Notes to Financial Statements 2 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Exhibit B RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE - DEBT SERVICE FUNDS YEAR ENDED JUNE 30, 2002 Revenues: Use of money $ 847,038 Other income 4,150 Total Revenues 851,188 Expenditures: Bond Administration 4,150 Interest expense 633,283 Total Expenditures 637,433 Excess of Revenues over (under) Expenditures 213,755 Fund Balances: Beginning of Fiscal Year 10,330,602 End of Fiscal Year $10,544,357 See Notes to Financial Statements 3 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 Note 1: Summary of Significant Accounting Policies The following is a summary of the significant accounting policies of the Residential Mortgage Financing Program (Program) of the $10,000,000 Residential Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program), Issue of 1992, Series A, of the Redevelopment Agency of the City of Azusa (Agency). a. Description of Reporting Entity The Agency,a component unit of the City of Azusa,has entered into a financing arrangement to refund a portion of the Agency's Residential Mortgage Revenue Bonds, Issue of 1979, Series A(Prior Bonds). The proceeds of the Prior Bonds were used to provide for a bond and loan program to provide low interest financing for residential development within the redevelopment project areas. Although the Agency has arranged this financing program,the debt is not payable from any revenues or assets of the Agency.The bond issue is a special obligation and is not deemed to constitute a debt nor a pledge of the faith and credit of the Agency, the City of Azusa, the State of California or any other political subdivisions. Generally, the bondholders may look only to assets held by trustees for security on the indebtedness. Only the funds and account groups of the Residential Mortgage Financing Program of the $10,000,000 Residential Mortgage Revenue Refunding Bonds (Mortgage- Backed Securities Program), Issue of 1992, Series A, of the Agency, are included herein. These financial statements, therefore, do not purport to represent the financial position or results of operations of the Agency, a component unit of the City of Azusa. b. Fund Accounting The basic accounting and reporting entity is a"fund". A fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts,recording resources,related liabilities, obligations, reserves and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The accounting records of the Program are organized on the basis of fund and account groups classified for reporting purposes as follows: Debt Service Funds The debt service funds are used to account for the accumulation of resources for, and the payment of, the refunding bonds' principal and interest. The following debt service funds and accounting practices are required by the refunding bond provisions: 4 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program) Issue of 1992, Series A Notes to Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) Program Expense Fund - this fund is used to account for the fees and expenses incurred in the administration of the Program. Bond Fund -this fund is used to account for all principal and interest payments on the term bonds as well as to accumulate monies to be used for the retirement or special redemption of outstanding bonds. Interest Only Participation Fund-this fund has been established exclusively to make interest payments on the subordinated capital appreciation bonds. If monies in this fund are insufficient to pay the entire amount of interest due, interest will be paid in the amount available and the balance of unpaid interest will be added to the accredited value of the subordinated capital appreciation bonds. Redemption Fund -this fund is used to account for all monies transferred from the Bond Fund and Program Expense Fund in order to redeem all or a portion of the bonds outstanding. Excess Investment Earnings Fund - this fund is used to account for excess investment earnings calculated in accordance with Section 143(g)(3)(A) of the Internal Revenue Service Code. Cost of Issuance Fund - this fund is used to account for the issuance costs associated with the mortgage revenue refunding bonds. Escrow Fund - this fund is used to account for the monies received which are designated for refunding payments and to account for the principal, interest and premium payments made to refund all outstanding bonds. General Long-Term Debt Account Group This separate self-balancing account group is used to account for the unmatured principal of the refunding bonds. c. Measurement Focus and Basis of Accounting As governmental funds, the debt service funds of the Program are accounted for on a "spending" measurement focus. Accordingly, only current assets and current liabilities are generally included on their balance sheets. The reported fund balances provide an indication of available, spendable resources. Operating statements for debt service funds report increases (revenues) and decreases (expenditures) in available spendable resources. The modified accrual basis of accounting is followed by debt service funds. Under the modified accrual basis of accounting, revenues are susceptible to accrual when they become both measurable and available. "Available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures,other than interest on long-term debt, are recorded when a current liability is incurred. Liabilities are considered current when they are normally expected to be liquidated with expendable available financial resources. 5 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program) Issue of 1992, Series A Notes to Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) d. Interfund Transfers Operating transfers are reported as other sources and uses of funds in the statement of revenues, expenditures and changes in fund balances. e. Investments The Agency adopted GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools,as of July 1, 1997. GASB Statement No. 31 establishes fair value standards for investments in participating interest earning investment contracts, external investment pools, equity securities, option contracts, stock warrants and stock rights that have readily determinable fair values. Accordingly,the Agency reports its investments at fair value in the balance sheet. All investment income, including changes in the fair value of investments,is recognized as revenue in the operating statement. f. Reserved Fund Balances Reserved fund balances generally represent those portions of fund balances that are associated with non-current or restricted assets and are not available for future appropriations. g. Memorandum Only Totals Columns in the accompanying financial statements captioned"Totals(Memorandum Only)" are not necessary for a fair presentation in accordance with generally accepted accounting principles but are presented as additional analytical data. Interfund balances and transactions have not been eliminated,therefore,these columns do not present consolidated financial information. Note 2: Cash and Investments Cash and investments held in the program as of June 30, 2002 consisted of the following: — Deposits $ 3,309 Investments 10,541,048 $ 10,544,357 The Trustee, acting on behalf of the Agency, is authorized under the Escrow Deposit and Trust _ Agreement to invest funds in the following: (1) direct obligations of, or obligations fully guaranteed as to principal and interest by, the United States of America or any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States,which obligations include the following: United States Treasury obligations;obligations, debentures, notes or other evidences of indebtedness issued or guaranteed by the Government National Mortgage Association; Federal Housing Administration debentures; Federal Home Loan Mortgage Corporation participation certificates and senior debt obligations fully guaranteed as to timely payment of principal and interest; Federal National Mortgage Association's mortgage- - backed securities and senior debt obligations and non-callable obligations of the Resolution Funding Corporation;and(2)deposits in any bank,including the Trustee or any affiliate which are 6 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program) Issue of 1992, Series A Notes to Financial Statements(Continued) Note 2: Cash and Investments (Continued) insured by the Federal Deposit Insurance Corporation or its successor and if not so insured, collateralized in a manner required for deposit of public funds. Under the California Government Code,a financial institution is required to secure deposits made by State or local government units by pledging securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Program deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Deposits of agencies and other State or local governments are classified in three categories to give an indication of the level of credit risk assumed by the entity at year end. Category 1 includes deposits that are insured or collateralized with securities held by the Program or its agent in the Program's name. Category 2 includes deposits collateralized with securities held by the pledging financial institution's trust department or agent in the Program's name.Category 2 also includes deposits collateralized by an interest in an undivided collateral pool held by an authorized Agent of Depository and subject to certain regulatory requirements under State law. Category 3 includes deposits collateralized with securities held by the pledging financial institution, or by its trust department or agent, but not in the Program's name. Category 3 also includes any uncollateralized deposits. Category Bank Carrying 1 2 3 Balance Amount Form of Deposits Demand Deposits $ 3,309 $ - $ - $ 3,309 $ 3,309 Investments of agencies and other State or local governments are classified in three categories to give an indication of the level of risk assumed by the entity at year end. Category 1 includes investments that are insured or registered or for which the securities are held by the Program (trustee) or its agent (other than the institution through which the Program purchased the securities)in the Program's name. Investments held"in the Program's name"include securities held in a separate custodial or fiduciary account and identified as owned by the Agency in the custodian's internal accounting records. Category 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the Program's name, (except for those securities that are held by the same department or agent that purchased the securities for the Agency). Category 3 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent, but not in the Program's name. Category 3 also includes all securities held by the broker-dealer agent of the Agency(the party that purchased the securities for the Program) regardless of whether or not the securities are being held in the Program's name. 7 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program) Issue of 1992, Series A Notes to Financial Statements (Continued) Note 2: Cash and Investments (Continued) Category Fair 1 2 3 Value Government Securities (U.S. Treasury Security Strips and REFCO Securities) $10,541,048 $ - $ - $10,541,048 Note 3: Mortgage Revenue Refunding Bonds Payable In October, 1979, the Agency issued residential mortgage revenue bonds totaling $38,350,000 (Prior Bonds). The proceeds were used to purchase mortgage loans secured by first deeds of trust. On March 1, 1992, the Agency issued Refunding Bonds totaling$10,000,000 which were used to refund a portion of the Prior Bonds. The Refunding Bonds are secured by mortgage pass-through certificates guaranteed as to timely payment of principal and interest by the Federal National Mortgage Association. On June 1, 1992, the Agency issued a taxable collateralized refunding bond totaling$9,903,000 to advance refund the$10,000,000 Refunding Bonds. Pursuant to the Escrow Deposit and Trust Agreement between the Agency and trustee of the Refunding Bonds,the proceeds of the taxable collateralized refunding bonds were used to acquire federal securities which are non-callable, non-prepayable and unconditionally guaranteed as to full and timely payment of principal and interest by the United States. These securities were deposited to an irrevocable escrow account, whereby all cash and investments of the escrow account are irrevocably pledged as a special fund for the payment of the principal, interest and premium of the Refunding Bonds. The amount provided from the assets placed in trust is sufficient to meet the debt service requirements of the Refunding Bonds. As of June 30, 2002, the Refunding Bonds were composed of the following: Principal Outstanding $2,730,000 of Term Bonds; principal payable in full at maturity on October 1, 2002; interest of 6.4% is payable semi-annually on April 1 and October 1 beginning April 1, 1992, subject to optional redemption in whole or in part with premium ranging from .5% to 1.5% beginning October, 1997. $ 2,730,000 $6,670,000 of Term Bonds; principal payable in full at maturity on October 1, 2012; interest of 6.875% is payable semi-annually on April 1 and October 1 beginning April 1, 1992; subject to optional redemption in whole or in part with premium ranging from .5% to 3% beginning October, 2002. 6,670,000 $ 9.400,000 8 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program) Issue of 1992, Series A Notes to Financial Statements (Continued) Note 4: Changes in Long-Term Debt The following is a summary of general long-term debt transactions of the program for the year ended June 30, 2002: Balance at Balance at July 1, 2001 Additions Deletions June 30, 2002 Mortgage Revenue Refunding Bonds $ 9,400,000 $ - $ - $ 9,400,000 Note 5: Debt Service Requirements to Maturity The annual requirements to amortize outstanding general long-term debt of the Program as of June 30, 2002, including interest payments in the amount of$4,902,267, is as follows: Year Ending June 30, Amount 2003 $ 3,275,923 2004 458,563 2005 458,563 2006 458,563 2007 458,563 2008 458,563 2009 458,562 2010 458,562 2011 458,562 2012 458,562 2013 6,899,281 Total $ 14,302,267 Less Interest 4,902,267 Total Principal Outstanding $ 9,400,000 9 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Schedule 1 RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A COMBINING BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30, 2002 Escrow Total ASSETS Cash and investments $10,544,357 $10,544,357 Total Assets $10,544,357 $10,544,357 FUND BALANCES - Reserved for debt service $ 4,065,470 $ 4,065,470 Reserve for fair value of investments 6,478,887 6,478,887 Total Fund Balances $10,544,357 $10,544,357 10 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Schedule 2 RESIDENTIAL MORTGAGE FINANCING PROGRAM $10,000,000 SINGLE FAMILY MORTGAGE REVENUE REFUNDING BONDS (Mortgage-Backed Securities Program) ISSUE OF 1992, SERIES A COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE -DEBT SERVICE FUNDS YEAR ENDED JUNE 30, 2002 Escrow Total Revenues: Investment income $ 847,038 $ 847,038 Other 4,150 4,150 Total Revenues 851,188 851,188 Expenditures: Current: General government 4,150 4,150 Debt Service: Interest 633,283 633,283 Total Expenditures 637,433 637,433 Excess of Revenues over (under)Expenditures 213,755 213,755 Fund Balances: Beginning of Fiscal Year 10,330,602 10,330,602 End of Fiscal Year $ 10,544,357 $ 10,544,357 11 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2002 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 TABLE OF CONTENTS Page Number INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Exhibit A - Combined Balance Sheet-All Fund Types and Account Groups 2 Exhibit B - Combined Statement of Revenues, Expenditures and Changes in Fund Balances- Debt Service Funds 3 Notes to Financial Statements 4 SUPPLEMENTAL SCHEDULES Schedule 1 - Combining Balance Sheet- Debt Service Funds 10 Schedule 2 - Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Debt Service Funds 11 203 North Brea Boulevard Lance Suite 203 l go. 4` SO II & Brea, CA 92821-4056 `tO r i) �, 11 Lunghard (714) 672-0022 �� '1 LLP Fax (714) 672-0331 11 CERTIFIED PUBLIC ACCOUNTANTS www.lslcpas.com ANNIVERSARY 1929.1999 Brandon W.Burrows Donald L.Parker Michael K.Chu David E.Hale A Professional Corporation '- Donald G.Slater Richard K.Kikuchi Retired Robert C.Lance 1914-1994 Richard C.Soil Fred J.Lunghard,Jr. 1928-1999 INDEPENDENT AUDITORS' REPORT _ The Honorable Chairman and Board of Directors The Redevelopment Agency of the City of Azusa, California We have audited the accompanying combined balance sheet of the various fund types and account groups of the Residential Mortgage Financing Program, $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992, of the Redevelopment Agency of the City of Azusa at June 30, 2002, and the related statement of revenues, expenditures and changes in fund balances for the year then ended. These financial statements are the responsibility of the management of the Redevelopment Agency of the City of Azusa, California. 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. 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 the various fund types and account groups of the Residential Mortgage Financing Program, $9,903,000 Taxable Collateralized Refunding Bonds,Series 1992,of the Redevelopment Agency of the City of Azusa at June 30, 2002, and the results of its operations for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules listed in the accompanying table of contents are presented for purposes of additional analysis and are not a required part of the financial statements of the Residential Mortgage Financing Program, $9,903,000 Taxable Collateralized Refunding Bonds,Series 1992 of the Redevelopment Agency of the City of Azusa. 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' afee.e, 5--ortviZiszecep° January 23, 2003 MEMBER CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Exhibit A RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS JUNE 30, 2002 Totals GOVERNMENTAL ACCOUNT (Memorandum FUND TYPE GROUP Only) General Debt Long-Term ASSETS Service Debt June 30,2002 Cash and investments(Note 2) $ 166,486 $ - $ 166,486 Amount available in debt service funds - 56,276 56,276 Amount to be provided for retirement of debt - 246,724 246,724 Total Assets $ 166,486 $ 303,000 $ 469,486 LIABILITIES AND FUND BALANCES Liabilities: Mortgage revenue refunding bonds payable (Notes 3,4 and 5) $ - $ 303,000 $ 303,000 Total Liabilities - 303,000 303,000 Fund Balances: Reserved for debt service 56,276 - 56,276 Reserved for fair value 110,210 - 110,210 Total Fund Balances 166,486 - 166,486 Total Liabilities and Fund Balances $ 166,486 $ 303,000 $ 469,486 See Notes to Financial Statements 2 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Exhibit B RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - DEBT SERVICE FUNDS YEAR ENDED JUNE 30, 2002 Revenues: Use of money $ 18,461 Other income 1,500 Total Revenues 19,961 Expenditures: Bond administration 1,500 Total Expenditures 1,500 Excess of Revenues over (under) Expenditures 18,461 Fund Balances: Beginning of Fiscal Year 148,025 End of Fiscal Year $ 166,486 See Notes to Financial Statements 3 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA RESIDENTIAL MORTGAGE FINANCING PROGRAM _ $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 Note 1: Summary of Significant Accounting Policies The following is a summary of the significant accounting policies of the Residential Mortgage Financing Program (Program)of the$9,903,000 Taxable Collateralized Refunding Bonds,Series 1992, of the Redevelopment Agency of the City of Azusa (Agency). a. Description of Reporting Entity The Agency,a component unit of the City of Azusa,has entered into a financing arrangement to advance refund the Agency's Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program), 1992 Series A(Prior Bonds),which were issued to refund a portion of the Agency's Residential Mortgage Revenue Bonds, 1979 Series A (Housing Bonds). The proceeds of the Housing Bonds were used to provide for a bond and loan program under which the Agency provided low interest financing for residential development within the redevelopment project areas. Although the Agency has arranged this financing program, the debt is not payable from any revenues or assets of the Agency. The bond issue is a special obligation and is not deemed to constitute a debt nor a pledge of the faith and credit of the Agency,the City of Azusa, the State of California,or any other political subdivisions. Generally,the bondholders may look only to assets held by trustees for security on the indebtedness. Only the funds and account groups of the Residential Mortgage Financing Program of the$9,903,000 Taxable Collateralized Refunding Bonds,Series 1992, of the Agency, are included herein. These financial statements, therefore do not purport to represent the financial position or results of operations of the Agency, a component unit of the City of Azusa. b. Fund Accounting The basic accounting and reporting entity is a "fund". A fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts,recording resources,related liabilities, obligations, reserves and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The accounting records of the Program are organized on the basis of funds and account groups classified for reporting purposes as follows: 4 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992 Notes to Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) Governmental Fund Debt Service Funds The debt service funds are used to account for the accumulation of resources for, and the payment of, the taxable collateralized bonds principal and interest. The following debt service funds and accounting practices are required by the bond provisions: Bond Fund-this fund is used to account for all principal and interest payments and maturity amount of the bonds. It is the Trustee's practice to record investment earnings in the fund in which the investments are held. Cost of Issuance Fund - this fund is used to account for all issuance costs associated with the taxable collateralized refunding bonds. Expense Fund-this fund is used to account for the fees and expenses incurred in the administration of the Program. Account Group General Long-Term Debt Account Group This separate self-balancing account group is used to account for the unmatured principal of the taxable collateralized refunding bonds. c. Measurement Focus and Basis of Accounting As governmental funds, the debt service funds of the Program are accounted for on a "spending" measurement focus. Accordingly, only current assets and current liabilities are generally included on their balance sheets. The reported fund balances provide an indication of available, spendable resources. Operating statements for debt service funds report increases (revenues) and decreases (expenditures) in available spendable resources. The modified accrual basis of accounting is followed by debt service funds. Under the modified accrual basis of accounting, revenues are susceptible to accrual when they become both measurable and available. "Available" means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures,other than interest on long-term debt, are recorded when a current liability is incurred. Liabilities are considered current when they are normally expected to be liquidated with expendable available financial resources. d. Interfund Transfers Operating transfers are reported as other sources and uses of funds in the statement of revenues, expenditures and changes in fund balances. 5 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992 Notes to Financial Statements (Continued) Note 1: Summary of Significant Accounting Policies (Continued) e. Investments The Agency adopted GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools,as of July 1, 1997. GASB Statement No. 31 establishes fair value standards for investments in participating interest earning investment contracts, external investment pools, equity securities, option contracts, stock warrants and stock rights that have readily determinable fair values.Accordingly,the Agency reports its investments at fair value in the balance sheet. All investment income, including changes in the fair value of investments, is recognized as revenue in the operating statement. f. Reserved Fund Balances Reserved fund balances generally represent those portions of fund balances that are associated with non-current or restricted assets and are not available for future appropriations. g. Memorandum Only Totals Columns in the accompanying financial statements captioned"Totals(Memorandum Only)" are not necessary for a fair presentation in accordance with generally accepted accounting principles but are presented as additional analytical data. lnterfund balances and transactions have not been eliminated,therefore,these columns do not present consolidated financial information. Note 2: Cash and Investments Cash and investments held in the program as of June 30, 2002 consisted of the following: Deposits $ 3,000 Investments 163,486 $ 166,486 Under the California Government Code, a financial institution is required to secure deposits made by State or local governmental units by pledging securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Program deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Deposits of agencies and other State or local governments are classified in three categories to give an indication of the level of credit risk assumed by the entity at year-end.Category 1 includes deposits that are insured or collateralized with securities held by the Program or its agent in the Program's name. Category 2 includes deposits collateralized with securities held by the pledging financial institution's trust department or agent in the Program's name. Category 2 also includes deposits collateralized by an interest in an undivided collateral pool held by an authorized Agent of Depository and subject to certain regulatory requirements under State law. Category 3 includes deposits collateralized with securities held by the pledging financial institution, or by its trust department or agent, but not in the Program's name. Category 3 also includes any uncollateralized deposits. 6 _ Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992 Notes to Financial Statements(Continued) Note 2: Cash and Investments (Continued) Category Bank Carrying 1 2 3 Balance Amount Form of Deposits Demand Deposits $ 3,000 $ - $ - $ 3,000 $ 3,000 The Trustee, acting on behalf of the Agency, is authorized under the bond provisions to invest funds in the following: (1)direct obligations of,or obligations fully guaranteed as to principal and interest by,the United States of America or any agency thereof when such obligations are backed by the full faith and credit of the United States, which obligations include the following: United States Treasury obligations;obligations,debentures, notes or other evidences of indebtedness issued or guaranteed by the Government National Mortgage Association; Federal Housing -- Administration debentures; Federal Home Loan Mortgage Corporation participation certificates and senior debt obligations fully guaranteed as to timely payment of principal and interest; Federal National Mortgage Association's mortgage-backed securities and senior debt obligations and non-callable obligations of the Resolution Funding Corporation;and(2)deposits in any bank, — including the Trustee or any affiliate which are insured by the Federal Deposit Insurance Corporation or its successor and if not so insured,collateralized in a manner required for deposit of public funds. Under the California Government Code,a financial institution is required to secure deposits made by State or local government units by pledging securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure Program deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. Investments of agencies and other State or local governments are classified in three categories to give an indication of the level of risk assumed by the entity at year-end. Category 1 includes investments that are insured or registered or for which the securities are held by the Program — (trustee) or its agent (other than the institution through which the Program purchased the securities)in the Program's name. Investments held"in the Program's name"include securities held in a separate custodial or fiduciary account and identified as owned by the Agency in the custodian's internal accounting records. Category 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the Program's name, (except for those securities that are held by the same department or agent that purchased the securities for the Agency). Category 3 includes uninsured and — unregistered investments for which the securities are held by the broker's or dealer's trust department or agent, but not in the Program's name. Category 3 also includes all securities held by the broker-dealer agent of the Agency(the party that purchased the securities for the Program) regardless of whether or not the securities are being held in the Program's name. — — 7 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992 Notes to Financial Statements (Continued) Note 2: Cash and Investments (Continued) Category Fair 1 2 3 Value Form of Investments Government Securities (FICO Strips) $ 163,486 $ - $ - $ 163,486 Note 3: Taxable Collateralized Refunding Bonds Payable On June 1, 1992, the Agency issued $9,903,000 of taxable collateralized refunding bonds to provide for the advanced refunding of the $10,000,000 Single Family Mortgage Revenue Refunding Bonds (Mortgage-Backed Securities Program), 1992 Series A. As of June 30,2002, the bonds were comprised of the following. Principal Outstanding $303,000 of Class 2 Bonds; principal amount payable in full at maturity on December 1, 2012; these bonds are not subject to redemption prior to maturity; issued with `original issue discount" of $253,000; portions of `original issue discount" will be recognized as gross income by holders of the bonds yearly; bond yield is 9.002%. $ 303,000 Note 4: Changes in Long-Term Debt The following is a summary of general long-term debt transactions of the program for the year ended June 30, 2002: Balance at Balance at July 1, 2001 Additions Deletions June 30, 2002 Taxable Collateralized Refunding Bonds $ 303,000 $ - $ - $ 303,000 8 Redevelopment Agency of the City of Azusa Residential Mortgage Financing Program $9,903,000 Taxable Collateralized Refunding Bonds, Series 1992 Notes to Financial Statements (Continued) Note 5: Debt Service Requirements to Maturity The annual requirements to amortize outstanding general long-term debt of the Program as of June 30, 2002, are as follows: Year Ending June 30, Amount 2003 $ - 2004 - 2005 - 2006 - 2007 - 2008 - 2009 - 2010 - 2011 - 2012 - 2013 303,000 Total $303,000 9 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Schedule 1 RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 COMBINING BALANCE SHEET DEBT SERVICE FUNDS JUNE 30, 2002 Bond Total ASSETS Cash and investments $ 166,486 $ 166,486 Total Assets $ 166,486 $ 166,486 FUND BALANCES Fund Balances: Reserved for debt service $ 56,276 $ 56,276 Reserved for fair value 110,210 110,210 Total Fund Balances $ 166,486 $ 166,486 10 REDEVELOPMENT AGENCY OF THE CITY OF AZUSA Schedule 2 RESIDENTIAL MORTGAGE FINANCING PROGRAM $9,903,000 TAXABLE COLLATERALIZED REFUNDING BONDS, SERIES 1992 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE -DEBT SERVICE FUNDS YEAR ENDED JUNE 30, 2002 Bond Total Revenues: Use of money $ 18,461 $ 18,461 Other income 1,500 1,500 Total Revenues 19,961 19,961 Expenditures: Bond administration 1,500 1,500 Total Expenditures 1,500 1,500 Excess of Revenues over (under) Expenditures 18,461 18,461 Fund Balances: Beginning of Fiscal Year 148,025 148,025 Fund Balances at End of Year $ 166,486 $ 166,486 11