FINANCIAL STATEMENTS AND


INDEPENDENT AUDITOR'S REPORT




STARLIGHT PLACE, LP




DECEMBER 31, 2010










STARLIGHT PLACE, LP




TABLE OF CONTENTS




PAGEINDEPENDENT AUDITOR'S REPORT
3FINANCIAL STATEMENTS:BALANCE SHEET
4STATEMENT OF OPERATIONS
6STATEMENT OF CHANGES IN PARTNERS' CAPITAL
7STATEMENT OF CASH FLOWS
8NOTES TO FINANCIAL STATEMENTS
9
  2







PAILET, MEUNIER andLeBLANC, L.L.P.
 Certified Public Accountants
 Management Consultants
 
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To the Partners


Starlight Place, LP




We have audited the accompanying balance sheet of Starlight Place, LP, as of December 31, 2010 and the related statements of operations, changes in partners' capital 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 the Standards of the Public Accounting Oversight Board (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. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. 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 Starlight Place, LP as of December 31, 2010 and the results of its operations, changes in partners' capital and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.







/s/ PAILET, MEUNIER and LeBLANC, L.L.P.





Metairie, Louisiana


February 21, 2011




3421 N. Causeway Blvd., Suite 701 • Metairie, LA 70002 • Telephone (504) 837-0770 • Fax (504) 837-7102
 201 St. Charles Ave., Ste. 2500 • New Orleans, LA 70170 • Telephone (504) 599-5905 • Fax (504) 837-7102
 www.pmlcpa.com
 Member of
 Member Firms in Principal Cities • PCAOB - Public Company Accounting Oversight Board
 AICPA: Center for Public Company Audit Firms (SEC) • Governmantal Audit Quality Center • Private Companies Practice Section (PCPS)
  3
 
 STARLIGHT PLACE, LP
  BALANCE SHEET
  DECEMBER 31, 2010






ASSETSCurrent AssetsCash

$
26,390Accounts receivable


638Accounts receivable - property tax refund


1,100Prepaid expenses


1,366Total Current Assets


29,494Restricted Reserves and EscrowsTax escrow


22,383Tenant security deposits


8,650Replacement reserve


84,832Operating deficit reserve


42,004Total Restricted Reserves and Escrows


157,869Property and EquipmentLand


248,710Land improvements


663,095Building


3,687,417Furniture and equipment


84,1394,683,361Less:   Accumulated depreciation


(829,632
)Property and equipment, net


3,853,729Other AssetsMonitoring fee, net of accumulated amortization


4,940Total other assets


4,940Total assets

$
4,046,032






4




STARLIGHT PLACE, LP




BALANCE SHEET




DECEMBER 31, 2010




LIABILITIES AND PARTNERS' CAPITALCurrent liabilitiesAccounts payable

$
3,645Prepaid rents


1,218Current portion mortgage payable


2,148Tenant security deposits


8,650Total current liabilities


15,661Other liabilitiesMortgage payable, net of current portion


364,544Total liabilities


364,544Partners' equity


3,665,827Total Liabilities and Partners' Capital

$
4,046,032
 
 See auditors' report and accompanying notes
  5





STARLIGHT PLACE, LP




STATEMENT OF OPERATIONS




DECEMBER 31, 2010







Income from rental operationsRental income

$
253,688Interest credit subsidy


11,064Tenant charges


4,885Interest income


355Total Revenue


269,992Operating expensesMaintenance and operating


52,115Utilities


7,853Administrative


68,117Taxes and insurance


72,059Investor service fee


43,637Interest


27,842Depreciation


144,707Amortization


520Total Operating Expenses


416,850Net loss

$
(146,858
)





See auditors' report and accompanying notes




6





STARLIGHT PLACE, LP





STATEMENT OF CHANGES IN PARTNERS' CAPITAL




DECEMBER 31, 2010







General

Partner


Limited

Partners


TotalBalance - January 1, 2010

$
(25
)

$
3,812,710


$
3,812,685Net Loss


(7
)


(146,851
)


(146,858
)Balance - December 31, 2010

$
(32
)

$
3,665,859


$
3,665,827





See auditors' report and accompanying notes




7





STARLIGHT PLACE, LP





STATEMENT OF CASH FLOWS




DECEMBER 31, 2010




Cash flows from operating activities:Net Loss

$
(146,858
)Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


145,227(Increase) decrease in accounts receivable


(108
)(Increase) decrease in accounts receivable - property tax refund


(1,100
)(Increase) decrease in prepaid expenses


(179
)Increase (decrease) in accounts payable


946Increase (decrease) in security deposits payable


(250
)Increase (decrease) in accrued property taxes


(210
)Increase (decrease) in prepaid rent


628Total adjustments


144,954Net cash provided (used) by operating activities


(1,904
)Cash flows from investing activities:Investment in rental property


(988
)(Deposit) withdrawal tax and insurance escrow


(12,667
)(Deposit) withdrawal replacement reserve


(15,213
)(Deposit) withdrawal operating deficit reserve


(101
)(Deposit) withdrawal security deposit account


250Net cash provided (used) by investing activities


(28,719
)Cash flows from financing activities:Principal payments on mortgage


(2,005
)Net cash provided (used) by financing activities


(2,005
)Net increase (decrease) in cash and equivalents


(32,628
)Cash and equivalents, beginning of year


59,018Cash and equivalents, end of year

$
26,390Supplemental disclosures of cash flow information:Cash paid during the year for:Interest Expense

$
27,842
 
 See auditors' report and accompanying notes
  8
  STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE A - NATURE OF OPERATIONS




Starlight Place, LP (the "Partnership") was formed in 2005 under the laws of the State of Georgia for the purpose of constructing and operating a 52-unit apartment community, known as Starlight Place, and located in Americus, Georgia. The community is financed by a USDA Rural Development ("RD") Section 538 Loan, and therefore is regulated by RD as to rent charges and operating methods.




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The following significant accounting policies have been followed in the preparation of the financial statements:




Accounting Standards Codification




The Financial Accounting Standards Board ("FASB ASC") became the sole authoritative source of generally accepted accounting principles in the United States of America for periods ending after September 15, 2009. The FASB ASC incorporates all authoritative literature previously issued by a standard setter. Adoption of the FASB ASC has no effect on the Partnership's financial position, results from operations, partners' equity, or cash flows. References to the authoritative accounting literature in the notes to the financial statements are to the FASB ASC.




Basis of accounting




The Partnership prepares its financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America.




Cash and cash equivalents




Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less at the acquisition date. Restricted cash is not considered cash equivalents.




Concentration of credit risk




The Partnership places its temporary cash investments with high credit quality financial institutions. At times, the account balances may exceed the institution's federally insured limits. The Partnership has not experienced any losses in such accounts.




Rental Income




Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases.


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STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Property and Equipment




Property and equipment are recorded at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations using the straight-line method over their estimated service lives of 40 years for real property, 5 years for personal property, and 15 years for land improvements. Depreciation expense for the year ended December 31, 2010 was $144,707. As of December 31, 2010, accumulated depreciation was $829,632.




Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income.




Intangible assets




Monitoring fees have been recorded at cost. Amortization has been provided for using the straight-line method over 15 years. Amortization expense for the year ended December 31, 2010 was $520. As of December 31, 2010, accumulated amortization was $2,860.




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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.




Impairment of long-lived assets




The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the future net undiscounted cash flow expected to be generated and any estimated proceeds from the eventual disposition. If the long-lived asset is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount exceeds the fair value as determined from an appraisal, discounted cash flows analysis, or other valuation technique. There were no impairment losses recognized during 2010.




Tenant Rent Receivables




Management considers tenant rent receivables to be fully collectible; accordingly, no allowance for doubtful accounts is required.Uncollectible rent receivables are charged to operations upon management's determination that collection of the receivable is unlikely.




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STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Income Taxes




No income tax provision has been included in the financial statements since income or loss of the Partnership is required to be reported by the partners on their respective income tax returns. On January 1, 2009, the Partnership applied the guidance on accounting for uncertain tax provisions in FASB ASC 740, Income Taxes.The Partnership is no longer subject to income tax examinations for calendar years prior to 2006.




NOTE C - TENANT SECURITY DEPOSITS




Security deposits collected from tenants are held in a separate bank account. The account's status at December 31, 2010, is:




Tenant security deposit cash account

$
8,650Tenant security deposits payable balance


(8,650
)Total

$
-





NOTE D - REPLACEMENT RESERVE




In accordance with the provisions of the mortgage agreement, restricted cash is held by Capstone Realty Advisors, to be used for replacement of property as follows:




Beginning balance

$
69,619Add: Deposits


15,213Less: Reserve releases


-Ending balance, as confirmed by bank

$
84,832





NOTE E - REQUIRED RESERVES




In accordance with the provisions of the mortgage agreement, certain reserves are required to be established to be used for budgeted expense items and loan payments as follows:




Rent-up reserve

$
36,210Operating deficit reserve


5,794Total

$
42,004
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STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE F - MORTGAGE PAYABLE




The mortgage was payable to Lewiston State Bank (care of Bonneville Mortgage Company) and was transferred to Capstone Realty Advisors in December 2007. The mortgage is secured by a deed of trust on the rental property. The note bears interest at the rate of 7.57% per annum. Principal and interest are payable by the Partnership in monthly installments of $2,487 through April 1, 2034.




The obligation arising from the Loan Agreement has been secured through a Loan Note Guarantee (the USDA Guarantee) under the Section 538 Guaranteed Rural Rental Housing Program pursuant to which the USDA will guarantee 90% of the losses realized under the Promissory Note.




Under an interest credit and rental assistance agreement with Rural Development, an interest credit is provided, thus reducing the interest rate approximately 3% annually. The interest credit is treated as additional income with interest expense being recorded at the note rate. An annual application as required by Rural Development must be submitted in order to be eligible for the interest credit. Eligibility began when the construction loan converted to a permanent loan on April 1, 2006.




Aggregate annual maturities for the mortgage payable over each of the next five years are as follows:




December 31, 2011

$
2,1482012


2,3162013


2,4982014


2,6942015


2,905and thereafter


354,131Total

$
366,692


NOTE G - MANAGEMENT FEES




The Partnership is managed by Boyd Management, Inc., pursuant to an agreement effective June 29, 2005. During the year ended December 31, 2010, Boyd Management, Inc. earned management fees of $21,805 and management fees payable amounted to $0 at December 31, 2010.




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STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE H - RELATED PARTY TRANSACTIONS





Development Fees




The developer, an affiliate of the general partner of the Partnership, received a developer's fee of $586,600 for its services during the development and construction of the Project. The fee was paid in installments as defined in the development agreement.




Asset Management Fee




The Partnership shall pay the Limited Partner an annual asset management fee of $2,500, increasing in subsequent years by the consumer price index. The minimal fee of $2,500 shall be payable in annual installments; provided, however, that if in any year net operating income is insufficient to pay the full $2,500, the unpaid portion thereof shall accrue and be payable on a cumulative basis in the first year in which there is sufficient net operating income. As of December 31, 2010, $7,447 was earned and $0 remains payable.




Incentive Management Fee




The Partnership shall pay to the general partner through the compliance period an annual incentive management fee equal to 35% of net operating income commencing in 2005. If the incentive management fee is not paid in any year, it shall not accrue for payment in subsequent years. As of December 31, 2010, $18,095 was earned and $0 remains payable.




Tax Credit Compliance Fee




The Partnership shall pay to the general partner through the compliance period an annual tax credit compliance fee equal to 35% of net operating income commencing in 2005. If the tax credit compliance fee is not paid in any year, it shall not accrue for payment in subsequent years. As of December 31, 2010, $18,095 was earned and $0 remains payable.




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STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE I - PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS




Profits and losses from operations are allocated 99.97% to the limited partner, 0.01% to the Georgia limited partner, 0.01% to the special limited partner, 0.005% to the non-profit limited partner, and 0.005% to the general partner. Any and all Georgia tax credits shall be allocated to the Georgia limited partner. Cash flow shall be paid out in the following order and priority:




First, to pay the deferred management fee, if any;




Second, to pay the current asset management fee that was not paid monthly and then to pay any accrued asset management fees that have not been paid in full from previous years;




Third, to pay the principal and then interest on the development fee;




Fourth, to pay operating loans, if any, limited to 100% of the net operating income remaining after reduction for the payments made first to third;





Fifth, to pay the incentive management fee; Six, to pay the tax credit compliance fee; and,




Seventh, the balance, 29.98% to the limited partner, 0.01% to the Georgia limited partner, 0.01% to the special limited partner, 0.005% to the non-profit partner, and 69.995% to the general partner.




NOTE J - COMMITMENTS AND CONTINGENCIES





Interest Credit and Rental Assistance Agreement




Under an agreement with RD, mortgage subsidy is provided that reduces the effective interest rate on the mortgage to approximately 3% over the life of the loan agreement. RD may terminate the agreement if it determines that no subsidy is necessary or if the Partnership is determined to be in violation of the loan agreement or RD rules or regulations.




14





STARLIGHT PLACE, LP




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)





Housing Tax Credits




As incentive for investment equity, the Partnership applied for and received an allocation certificate for housing tax credits established by the Tax Reform Act of 1986. To qualify for the tax credits, the Partnership must meet certain requirements, including attaining a qualified basis sufficient to support the credit allocation. In addition, tenant eligibility and rental charges are restricted in accordance with Internal Revenue Code Section 42. Management has certified that each tax credit unit has met these qualifications to allow the credits allocated to each unit to be claimed.




Compliance with these regulations must be maintained in each of the fifteen consecutive years of the compliance period. Failure to maintain compliance with occupant eligibility, unit gross rent, or to correct noncompliance within a reasonable time period could result in recapture of previously claimed tax credits plus interest.




NOTE I - SUBSEQUENT EVENTS




FASB ASC 855, Subsequent Events,addresses events which occur after the balance sheet date but before the issuance of financial statements. An entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that existed after the balance sheet date. Additionally, Topic 855 requires disclosure relative to the date through which subsequent events have been evaluated and whether that is the date on which the financial statements were issued or were available to be issued. Management evaluated the activity of Starlight Place, LP through February 21, 2011, the date the financial statements were issued, and concluded that no subsequent events have occurred that would require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.






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