Annual Financial Report For the Year Ended July 31, 2006 · RAP IDES FINANCE AUTHORITY Balance Sheet July 31 ,2006 ASSETS: Current Assets: Cash and cash equivalents Investments Assets

Rapides Finance Authority

Annual Financial Report

For the Year Ended July 31, 2006

'seDate -2-7./_o7

Table of Contents

Page No.

Independent Auditors' Report 1-2

Management's Discussion and Analysis 3-5

Balance Sheet 6

Statement of Revenue, Expenses and Changes in Net Assets 7

Statement of Cash Flows 8

Notes to Financial Statements 9-23

Independent Auditors3 Report On Compliance and on InternalControl over Financial Reporting Based on an Audit ofFinancial Statements Performed in Accordance withGovernmental Auditing Standards 24-25

Summary of Findings and Questioned Cost 26

Management's Corrective Action Plan 27

Schedule of Prior Findings and Questioned Cost 28

Schedule of Per Diem Paid to Board Members 29

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ROZIER, HARRINGTON & MCKAYCERTIFIED PUBLIC ACCOUNTANTS1407 PETERMAN DRIVE • ALEXANDRIA, LOUISIANA 71301

MAILING ADDRESS

JOHNS. ROZIER, IV, CPA POST OFFICE BOX 12178MARKS. MCKAY, CPA ALEXANDRIA, LOUISIANA 71315-2178LEE W. WILLIS, CPA TELEPHONE (31B) 442-1608

STEVEN £ KIMBALL, CPA TELECOPIER (318) 487-2027

M. DALE HARRINGTON, CPARETIRED-2005

January 18,2007

Independent Auditors' Report

To the Rapides Finance AuthorityAlexandria, Louisiana

We have audited the accompanying basic financial statements of the Rapides Finance Authority, acomponent unit of the Rapides Parish Police Jury, as of July 31, 2006 and for the year then ended,as listed in the table of contents. These financial statements are the responsibility of the RapidesFinance Authority's management. Our responsibility is to express an opinion on these financialstatements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the UnitedStates of America and the standards applicable to financial audits contained in the GovernmentAuditing Standards issued by the Comptroller General of the United States. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material raisstatement An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures hi the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of the Rapides Finance Authority, as of July 31, 2006, and the changes in financialposition and cash flows for the year then ended in conformity with accounting principles generallyaccepted in the United States of America.

hi accordance with Government Auditing Standards, we have also issued a report dated January 18,2007, on our consideration of the Rapides Finance Authority's internal control over financial reportingand our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Thatreport is an integral part of an audit performed in accordance with Government Auditing Standards andshould be read in conjunction with this report in considering the results of our audit.

-Members-American Institute of Certified Public Accountants • Society of Louisiana, CPAs

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Rapides Finance AuthorityJanuary 18, 2007Page 2

The management's discussion and analysis listed in the table of contents, is not a required part of thebasic financial statements but is supplementary information required by accounting principles generallyaccepted in the United States of America. We have applied certain limited procedures, which consistedprincipally of inquires of management regarding the methods of measurement and presentation of thesupplementary information. However, we did not audit the information and express no opinion on it.

Our audit was performed for the purpose of forming an opinion on the financial statements thatcomprise the Rapides Finance Authority's basic financial statements. The accompanying schedule ofper diem paid to Board Members is presented for purposes of additional analysis and is not a requiredpart of the basic financial statements of Rapides Finance Authority. The schedule of per diem paid toBoard Members has been subjected to the auditing procedures applied in the audit of the basic financialstatements and hi our opinion, is fairly presented in all material respects in relation to the basic financialstatements taken as a whole.

ROZIER, HARRINGTON & McKAYCertified Public Accountants

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Rapides Finance AuthorityManagement's Discussion And AnalysisJuly 31,2006

This section of the Rapides Finance Authority's annual financial report presents our discussion andanalysis of the Authority's financial performance during the year ended July 31, 2006. This sectionshould be read in conjunction with the financial statements that appear in the following section:

OVERVIEW OF FINANCIAL STATEMENTSThe basic financial statements report information about the Authority as a whole using accountingmethods similar to those used by private-sector companies. These report all revenues and expensesregardless of when cash is received or paid. Furthermore, the basic financial statements include all ofthe Authority's assets and all of the Authority's liabilities (including long-term debt). Expensesincurred in connection with the operation of the Authority's loan programs are reported as business-type activities.

FINANCIAL ANALYSIS OF THE AUTHORITYThis portion of the management's discussion and analysis provides a comparative financial analysis.

Balance SheetA condensed version of the Authority's Balance Sheet is presented as follows:

July 31,2006 July 31,2005

Assets:Current and Other Assets $ 28,329,788 $ 21,565,069Capital AssetsTotal Assets

Liabilities:Current and Other LiabilitiesLong-term LiabilitiesTotal Liabilities

Net Assets:RestrictedUnrestrictedTotal Net Assets

28,329,788

23,367,154

23,367,154

575,0064,387,628

$ 4,962,634 $

21,565,069

16,200,327

16,200,327

1,100,6824,264,0605,364,742

At July 31,2006, the Authority's assets exceed liabilities by $4,962,634. The authority does not ownany property or equipment, accordingly it has reported no capital assets, A portion of the Authority'snet assets (11.6%) are restricted for debt service. The remaining unrestricted net assets (88.4%) maybe used to meet the Authority's ongoing obligations and conduct program activities.

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Management's Discussion And AnalysisJuly 31 ,2006

Revenues, Expenses and Changes in Net AssetsA condensed version of the statement of revenues, expenses and changes in net assets is presented asfollows:

For the Year EndedJuly 31,2006 July 31,2005

Operating RevenuesOperating ExpensesOperating Income (Loss)

$ 902,280 $1,264,692(362,412)

801,546865,642(64,096)

Nonoperatine Revenues (Expenses)Interest on deposits and investmentsEconomic development assistanceNet increase (decrease) hi fair value of

investment securitiesTotal Nonoperatmg Revenues (Expenses)

486,881

(526,577)(39,696)

173,182(200,000)

(209,525)(236,343)

Net Income (Loss) $ (402,108) $ (300,439)

The operating loss is offset by interest on temporary investments. In accordance with the bondindenture, the Authority intends to avoid future operating losses by using proceeds from temporaryinvestments in the following manner:

• Proceeds from temporary investments will be used to produce additional loans to firsttune home buyers. Interest resulting from these loans will provide additional operatingincome.

• Proceeds from temporary investments not needed to produce additional loans will be usedto reduce debt that was issued to finance the first tune home buyer program. Interestsavings resulting from a reduction in debt will result in a corresponding reduction hioperating expenses.

The Authority provides funds for producing loans to first time home buyers by acquiring securitiesthat are backed by a portfolio of loans to first time home buyers. Accordingly, the Authority has aportfolio of mortgage backed securities and the fair market value of the mortgage backed securityportfolio tends to fluctuate hi response to market conditions. Recent decreases in the market value ofmortgage backed securities has contributed to the net loss for the year ended July 31, 2006.However, since mortgage backed securities will be held to maturity, temporary changes in marketvalue do not effect the financial stability of the first time home buyer program or the Authority'sability to meet its obligations.

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Management's Discussion And AnalysisJuly 31 ,2006

CAPITAL ASSET ADMINISTRATIONThe Authority's activities are limited to providing financing for worthwhile activities in RapidesParish, including conducting programs for first time homebuyers. The Authority has not acquiredany capital assets in connection with these activities.

DEBT ADMINISTRATIONFor the year ended July 31, 2006, has issued Series 2005 Single Family Mortgage Revenue Bondsfor the purpose of financing the origination of mortgage loans for first time home buyers. Inaddition, substantial payments were made on the Authority's existing debt as required by variousbond indentures. Changes in the Authority's outstanding debt are presented as follows:

Series 2005 BondsSeries 2003 BondsSeries 2001 BondsSeries 1998 BondsTotal

BeginningBalance

$9,595,7393,934,9782,569,935

$ 16,100,652

NewBorrowing

$ 9,814,5331,606,858

——

$ 11,421,391

DebtReduction

(2,701,235)(1,102,461)

(594,034)$ (4,397,730)

EndingBalance

$ 9,814,5338,501,3622,832,5171,975,901

$23,124,313

FACTORS EXPECTED TO EFFECT FUTURE OPERATIONSFactors that are expected to have a significant effect on the Authority's future operations aredescribed as follows:

• The Authority expects to use the remaining proceeds from the Series 2005 bond issue tooriginate mortgage loans for first time home buyers at prevailing market rates.

• The Authority intends issue additional revenue in order to finance continued originationof mortgage loans for first time home buyers.

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RAP IDES FINANCE AUTHORITYBalance Sheet

July 31 ,2006

ASSETS:Current Assets:

Cash and cash equivalentsInvestmentsAssets restricted by bond indenture:

Cash and cash equivalentsInvestments

Total Current Assets

Non Current Assets:Loans, net of allowance for loan losses of $204,789Other assets

Total assets

Business-type ActivitiesEnterprise Fund

$ 2,354,710496,995

363,38823,571,66826,786,761

635,000908,027

$ 28,329,788

LIABILITIES AND NET ASSETSOther Current LiabilitiesCurrent Liabilities Payable from Restricted Assets:

Accrued interest expenseBonds payable, net of deferred financing cost of $274,341

Total current liabilities

Net AssetsRestricted for debt serviceUnrestricted

Total net assets

Total liabilities and net assets

45,379

197,46223,124,313

23,367,154

613,2814,349,353

4,962,634

$ 28,329,788

The accompanying notes are an integral part of the financial statements.

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RAP IDES FINANCE AUTHORITYStatement of Revenue, Expenses and Changes in Net Assets

For the Year Ended July 31, 2OO6

Operating revenues:Interest on loansInterest from mortgage backed securities -

single family home mortgage programsOther operating revenue

Total operating revenues

Operating expenses;Interest on bonds issued in connection with first time

home buyer programsBond trustee feesLegal and professionalOther

Total operating expenses

Operating income (loss)

Nonoperating revenues (expenses):Interest on deposits and investmentsNet increase (decrease) in fair value of investment securities

Total nonoperating revenue expenses

Net Income (loss)

Net assets - beginning of year

Net assets - end of year


55,007

809,17138,102

902,280

1,224,34012,9875,936

21,4291,264,692

(362,412)

486,881(526,577)(39,696)

(402,108)

5,364,742

$ 4,962,634

The accompanying notes are an integral part of the financial statements

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RAPIDES FINANCE AUTHORITYStatement of Cash Flows

For the Year Ended July 31, 2OO6

Cash flow from operating activities:Receipts from borrowers / customersOperation of first time home buyer programs:

Receipts from paydown of mortgage backed securitiesReceipts from interest on mortgage backed securitiesPayments to acquire mortgage backed securitiesPayments of interest on program debt

Payments to suppliersNet cash provided (used) by operating activities

Cash flows from noncapital financing activities:Proceeds from revenue bondsDeferred Bond Issue CostPayment to redeem revenue bonds

Net cash provided (used) by non-capital financing activities

Cash flows from investing activities;Receipts of interest on deposits and investmentsNet change in investment contracts

Net cash provided (used) by investing activities

Net increase (decrease) in cash

Beginning cash balanceEnding cash balanceRestricted cash balanceUnrestricted cash balance


$ 433,488

1,964,981813,539

(5,631,533)(1,029,311)

(40,352)(3,489,188)

11,598,824(190,200)

(4,482,205)6,926,419

404,261(4,306,970)(3,902,709)

(465,478)

3,183,5762,718,098

363,388$ 2,354,710

Reconciliation of operating income doss) to net cash providedfused) by operating activities:Operating income (loss)Adjustments to reconcile operating income to net cash

provided by operating activities:Mortgage backed securities - first time home buyer programs

Receipts from paydown of mortgage backed securitiesPayments to acquire mortgage backed securities

(Increase) Decrease in loans receivable(Increase) Decrease in accrued interest receivableIncrease (Decrease) in other current liabilitiesIncrease (Decrease) in accrued interest payableAmortization

Net cash provided (used) by operating activities

$ (362,412)

1,964,981(5,631,533)

295,000(6,290)45,37997,787

107,900S (3,489,188)

Supplemental Disclosure:For the year ended July 31, 2006, there were no investing, capital, and financing activities that did notresult in cash receipts or payments.

The accompanying notes are an Integral part of the financial statements.

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RAP IDES FINANCE AUTHORITYNotes To Financial Statements

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:The Rapides Finance Authority, formerly known as Rapides Parish Housing and Mortgage FinanceAuthority, was created through a trust indenture dated December 14, 1978. The Authority isorganized as a Public Trust as defined by state law. Rapides Parish is the designated beneficiary ofthe trust. The Authority's primary activity is conducting loan programs for first time home buyers.

Reporting Entity:The Governmental Accounting Standards Board (GASB) Statement No. 14 established criteria fordetermining which component units should be considered part of a financial reporting entity. The basiccriterion for including a potential component unit within a reporting entity is financial accountability.The GASB has set forth criteria to be considered in determining financial accountability. This criteriaincludes:

1. Appointing a voting majority of an organization's governing body, and

a The ability of the reporting entity to impose its will on that organization and/orb. The potential for the organization to provide specific financial benefits to or

impose specific financial burdens on the reporting entity.

2. Organizations for which the reporting entity does not appoint a voting majority but arefiscally dependent on the reporting entity.

3. Organizations for which the reporting entity financial statements would be misleading ifdata of the organization is not included because of the nature or significance of therelationship.

Based on the previous criteria, the Authority is a component unit of the Rapides Parish Police Jury.The accompanying component unit financial statements present information only on the fundsmaintained by the Authority and do not present information on the police jury, the generalgovernment service provided by that governmental unit, or other governmental units that comprisethe financial reporting entity.

Basis of Presentation:The Authority uses an enterprise fund for financial reporting purposes. Enterprise funds areproprietary funds used to account for business-like activities. These activities are financed primarilyby user charges and the measurement of financial activity focuses on net income measurementsimilar to the private sector. Due to these similarities, proprietary funds are allowed to follow certainpronouncements that are developed by the Financial Accounting Standards Board (FASB) forbusiness enterprises. However, the Authority only applies those FASB pronouncements that wereissued on or before November 30,1989.

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Measurement Focus and Basic of AccountingMeasurement focus is a term used to describe which transactions are recorded within the variousfinancial statements Basis of accounting refers to when transactions are recorded regardless of themeasurement focus applied.

The Authority's enterprise fund utilizes an economic resources measurement focus. The accountingobjectives of this measurement focus are the determination of operating income, changes in netassets, financial position, and cash flows. All assets and liabilities associated with their activities arereported. Proprietary fund equity is classified as net assets.

In addition, the Authority's enterprise fund utilizes the accrual basis of accounting. Under theaccrual basis of accounting, revenues are recognized when earned and expenses are recognized whenthe liability is incurred.

The Authority distinguishes operating revenues and expenses from nonoperating items. Operatingrevenues and expenses generally result from providing services in connection with the Authority'sprincipal ongoing operations. Since the Authority's principal operations involve specialized lendingactivities, interest earned from loans and mortgaged backed securities are reported as operatingrevenues. In addition, interest incurred in connection with debt issued to finance first time homebuyer mortgage loan programs is reported as an operating expense.

Use of Estimates:The preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect certain reported amounts anddisclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents:Amounts reported as cash and cash equivalents (restricted and unrestricted) include all cash on hand,cash in bank accounts, certificates of deposit and highly liquid investments.

Statement of Cash Flows:For the purpose of reporting cash flows, cash and cash equivalents includes all cash on hand, cash inbanks and certificates of deposit. Since the Authority's principal operations involve specializedlending activities, the following receipts and disbursements are reported as cash flows fromoperating activities:

• Payments to originate loans.• Receipt of principal and interest collected from borrowers.• Payments to acquire mortgage backed securities• Receipts from paydowns and interest associated with mortgage backed securities.• Payment of interest incurred in connection with bonds issued to finance loan origination

and mortgage backed security acquisition.

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Deferred Financing Cost:The Authority has incurred various financing costs including underwriting fees, trustee fees, variousprofessional fees, and gains or losses on the refunding of certain debts in connection with issuingbonds. In accordance with generally accepted accounting standards, recognition of these costs hasbeen deferred and amortized over the expected life of the applicable bond issue. The annualamortization reported as a component of the Authority's interest expense. Amortization is computedusing methods that are intended to approximate recognition of a constant rate of interest expense.

Restricted Resources:A substantial portion of the Authority's resources are restricted by the terms of various bondindentures. For expenditures that satisfy restrictions, restricted resources are exhausted beforeutilizing any unrestricted resources.

Investments:The Authority is authorized by state law and its trust indenture to acquire certain investmentsecurities including obligations of the United States or its agencies. Investments are reported at fairvalue based on quotes provided by the Authority's bond trustee.

Certain investment contracts held by the Authority are not negotiable and the value of thesecontracts is not effected by financial markets. Accordingly, these investment contracts are reportedat cost.

NOTE 2 - CASH AND EQUIVALENTS:Cash on deposits and cash equivalents at July 31,2006 consisted of the following amounts:

Cash on CashDeposit Equivalents Total

Deposits held by Rapides Parish Police Jury'sfiscal agent in the Police Jury's bank account $ 2,333,906 $ — $ 2,333,906

Money Market Mutual Fund — 20,804 20,804Highly liquid short-term investments

administered by the bond trustees — 363,388 363,388

Total Cash and Cash Equivalents 2,333,906 384,192 2,718,098Restricted Cash and Cash Equivalents — 363,388 363,388

Unrestricted Cash and Cash Equivalents $ 2,333,906 $ 20,804 $2,354,710

Cash on deposit is collateralized by securities pledged to the Rapides Parish Police Jury. The cashequivalents are considered uninsured and unregistered securities held in the Authority's name. Thesecash equivalents are not rated but are not subject to any significant credit or interest rate risk.

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Investment securities include amounts that are managed by the Board of Directors as well asinvestments that are held in trust established in connection with various bond indentures.Investments are summarized as follows:

RestrictedInvestments Investments

U. S. Government Agency MortgageBacked Securities:

GNMA $ — $ 15,409,751FNMA 194,520 1,502,233FHLMC 302,475

Guaranteed Investment Contracts — 6,659,684

Total $ 496,995 $ 23,571,668

Proceeds from the various bond issues are used to create a market for single family home mortgagesattributable to first time home buyers residing within Rapides Parish. This is accomplished by usingthe proceeds to purchase securities that are backed by pools of qualifying mortgages. Investmentsecurities held in trust accounts established pursuant to various bond indentures indenture arepresented as follows:

Series 2005 Bond Indenture $ 10,027,105Series 2003 Bond Indenture 8,330,184Series 2001 Bond Indenture 2,926,813Series 1998 Bond Indenture 2,287,566

Total Investments $23,571,668

A description of each investment security portfolio is presented as follows:

Series 2005 Bond Indenture:Proceeds from the Series 2005 bond issues have been used to acquire various mortgage backedsecurities. In addition to the acquisition of MBS, the terms of the Series 2005 bond indenture alsoauthorize the trustee to utilize a guaranteed investment contract with AEGON for the temporaryinvestment of bond proceeds.

Investments held in the Series 2005 portfolio are summarized as follows:

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MORTGAGE BACKED SECURITIES - guaranteed by GNMA orFMNA. These bonds pay interest monthly at a rate of 5.0% $ 3,616,939

GUARANTEED INVESTMENT CONTRACT (Acquisition) - Thetrustee is allowed to invest bond proceeds designated for acquisition ofmortgage backed securities at a rate of 4.2%. The contract terminatesMay 1,2007; however, the trustee may withdraw funds on demand priorto termination 6,202,262

GUARANTEED INVESTMENT CONTRACT (Float) - The trustee isallowed to invest certain funds at a rate of 3.5%. The contract terminatesNovember 1,2037 207,904

Total investments, Series 2001 trust indenture $10,027,105

Series 2003 Bond Indenture:Proceeds from the Series 2003 bond issues have been used to acquire various mortgage backedsecurities. In addition to the acquisition of MBS, the terms of the Series 2003 bond indenture alsoauthorize the trustee to utilize a guaranteed investment contract with XL Asset Funding (XL) for thetemporary investment of bond proceeds.


MORTGAGE BACKED SECURITIES - guaranteed by GNMA orFMNA. These bonds pay interest monthly at the following rates:

Annual rate of 5.000% $ 1,434,429Annual rate of 5.125% 2,549,473Annual rate of 5.250% 615,058Annual rate of 5.450% 1,147,969Annual rate of 5.600% 1,133,715Annual rate of 5.650% 1,449,538

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GUARANTEED INVESTMENT CONTRACT - The trustee is allowedto invest at a variable rate based on the 1 month LIBOR plus 0.01% perannum as determined on the last business day of each month. Thecontract terminates February 1, 2007; however, the trustee maywithdraw funds on demand prior to termination


Series 2001 Bond Indenture:Proceeds from the Series 2001 bond issues have been used to acquire various mortgage backedsecurities. In addition to the acquisition of MBS, the terms of the Series 2001 bond indenture alsoauthorize the trustee to temporarily invest funds with FGIC Capital Market Services Inc. (FGIC).Under the terms of the agreement with FGIC the investment contract is guaranteed by GeneralElectric Capital Corporation, a New York Corporation.



Annual rate of 6.375% $ 784,023Annual rate of 6.250% 263,228Annual rate of 6.000% 536,433Annual rate of 5.875% 32,640Annual rate of 5.800% 1,240,487

FLOAT INVESTMENT CONTRACT - The trustee is allowed to at aguaranteed rate of 5.25%. The contract terminates December 1, 2033;however, the trustee may withdraw funds on demand prior totermination 70,002


Series 1998 Bond Indenture:Proceeds from the Series 1998 bond issues have been used to acquire various mortgage backedsecurities. In addition to the acquisition of MBS, the terms of the series 1998 bond indenture alsoauthorize the trustee to temporarily invest funds with FGIC Capital Market Services Inc. (FGIC).Under the terms of the investment contract with FGIC amounts invested must be secured bycollateral consisting of cash, securities guaranteed by the United States Government, securitiesissued by certain United States Government Agencies or debt obligations having a rating in thehighest category from Moody's and S&P. The collateral is held by an agent mutually agreed upon by

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FGIC and the trustee. Furthermore, the investments contracts are guaranteed by General ElectricCapital Corporation, a New York Corporation.



Annual rate of 6.10°/o $ 1,382,451Annual rate of 5.45% 725,601

FLOAT INVESTMENT CONTRACT - The trustee is allowed to investup to $9,000,000 earning interest at a rate of 5.36%. Interest is payablein semi-annual installments due on June 1st and December 1st of eachyear. The contract terminates December 1, 2030; however, the trusteemay withdraw funds on demand prior to termination 179,514

Total investments, Series 1998 trust indenture $ 2,287,566

Credit RiskThe Finance Authority typically manages credit risk by limiting investments that are guaranteed bythe United States government, agencies of the United States government or private guarantors withsubstantial financial resources. The investments described above are typically not rated byrecognized credit rating agencies. Information regarding credit risk is provided as follows:

• The GNMA securities are guaranteed by the full faith and credit of the United Statesgovernment.

• The remaining mortgage backed securities are guaranteed by agencies chartered by theUnited States government. The government agencies providing these guarantees are typicallyrated AAA by Standard and Poor's and Moody's.

• The guaranteed investment contracts are guaranteed by private organizations. The guarantorsare investment grade Standard and Poor's and Moody's.

Custodial RiskThe mortgage backed securities are uninsured and unregistered securities held on behalf of theFinance Authority by various bank trust departments. The guaranteed investment contracts are notevidenced by securities that exist in physical or book entry form; therefore, these investments are notsubject to custodial credit risk.

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Interest Rate RiskSince funds can be withdrawn from guaranteed investment contracts without limitations, theseinvestments are not exposed to interest rate risk. Interest rate risk associated with mortgage backedsecurities is offset by the terms of bond issues that finance the acquisition of mortgage backedsecurities. Since the bond issues provide access to funds needed for investment at fixed rates, anyfinancial impact from unfavorable changes hi interest rates is minimized.

Maturity ScheduleMortgage backed securities mature hi monthly installments that are based on the payment historyassociated with underlying pools of single family home mortgages. Since the payment history isinfluenced by prepayment of mortgage obligations, it is not practical to provide a maturity scheduleassociated with the mortgage backed securities.

NOTE 4 - LOANS RECEIVABLE:The Authority engages in a variety of lending activities which are intended to benefit Rapides Parish.Loans receivable at July 31,2006 are summarized as follows:

Loans to various local governmental units earning interest at ratesranging from 4.5% to 6.5%. $ 635,000

Loans placed on non-accrual status due to a default by the borrower.Collateral associated with these loans is believed to have limitedvalue; therefore, a reserve for losses has been established inconnection with these loans. 193,676

Total loans 828,676Reserve for loan losses (193,676)

Loans net of reserve for loan losses $ 635,000

As described above, a portion of the Authority's loan portfolio has experienced default. Accordingly,it was necessary to establish a reserve for potential losses. Changes in the allowance for loan lossesare presented as follows:

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Balance at beginning of year $ 202,922Provision charged to operating expense —Loans charged off —Recoveries on previously charged off loans (9,246)

Balance at end of year $ 193,676

NOTE 5 - BONDS PAYABLE:Bonds payable at July 31, 2006 is summarized as follows:

Series 2005 BondsSeries 2003 Bonds

Series 2003 ASeries 2003B

Series 2001 BondsSeries 1998 Bonds

Total Bonds Payable

BeginningBalance Additions

$ — $ 9,809,800

1,928,233 —7,667,506 1,598,8243,934,978 —2,569,935 — -

$16,100,652 $11,408,624

Reductions

$ (4,733)

1,928,233764,968

1,102,461594,034

$ 4,384,963

EndingBalance

$ 9,814,533

8,501,3622,832,5171,975,901

$23,124,313

The bonds described above were issued to finance acquisition of the restricted mortgage backedsecurities described in Note. 3. Under the terms of the bond issues, any principal collected from themortgage backed securities must be used to partially redeem bonds issued in connection with thosesecurities. Since the mortgage backed securities are considered current assets, the bonds payablehave been classified as current liabilities.

Series 2005 Bonds:Single Family Mortgage Revenue Bonds Series 2005 bonds outstanding at July 31, 2006, arepresented as follows:

Beginning EndingBalance Additions Reductions Balance

Series 2005 Bonds:Class A $ — $ 10,000,000 $ — $ 10,000,000Deferred Issue Cost ~ (190,200) (4,733) (185,467)

Total $ — $ 9,809,800 $ (4,733) $ 9,814,533

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RAPIDES FINANCE AUTHORITYNotes To Financial Statements

Revenue bonds have an original par value of $10,000,000 and an interest rate of 4.65%. Interest ispayable in semi-annual installments due on May 1st and November 1st of each year. The bonds arelimited and special obligations of the Rapides Finance Authority payable solely from receiptsgenerated by the Authority's Home Mortgage Loan Program (the Program); however, certainexceptions to this payment scenario are provided by redemption provisions that are described asfollows:

From Unexpended Proceeds;The bonds are subject to redemption from any proceeds that are not used to fund theProgram or related cost by November 1,2006. This redemption date may be extendedunder certain circumstances; however, it may not be extended beyond April 1,2009.

Optional Redemption;At the Authority's option, the bonds may be redeemed on or after May 1, 2015 fromany available source of funds. An optional redemption may be in whole or in part at100% of the outstanding principal balance.

Since maturity of the amounts presented above is influenced by the collection of various mortgageloans originated with the proceeds of this issue, maturity is not based on a fixed schedule.Accordingly, presenting a summary of contractual maturities is not considered appropriate.

The bonds are secured by an assignment and pledge of all right, title and interest of the Authority bthe Series 2005 trust estate. The trust estate includes the underlying mortgage backed securities andpledged revenues, rights to the origination agreement and servicing agreement, and all moneys andsecurities held by the trustee.

Series 2003A Bonds:Single Family Mortgage Revenue Bonds with an initial par value of $10,000,000. The interest rate isdetermined on the last business day of each month by adding 0.01% per annum to the LIBOR indexpublished by Bloomberg LP. The interest rate is subject to a maximum of 10% and interest ispayable in monthly installments. The bonds can be redeemed at 100% of par value and have beenredeemed with the proceeds from Series 2003B Bonds.

Series 2003B Bonds:Proceeds from these Single Family Mortgage Revenue Refunding Bonds, Series 2003B will be usedto refund the Series 2003 A bonds and establish a fixed rate of interest to finance various componentsof the single family home mortgage program.

The Series 2003B that will be issued in multiple subseries. Collectively the various subseries willhave an aggregate par value of $10,000,000. The interest rate for each subseries is determined byFame Mae prior to issuance. The bonds are scheduled to mature April 1, 2037; however, actual

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RAPIDES FINANCE AUTHORITYNotes To Financial Statements

maturity will be influenced by redemption provisions. Outstanding subseries are presented asfollows:

BeginningBalance Additions Reductions

EndingBalance

Series 2QQ3B Bonds:Subseries 1Subseries 2Subseries 3Subseries 4Subseries 5Subseries 6Subseries 7Subseries 8Unamortized DiscountDeferred Issue Cost

Total

$ 1,018,919734,475717,853

1,304,4101,315,7961,558,6001,257,114

—(38,512)(201,149)

$ 4— — j

1,606,858(8,034)

—

J 15,944151,62481,439

150,363140,475137,142

18,734103,251

(5,574)(28,430)

$ 1,002,975582,851636,414

1,154,0471,175,3211,421,4581,238,3801,503,607

(40,972)(172,719)

$ 7,667,506 $ 1,598,824 $ 764,968 $ 8,501,362

To a large extent, maturity of the amounts presented above is influenced by the origination andcollection of various mortgage loans financed with the proceeds of this issue. Since maturity is notbased on a fixed schedule, presenting a summary of contractual maturities is not consideredappropriate.

Security for the Series 2003B bonds consist of mortgage backed securities acquired pursuant to theProgram and revenue produced by these securities will also serve as security for the bonds. Themortgage backed securities will be guaranteed as to timely payment of principal and interest by theGovernment National Mortgage Association or the Federal National Mortgage Association.

The Series 2003B bonds are limited and special obligations of the Rapides Finance Authority. Theseobligations are payable solely from receipts generated by the Authority's Home Mortgage LoanProgram (the Program); however, certain exceptions to this restriction are provided by redemptionprovisions that are described as follows:

Mandatory Redemption:From Pledged Revenues - Mandatory redemption, in whole or in part, is required onany interest payment date, when the collection of pledged revenue has exceededamounts required to meet scheduled principle payments.

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RAP IDES FINANCE A UTHORITYNotes To Financial Statements

Optional Redemption:At the Authority's option, the bonds may be redeemed on or after January 1, 2013from any available source of funds at 100% of par value. An optional redemptionmay be in whole or in part.

Series 2001 Bonds;Single Family Mortgage Revenue Bonds Series 2001 bonds outstanding at July 31, 2006, arepresented as follows:


EndingBalance

Series 2001 Bonds:Class AClass BUnamortized DiscountDeferred Issue Cost

Total

$ 3,020,000 $1,030,000

(5,299)(109,723)

— $ 115,000— 1,030,000— (5,299)— (37,240)

$ 2,905,000

——

(72,483)

$ 3,934,978 $ $1,102,461 $ 2,832,517

To a large extent, maturity of the amounts presented above is influenced by the collection of variousmortgage loans originated with the proceeds of this issue. Since maturity is not based on a fixedschedule, presenting a summary of contractual maturities is not considered appropriate. Adescription of each security included in the Series 2001 issue is presented as follow:

Class A - Revenue Bonds with a par value of $3,900,000. Prior to June 1, 2002interest is based on a rate of 4.25%; however, on June 1, 2002 the bonds beginearning 5.9% per annum. Interest is payable in semi-annual installments due on June1st and December 1st of each year. The bonds are scheduled to mature seriallybeginning December 1, 2024 with the final installment due December 1, 2033;however, actual maturity will be influenced by mandatory and optional redemptionprovisions.

Class B (Refunding Bonds') - Revenue Bonds with a par value of $2,355,000. Prior toJune 1, 2002 interest is based on a rate of 4.375%; however, on June 1, 2002 thebonds begin earning 5.625% per annum. Interest is payable in semi-annualinstallments due on June 1st and December 1st of each year. The bonds are scheduledto mature serially beginning June 1, 2015 with the final installment due December 1,2024; however, actual maturity will be influenced by mandatory and optionalredemption provisions.

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Security for the Series 2001 bonds consist of bond proceeds held by a trustee for the purpose ofacquiring mortgage backed securities pursuant to the Rapides Finance Authority's Home MortgageLoan Program. Mortgage backed securities acquired pursuant to the Program and revenue producedby these securities will also serve as security for the Series 2001 bonds. The mortgage backedsecurities will be guaranteed as to timely payment of principal and interest by the GovernmentNational Mortgage Association or the Federal National Mortgage Association.

The Series 2001 bonds are limited and special obligations of the Rapides Finance Authority. Theseobligations are payable solely from receipts generated by the Authority's Home Mortgage LoanProgram (the Program); however, certain exceptions to this restriction are provided by redemptionprovisions that are described as follows:

Mandatory Redemption:From Fledged Revenues - Partial mandatory redemption is required on any interestpayment date, when the collection of pledged revenue has exceeded amounts requiredto meet scheduled principle payments. Furthermore, complete redemption is requiredwhenever excess pledged revenue is sufficient to repay all outstanding bonds and anyaccrued interest. Collection of excess pledged revenue is expected as a result ofprepayment from mortgage backed securities acquired in connection with theProgram.

From Unexpended Proceeds - The bonds are subject to redemption from anyproceeds that are not used to fund the Program or related cost by June 13 2003. Thisredemption date may be extended under certain circumstances; however, it may notbe extended beyond December 1, 2004.

Optional Redemption;At the Authority's option, the bonds may be redeemed on or after June 1, 2011 fromany available source of funds. An optional redemption may be in whole or in part.Redemption prices expressed as a percentage of par value are presented as follows:

RedemptionDates: Price

June 1,2011 through November 30,2011 102%December 1, 2011 through May 31,2012 101 %June 1,2012 and thereafter 100%

Series 1998 Bonds:Series 1998 consist of the following bonds dated July 15, 1998. At July 31, 2006, series 1998 debtconsisted of the following balances:

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EndingBalance

Series 1998 Bonds:Class AClass BDeferred Issue Cost

Total

$ 2,265,000390,000(85,065)

$ — $ 565,00045,000(15,966)

$ 1,700,000345,000(69,099)

$ 2,569,935 $ $ 594,034 $ 1,975,901

To a large extent, maturity of the amounts presented above is influenced by the collection of variousmortgage loans and mortgage backed securities. Since maturity is not based on a fixed schedule,presenting a summary of contractual maturities is not considered appropriate. A description of eachsecurity included in the Series 1998 issue is presented as follow:

Class A - Revenue Bonds with a par value of $4,700,000. Interest is based on a rateof 5.45%, interest is payable hi semi-annual installments due of June 1st andDecember 1st of each year. The bonds are scheduled to mature serially beginning June1, 2019 with the final installment due December 1, 2030; however, actual maturitywill be influenced by mandatory and optional redemption provisions.

Class B - Revenue Bonds with a par value of $800,000. Interest is based on a rate of5.35%, interest is payable in semi-annual installments due of June 1st and Decemberlsl of each year. The bonds are scheduled to mature serially beginning December 1,2024 with the final installment due June 1, 2026; however, actual maturity will beinfluenced by mandatory and optional redemption provisions.

Security for the Series 1998 bonds consist of bond proceeds held by a trustee for the purpose ofacquiring mortgage backed securities pursuant to the Rapides Finance Authority's Home MortgageLoan Program. Mortgage backed securities acquired pursuant to the Program will also serve assecurity for the Series 1998 bonds. The mortgage backed securities will be guaranteed as to timelypayment of principal and interest by the Government National Mortgage Association or the FederalNational Mortgage Association.

The Series 1998 bonds are limited and special obligations of the Rapides Finance Authority. Theseobligations are payable solely from receipts generated by the Authority's Home Mortgage LoanProgram (the Program); however, certain exceptions to this restriction are provided by redemptionprovisions that are described as follows:

Mandatory Redemption:From Pledged Revenues - Partial mandatory redemption is required on any interestpayment date, when the collection of pledged revenue has exceeded amounts requiredto meet scheduled principle payments. Furthermore, complete redemption is requiredwhenever excess pledged revenue is sufficient to repay all outstanding bonds and any

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accrued interest. Collection of excess pledged revenue is expected as a result ofprepayment from mortgage backed securities acquired in connection with theProgram.

From Unexpended Proceeds - The ftonds are subject to redemption from anyproceeds that are not used to fund the Program or related cost by August 1, 2000. Thisredemption date may be extended under certain circumstances; however, it may notbe extended beyond December ls 2001.

Optional Redemption:At the Authority's option, the bonds may be redeemed on or after June 1, 2008 fromany available source of funds. An optional redemption may be in whole or in part.Redemption prices expressed as a percentage of par value are presented as follows:

RedemptionDates: Price

June 1,2008 through November 30,2008 102%December 1, 2008 through May 31,2009 101%June 1, 2009 and thereafter 100%

NOTE 6 - RISK MANAGEMENT:The Authority is exposed to various risk of loss related to torts, theft, errors and omissions. TheAuthority insures against these risk described above by purchasing commercial insurance coverage.Legal counsel has advised management that no claims have resulted from these insured risk during anyof the past three fiscal years.

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ROZEER, HARRINGTON & MCKAYCERTIFIED PUBLIC ACCOUNTANTS1407 PETERMAN DRIVE • ALEXANDRIA, LOUISIANA 71301

MAILING ADDRESS

JOHN 5. ROZIER, IV, CPA POST OFHCE BOX 12178

MARKS. MCKAY, CPA ALEXANDRIA, LOUISIANA 71315-2178

LEEW. WILLIS, CPA TELEPHONE(318) 442-1S08

STEVEN E KIMBALL, CPA TELECOPIER (318) 487-2027

M. DALE HARRINGTON, CPARETIRED-2005

January 18,2007

INDEPENDENT AUDITORS' REPORT ON COMPLIANCE AND ONINTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN

AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCEWITH GOVERNMENT AUDITING STANDARDS

Rapides Finance AuthorityAlexandria, Louisiana

We have audited the financial statements of the Rapides Finance Authority, as of and for the yearended July 31, 2006, and have issued our report thereon dated January 18, 2007. We conducted ouraudit in accordance with auditing standards generally accepted in the United States and the standardsapplicable to financial audits contained in the Government Auditing Standards issued by theComptroller General of the United States.

COMPLIANCEAs part of obtaining reasonable assurance about whether the Rapides Finance Authority's financialstatements are free of material misstatement, we performed tests of its compliance with certainprovisions of laws, regulations, contracts and grants, noncompliance with which could have a directand material effect on the determination of financial statement amounts. However, providing anopinion on compliance with those provisions was not an objective of our audit and, accordingly, wedo not express such an opinion. The results of our tests disclosed no instances of noncompliance thatare required to be reported under Government Auditing Standards.

INTERNAL CONTROL OVER FINANCIAL REPORTINGIn planning and performing our audit, we considered the Rapides Finance Authority's internal controlover financial reporting hi order to determine our auditing procedures for the purpose of expressing ouropinion on the financial statements and not to provide assurance on the internal control over financialreporting. Our consideration of the internal control over financial reporting would not necessarilydisclose all matters in the internal control over financial reporting that might be material weaknesses.A material weakness is a condition in which the design or operation of one or more of the internalcontrol components does not reduce to a relatively low level the risk that misstatements in amountsthat would be material in relation to the financial statements being audited may occur and not be

-Members-

Amarican Institute of Certified Public Accountants • Society of Louisiana, CPAs

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Rapides Finance AuthorityJanuary 18, 2007Page 2

detected within a timely period by employees in the normal course of performing their assigned functions.We noted no matters involving the internal control over financial reporting and its operation that weconsider to be material weaknesses.

This report is intended for the information of management. However, this report is a matter of publicrecord and its distribution is not limited.

ROZ1ER, HARRINGTON & McKAYCertified Public Accountants

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RAP IDES FINANCE A UTHORITYSummary of Findings and Questioned Cost

PART I-SUMMARY OF AUDITOR'S RESULTS:

• The Independent Auditors* Report on the financial statements for the Rapides Finance Authority asof July 31,2006 and for the year then ended expressed an unqualified opinion.

• The results of the audit disclosed no instances of noncompliance that are considered to be materialto the financial statements of the Rapides Finance Authority.

• The Rapides Finance Authority did not receive any Federal Awards; therefore, no reporting underOMB Circular A-133 was necessary.

PARTII - FINDINGS RELATING TO THE FINANCIAL STATEMENTS WHICHARE REQUIRED TO BE REPORTED IN ACCORDANCE WITH GENERALLYACCEPTED GOVERNMENTAL AUDITING STANDARDS:

• None

PART HI - FINDINGS AND QUESTIONED COSTS FOR FEDERAL AWARDSWHICH SHALL INCLUDE AUDIT FINDINGS AS DEFINED BY OMBCIRCULAR A-133:

• N/A.

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RAPIDES FINANCE AUTHORITYManagement's Corrective Action Plan

SECTION IINTERNAL CONTROL AND COMPLIANCE MATERIAL TO THE FINANCIAL STATEMENTS.

No findings were reported in the schedulequestions cost

INTERNAL CONTROL AND

of findings and Response - N/A

SECTION HCOMPLIANCE MATERIAL TO FEDERAL AWARDS

N/A - The Authority did not receive federal financialassistance

No findings were reported in the schedulequestions cost.

Response - N/A

SECTION raMANAGEMENT LETTER

of findings and Response - N/A

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RAP IDES FINANCE AUTHORITYSchedule of Prior Findings and Questioned Cost

SECTION IINTERNAL CONTROL AND COMPLIANCE MATERIAL TO THE FINANCIAL STATEMENTS

No findings of the nature wereprevious audit.

reported as a result of the Response — N/A

SECTION HINTERNAL CONTROL AND COMPLIANCE MATERIAL TO FEDERAL AWARDS

No findings of the nature wereprevious audit.

No findings of the nature wereprevious audit

reported as a result of the Response - N/A

SECTION raMANAGEMENT LETTER

reported as a result of the Response - N/A

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RAP IDES FINANCE AUTHORITYSchedule of Per Diem PaId to Board Members

For the Year Ended July 31, 2O06

Amos Wesley $ 1,200

Barry Hines 700

Bobbie Clifton 1,000

Candy Christophe 800

Charles Johnson 600

David Bates 900

David Butler 3,600

Granvel Metoyer 1,200

Jack Dewitt 900

James Morgan 900

Joe Page 1,200

Morton Henderson 1,000

Tom'Nash 1,100

Total $ 15,100

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Documents

Annual Financial Report For the Year Ended July 31, 2006 · RAP IDES FINANCE AUTHORITY Balance Sheet July 31 ,2006 ASSETS: Current Assets: Cash and cash equivalents Investments Assets