Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-20057
WNC HOUSING TAX CREDIT FUND II, L.P.
(Exact name of registrant as specified in its charter)
California 33-0391979
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17782 Sky Park Circle 92614-6404
Irvine, CA (Zip Code)
(Address of principal executive offices)
(714) 662-5565
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated
filer.
Yes No X
----------- ----------------
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
INAPPLICABLE
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
NONE
2
PART I
Item 1. Business
Organization
WNC Housing Tax Credit Fund II, L.P. (the "Partnership") is a California limited
partnership formed under the laws of the State of California on January 19,
1990. The Partnership was formed to acquire limited partnership interests or
membership interests in other limited partnerships or limited liability
companies ("Local Limited Partnerships") which own multi-family housing
complexes that are eligible for Federal low-income housing and, in certain
cases, California low-income housing tax credits ("Low Income Housing Credits").
The general partner of the Partnership is WNC Financial Group, L.P. (the
"General Partner"). The chairman and president of WNC & Associates, Inc.
("Associates") owns substantially all of the outstanding stock of Associates.
The business of the Partnership is conducted primarily through Associates, as
the Partnership has no employees of its own.
Pursuant to a registration statement filed with the Securities and Exchange
Commission, on April 27, 1990, the Partnership commenced a public offering of
12,000 units of Limited Partnership Interest ("Units") at a price of $1,000 per
Unit. The General Partner concluded the sale of Units on December 31, 1992. A
total of 7,000 Units representing $7,000,000 had been sold. Holders of Units are
referred to herein as "Limited Partners."
The Partnership shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
Description of Business
The Partnership's principal business objective is to provide its Limited
Partners with Low Income Housing Credits. The Partnership's principal business
therefore consists of investing as a limited partner or non-managing member in
Local Limited Partnerships each of which owns and operates a multi-family
housing complex (the "Housing Complexes") which qualify for the Low Income
Housing Credits. In general, under Section 42 of the Internal Revenue Code, an
owner of low-income housing can receive the Low Income Housing Credit to be used
to reduce Federal taxes otherwise due in each year of a ten-year period. In
general, under Section 17058 of the California Revenue and Taxation Code, an
owner of low-income housing can receive the California Low Income Housing Credit
to be used against California taxes otherwise due in each year of a four-year
period. Each Housing Complex is subject to a fifteen-year compliance period (the
"Compliance Period"), and under state law may have to be maintained as low
income housing for 30 or more years.
In general, in order to avoid recapture of Low Income Housing Credits, the
Partnership does not expect that it will dispose of its interests in Local
Limited Partnerships ("Local Limited Partnership Interests") or approve the sale
by any Local Limited Partnership of its Housing Complex prior to the end of the
applicable Compliance Period. Because of (i) the nature of the Housing
Complexes, (ii) the difficulty of predicting the resale market for low-income
housing 15 or more years in the future, and (iii) the ability of government
lenders to disapprove of transfer, it is not possible at this time to predict
whether the liquidation of the Partnership's assets and the disposition of the
proceeds, if any, in accordance with the Partnership's Agreement of Limited
Partnership, dated January 19, 1990 (the "Partnership Agreement"), will be able
to be accomplished promptly at the end of the 15-year period. If a Local Limited
Partnership is unable to sell its Housing Complex, it is anticipated that the
local general partner ("Local General Partner") will either continue to operate
such Housing Complex or take such other actions as the Local General Partner
believes to be in the best interest of the Local Limited Partnership.
Notwithstanding the preceding, circumstances beyond the control of the General
Partner or the Local General Partners may occur during the Compliance Period,
which would require the Partnership to approve the disposition of a Housing
Complex prior to the end thereof, possibly resulting in recapture of Low Income
Housing Credits.
3
As of March 31, 2004, the Partnership had invested in twenty-seven Local Limited
Partnerships. Each of these Local Limited Partnerships owns a Housing Complex
that was eligible for the Federal Low Income Housing Credit. Certain Local
Limited Partnerships may also benefit from government programs promoting low- or
moderate-income housing.
Certain Risks and Uncertainties
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low Income Housing Credits and
the fractional recapture of Low Income Housing Credits already taken. An
individual Limited Partner's ability to use tax credits is limited. In most
cases, the annual amount of Low Income Housing Credits that an individual
Limited Partner can use is limited to the tax liability due on the person's last
$25,000 of taxable income. Low Income Housing Credits may be the only material
benefit from the Partnership because Limited Partners may not get back their
capital. Any transactions between the Partnership and Associates and its
affiliates will entail conflicts of interest.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
Low Income Housing Credits, and a fractional recapture of prior Low Income
Housing Credits would occur. At any time, a foreclosure would result in a loss
of the Partnership's investment in the Housing Complex. The Partnership is a
limited partner or non-managing member of each Local Limited Partnership.
Accordingly, the Partnership will have very limited rights with respect to
management of the Local Limited Partnerships. The Partnership will rely totally
on the Local General Partners. Neither the Partnership's investments in Local
Limited Partnerships, nor the Local Limited Partnerships' investments in Housing
Complexes, are readily marketable. To the extent the Housing Complexes receive
government financing or operating subsidies, they may be subject to one or more
of the following risks: difficulties in obtaining tenants for the Housing
Complexes; difficulties in obtaining rent increases; limitations on cash
distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of interests in Local Limited Partnerships; limitations
on removal of Local General Partners; limitations on subsidy programs; and
possible changes in applicable regulations. Uninsured casualties could result in
loss of property and Low Income Housing Credits and recapture of Low Income
Housing Credits previously taken. The value of real estate is subject to risks
from fluctuating economic conditions, including employment rates, inflation,
tax, environmental, land use and zoning policies, supply and demand of similar
properties, and neighborhood conditions, among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low Income Housing
Credits and tax losses allocable to the Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce the Limited Partners tax benefits from an investment in the Partnership.
Changes in tax laws could also impact the tax benefits from an investment in the
Partnership and/or the value of the Housing Complexes.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
There are limits on the transferability of units, including a prohibition on the
transfer of more than 50% of the Units
4
in a 12-month period. No trading market for the Units exists or is expected to
develop. Limited Partners may be unable to sell their Units except at a discount
and should consider their Units to be a long-term investment. Individual Limited
Partners will have no recourse if they disagree with actions authorized by a
vote of the majority of Limited Partners.
Anticipated future and existing cash resources are not sufficient to meet
existing contractual cash obligations. Substantially all of the future
contractual cash obligations of the Partnership are payable to the General
Partner. Though a substantial portion of the amounts contractually obligated to
the General Partner are contractually currently payable, the Partnership
anticipates that the General Partner will not require the payment of these
contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner on a current basis. The Partnership would be adversely affected should
the General Partner demand current payment of these contractual obligations and
or suspend services for this or any other reason.
Exit Strategy
The IRS compliance period for low-income housing tax credit properties is
generally 15 years following construction or rehabilitation completion.
Associates was one of the first in the industry to offer syndicated investments
in Low Income Housing Credits. The initial programs are completing their
compliance periods.
With that in mind, the Partnership is continuing its review of the Partnership's
holdings, with special emphasis on the more mature properties such as any that
have satisfied the IRS compliance requirements. The review considers many
factors, including extended use requirements on the property (such as those due
to mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the Limited Partners from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, the Partnership expects to proceed with
efforts to liquidate those properties. The objective is to maximize the Limited
Partners' return wherever possible and, ultimately, to wind down the Partnership
when it no longer provides tax benefits to Limited Partners. However, Local
Limited Partnership interests may be disposed at any time by Associates in its
discretion. To date no properties in the Partnership have been selected for
disposition.
Item 2. Properties
Through its investments in Local Limited Partnerships, the Partnership holds
indirect ownership interests in the Housing Complexes. The following table
reflects the status of the twenty-seven Housing Complexes as of the dates and
for the periods indicated:
5
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Airport Road Slidell, Clifford E. Olsen,
Associates, Louisiana Olsen Securities
Limited Corporation $ 334,000 $334,000 40 97% $ 695,000 $ 1,433,000
Am-Kent Amite &
Associates, Kentwood, Olsen Securities
Ltd. Louisiana Corporation 232,000 232,000 32 97% 585,000 1,104,000
Arizona I Showlow,
Limited Arizona Western States
Partnership Housing Corporation
and Joe W. Roberts
Company 320,000 320,000 42 64% 617,000 1,468,000
Ashland Ashland, Ronald D.
Investment Oregon Bettencourt
Group, an
Oregon
Limited
Partnership 300,000 300,000 40 100% 666,000 1,365,000
Brantley Brantley, Thomas H.
Housing, Alabama Cooksey and
Ltd. Apartment
Developers,
Inc. 108,000 108,000 19 79% 287,000 566,000
Brian's Mannford, Robert W.
Village Oklahoma Green and
Apartments, Emerald
an Oklahoma Development
Limited Co., Inc.
Partnership. 176,000 176,000 28 93% 374,000 747,000
Candleridge Perry, Eric A
Apartments Iowa Sheldahl
of Perry,
L.P. 93,000 93,000 23 100% 224,000 581,000
Candleridge Runnells, Eric A.
Apartments of Iowa Sheldahl
Runnells, L.P. 58,000 58,000 15 87% 141,000 362,000
6
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Casa Las Vegas, Western States
Allegre New Housing
Limited Mexico Corporation,
Partnership ABO Corporation and
Alan D. Nofsker 318,000 318,000 42 100% 635,000 1,346,000
Castroville Castroville, Doublekaye
Village, Texas Corp and
Ltd. Gary L. Kersch 165,000 165,000 40 95% 426,000 925,000
Cherokee Rogersville, Douglas B.
Square, Tennessee Parker and
L.P. Billy D. Cobb 202,000 202,000 31 97% 418,000 964,000
Divall Port
Midland Washington, Gary J.
Associates Wisconsin DiVall
Limited
Partnership
II 234,000 234,000 32 88% 489,000 1,141,000
Eclectic Eclectic, Thomas H.
Housing, Alabama Cooksey and
Ltd. Apartment
Developers,
Inc. 74,000 74,000 15 100% 216,000 399,000
Elizabeth Raceland, Olsen
Square Louisiana Securities
Associates, Corp.
Ltd. 356,000 356,000 48 96% 748,000 1,445,000
Emory Emory, 1600 Capital
Capital, Texas Company,
L.P. Inc. 85,000 85,000 16 100% 175,000 364,000
Emory Emory, 1600 Capital
Manor, Texas Company,
L.P. Inc. 128,000 128,000 24 100% 206,000 545,000
Idalou Idalou, 1600 Capital
Manor, Texas Company,
L.P. Inc. 122,000 122,000 24 100% 290,000 611,000
Jefferson Jefferson, 1600 Capital
Capital, Texas Company,
L.P. Inc. 167,000 167,000 30 97% 269,000 705,000
7
---------------------------- ----------------------------------------------
As of March 31, 2004 As of December 31, 2003
---------------------------- ----------------------------------------------
Partnership's Amount of Estimated Mortgage
Total Investment Investment Aggregate Low Balances of
Local Limited General Partner in Local Limited Paid to Number Income Housing Local Limited
Partnership Name Location Name Partnership Date of Units Occupancy Credits (1) Partnerships
- ------------------------------------------------------------------------------------------------------------------------------------
Jefferson Jefferson, 1600 Capital
Manor, Texas Company,
L.P. Inc. 179,000 179,000 32 94% 362,000 753,000
Lakeview Beaver Dam, Thomas G
Limited Wisconsin . Larson,
Partnership William H.
Larson, and
Raymond L.
Tetzlaff 264,000 264,000 40 100% 528,000 1,223,000
Littlefield Littlefield, 1600 Capital
Manor, Texas Company,
L.P. Inc. 118,000 118,000 24 96% 280,000 586,000
Perry Uniontown, Thomas H.
County Alabama Cooksey and
Housing, Apartment
Ltd. Developers,
Inc. 82,000 82,000 15 80% 215,000 433,000
Pine Hill Pine Thomas H.
Housing, Hill, Cooksey and
Ltd. Alabama Apartment
Developers,
Inc. 105,000 105,000 19 95% 267,000 549,000
Rociada Hereford, Richard
Partners Texas Lee (Rick)
Ltd. Brown 154,000 154,000 28 93% 316,000 720,000
Wadley Wadley, Thomas H.
Housing, Alabama Cooksey and
Ltd. Apartment
Developers,
Inc. 76,000 76,000 15 80% 213,000 433,000
Whitewater Whitewater, Thomas G.
Woods Wisconsin Larson,
Limited William H.
Partnership Larson, and
Raymond L.
Tetzlaff 301,000 301,000 40 95% 603,000 1,279,000
Willcox Willcox, John P.
Investment Arizona Casper
Group, an
Arizona
Limited
Partnership 245,000 245,000 30 93% 490,000 1,045,000
----------- ----------- ----- ---- ----------- -----------
$ 4,996,000 $ 4,996,000 784 93% $10,735,000 $23,092,000
=========== =========== ===== ==== =========== ===========
8
(1) Represents aggregate total anticipated Low Income Housing Credits to be
received over the 10 year credit period if the Housing Complexes are retained
and rented in compliance with credit rules for the 15-year compliance period.
Substantially all of the anticipated Low Income Housing Credits have been
received from the Local Limited Partnerships. Accordingly, the Partnership does
not anticipate Low-Income Housing Credits being allocated to the Limited
Partners in the future.
9
--------------------------------------------------------------------------
For the year ended December 31, 2003
--------------------------------------------------------------------------
Low Income Housing
Credits Allocated to
Partnership Name Rental Income Net Income/(Loss) Partnership
- -----------------------------------------------------------------------------------------------------------
Airport Road Associates, Limited $ 180,000 $ (40,000) 99%
Am-Kent Associates, Ltd. 166,000 (37,000) 99%
Arizona I Limited Partnership 134,000 (72,000) 99%
Ashland Investment Group, an
Oregon Limited Partnership 173,000 (37,000) 99%
Brantley Housing, Ltd. 65,000 (11,000) 99%
Brian's Village Apartments, an
Oklahoma Limited Partnership. 107,000 (30,000) 99%
Candleridge Apartments of
Perry, L.P. 125,000 (10,000) 99%
Candleridge Apartments of
Runnells, L.P. 91,000 (8,000) 99%
Casa Allegre Limited Partnership 198,000 6,000 99%
Castroville Village, Ltd. 179,000 (21,000) 99%
Cherokee Square, L.P. 91,000 (39,000) 99%
Divall Midland Associates
Limited Partnership II 153,000 (104,000) 99%
Eclectic Housing, Ltd. 54,000 1,000 99%
Elizabeth Square Associates,
Ltd. 182,000 (56,000) 99%
Emory Capital, L.P. 63,000 (3,000) 99%
Emory Manor, L.P. 87,000 (9,000) 99%
Idalou Manor, L.P. 89,000 (19,000) 99%
Jefferson Capital, L.P. 108,000 10,000 99%
Jefferson Manor, L.P. 106,000 (1,000) 99%
Lakeview Limited Partnership 165,000 (24,000) 99%
Littlefield Manor, L.P. 83,000 (15,000) 99%
10
--------------------------------------------------------------------------
For the year ended December 31, 2003
--------------------------------------------------------------------------
Low Income Housing
Credits Allocated to
Partnership Name Rental Income Net Income/(Loss) Partnership
- -----------------------------------------------------------------------------------------------------------
Perry County Housing, Ltd. 62,000 2,000 99%
Pine Hill Housing, Ltd. 71,000 (6,000) 99%
Rociada Partners Ltd. 147,000 (33,000) 99%
Wadley Housing, Ltd. 54,000 (9,000) 99%
Whitewater Woods Limited
Partnership 184,000 (52,000) 99%
Willcox Investment Group, an
Arizona Limited Partnership 134,000 (27,000) 99%
----------- ----------
$ 3,251,000 $ (644,000)
=========== ==========
11
Item 3. Legal Proceedings
NONE.
Item 4. Submission of Matters to a Vote of Security Holders
NONE.
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 5a.
(a) The Units are not traded on a public exchange but were sold through a
public offering. It is not anticipated that any public market will develop
for the purchase and sale of any Unit and none exists. Units can be
assigned only if certain requirements in the Partnership Agreement are
satisfied.
(b) At March 31, 2004, there were 552 Limited Partners and 10 assignees of
Units who were not admitted as Limited Partners.
(c) The Partnership was not designed to provide cash distributions to Limited
Partners in circumstances other than refinancing or disposition of its
investments in Local Limited Partnerships. Any such distributions would be
made in accordance with the terms of the Partnership Agreement.
(d) No securities are authorized for issuance by the Partnership under equity
compensation plans.
(e) No unregistered securities were sold by the Partnership during the year
ended March 31, 2004.
Item 5b. Use of Proceeds
NOT APPLICABLE
Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
NONE
12
Item 6. Selected Financial Data
Selected balance sheet information for the Partnership is as follows:
March 31
---------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
ASSETS
Cash and cash
equivalents $ 101,711 $ 113,943 $ 127,554 $ 136,626 $ 150,827
Investments in
limited
partnerships, net - 308,868 418,246 622,522 1,049,680
----------- ----------- ----------- ----------- -----------
$ 101,711 $ 422,811 $ 545,800 $ 759,148 $ 1,200,507
=========== =========== =========== =========== ===========
LIABILITIES
Accrued fees and
expenses due to
general partner
and affiliates $ 1,758,534 $ 1,613,741 $ 1,473,564 $ 1,335,561 $ 1,194,613
PARTNERS' (DEFICIT)
EQUITY (1,656,823) (1,190,930) (927,764) (576,413) 5,894
----------- ----------- ----------- ----------- -----------
$ 101,711 $ 422,811 $ 545,800 $ 759,148 $ 1,200,507
=========== =========== =========== =========== ===========
13
Selected results of operations, cash flows, and other information for the Partnership are as follows:
For the Years Ended
March 31
---------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ----------
Loss from operations
(Note 1) $ (426,672)$ (167,722)$ (163,302)$ (180,074)$ (190,926)
Equity in loss from
limited
partnerships (39,221) (95,444) (188,049) (402,233) (384,579)
----------- ----------- ----------- ----------- ----------
Net loss $ (465,893)$ (263,166)$ (351,351)$ (582,307)$ (575,505)
=========== =========== =========== ========== ==========
Net loss allocated to:
General partner $ (4,659)$ (2,632)$ (3,514)$ (5,823)$ (5,755)
=========== =========== =========== ========== ==========
Limited partners $ (461,234)$ (260,534)$ (347,837)$ (576,484)$ (569,750)
=========== =========== =========== ========== ==========
Net loss per limited
partner unit $ (65.89)$ (37.22)$ (49.69)$ (82.35)$ (81.39)
=========== =========== =========== ========== ==========
Outstanding
weighted limited
partner units 7,000 7,000 7,000 7,000 7,000
=========== =========== =========== ========== ==========
Note 1 - Loss from operations for the year ended March 31, 2004 includes a
charge for impairment losses on investments in limited partnerships of $256,646.
(See Note 2 to the audited financial statements.)
For the Years Ended
March 31
---------------------------------------------------------------
2004 2003 2002 2001 2000
----------- ----------- ----------- ---------- ----------
Net cash provided by
(used in):
Operating
ctivities $ (13,650)$ (15,961) $ (16,958) $ (17,774) $ (30,165)
Investing
activities 1,418 2,350 7,886 3,573 5,334
----------- ----------- ----------- ---------- ----------
Net change in cash
and cash equivalents (12,232) (13,611) (9,072) (14,201) (24,831)
Cash and cash
equivalents,
beginning of period 113,943 127,554 136,626 150,827 175,658
----------- ----------- ----------- ---------- ----------
Cash and cash
equivalents, end of
period $ 101,711 $ 113,943 $ 127,554 $ 136,626 $ 150,827
=========== =========== =========== ========== ==========
Low Income Housing Credits per Unit were as follows for the years ended December 31:
2003 2002 2001 2000 1999
----------- ----------- ------------ --------------- ------------
Federal $ 10 $ 21 $ 54 $ 120 $ 145
State - - - - -
----------- ----------- ------------ --------------- -------------
Total $ 10 $ 21 $ 54 $ 120 $ 145
=========== =========== ============ =============== =============
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Forward Looking Statements
With the exception of the discussion regarding historical information,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-K contain forward
14
looking statements. Such statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown risks that
could cause actual results of operations to differ materially from those
projected or implied. Further, certain forward-looking statements are based upon
assumptions about future events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, our future cash flows and ability to obtain sufficient
financing, level of operating expenses, conditions in the low income housing tax
credit property market and the economy in general, as well as legal proceedings.
Historical results are not necessarily indicative of the operating results for
any future period.
Subsequent written and oral forward looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-K and in other reports we filed with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the Financial Statements and the Notes thereto included
elsewhere in this filing.
Critical Accounting Policies and Certain Risks and Uncertainties
The Partnership believes that the following discussion addresses the its most
significant accounting policies, which are the most critical to aid in fully
understanding and evaluating the Partnership's reported financial results, and
certain of the Partnership's risks and uncertainties.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Method of Accounting For Investments in Limited Partnerships
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the product of the remaining future
Low-Income Housing Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be consistent with those of the
Partnership. Costs incurred by the Partnership in acquiring the investments are
capitalized as part of the investment account and are being amortized over 30
years (Notes 2 and 3).
Equity in losses of limited partnerships for each year ended March 31 have been
recorded by the Partnership based on nine months of reported results provided by
the Local Limited Partnerships for each year ended December 31 and on three
months of results estimated by management of the Partnership. Management's
estimate for the three-month period is based on either actual unaudited results
reported by the Local Limited Partnerships or historical trends in the
operations of the Local Limited Partnerships. Equity in losses from the Local
Limited Partnerships allocated to the Partnership are not recognized to the
extent that the investment balance would be adjusted below zero. As soon as the
investment balance reaches zero, amortization of the related costs of acquiring
the investment are accelerated to the extent of losses available.
Distributions received from the Local Limited Partnerships are accounted for as
a reduction of the investment balance. Distributions received after the
investment has reached zero are recognized as income. If the Local Limited
Partnerships report net income in future years, the Partnership will resume
applying the equity method only after its share of such net income equals the
share of net losses not recognized during the period(s) the equity method was
suspended.
15
Income Taxes
No provision for income taxes has been recorded in the financial statements as
any liability and or benefits for income taxes flows to the partners of the
Partnership and is their obligation and or benefit. For income tax purposes the
Partnership reports on a calendar year basis.
Certain Risks and Uncertainties
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low Income Housing Credit s and
the fractional recapture of Low Income Housing Credits already taken. In most
cases the annual amount of Low Income Housing Credits that an individual can use
is limited to the tax liability due on the person's last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a price which would result in the Partnership realizing cash
distributions or proceeds from the transaction.. Accordingly, the Partnership
may be unable to distribute any cash to its Limited Partners. Low Income Housing
Credits may be the only benefit from an investment in the Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
Low Income Housing Credits, a fractional recapture of prior Low Income Housing
Credits, and a loss of the Partnership's investment in the Housing Complex would
occur. The Partnership is a limited partner or non-managing member of each Local
Limited Partnership. Accordingly, the Partnership will have very limited rights
with respect to management of the Local Limited Partnerships. The Partnership
will rely totally on the Local General Partners. Neither the Partnership's
investments in Local Limited Partnerships, nor the Local Limited Partnerships'
investments in Housing Complexes, are readily marketable. To the extent the
Housing Complexes receive government financing or operating subsidies, they may
be subject to one or more of the following risks: difficulties in obtaining
tenants for the Housing Complexes; difficulties in obtaining rent increases;
limitations on cash distributions; limitations on sales or refinancing of
Housing Complexes; limitations on transfers of interests in Local Limited
Partnerships; limitations on removal of Local General Partners; limitations on
subsidy programs; and possible changes in applicable regulations. Uninsured
casualties could result in loss of property and Low Income Housing Credits and
recapture of Low Income Housing Credits previously taken. The value of real
estate is subject to risks from fluctuating economic conditions, including
employment rates, inflation, tax, environmental, land use and zoning policies,
supply and demand of similar properties, and neighborhood conditions, among
others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low Income Housing
Credits and tax losses allocable to the Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
16
No trading market for the Units exists or is expected to develop. Limited
Partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual Limited Partner
investors in Units will have no recourse if they disagree with actions
authorized by a vote of the majority of Limited Partners.
To date, certain Local Limited Partnerships have incurred significant operating
losses and have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partner may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
lost, and the loss and recapture of the related tax credits could occur.
Anticipated future and existing cash resources are not sufficient to meet
existing contractual cash obligations. Substantially all of the future
contractual cash obligations of the Partnership are payable to the General
Partner. Though a substantial portion of the amounts contractually obligated to
the General Partner are contractually currently payable, the Partnership
anticipates that the General Partner will not require the payment of these
contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner and/or affiliates on a current basis. The Partnership would be adversely
affected should the General Partner and/or affiliates demand current payment of
these contractual obligations and or suspend services for this or any other
reason.
Financial Condition
The Partnership's assets at March 31, 2004 consisted primarily of $102,000 in
cash. Liabilities at March 31, 2004 primarily consisted of $1,759,000 of accrued
annual management fees due to the General Partner.
Results of Operations
Year Ended March 31, 2004 Compared to Year Ended March 31, 2003. The
Partnership's net loss for the year ended March 31, 2004 was $(466,000),
reflecting an increase of $(203,000) from the net loss experienced for the year
ended March 31, 2003. The increase in net loss is primarily due to the increase
in loss from operations of $(259,000) for the year ended March 31, 2004 compared
to the year ended March 31, 2003. The increase in loss from operations was
primarily caused by a $(257,000) increase in impairment loss. The impairment
loss is due to the fact that the net investment balance exceeded the remaining
tax credits along with any residual value in two limited partnerships. That
increase was offset by a decrease in the equity in losses from limited
partnerships which decreased by $56,000 to $(39,000) for the year ended March
31, 2004 from $(95,000) for the year ended March 31, 2003. This decrease was a
result of the Partnership not recognizing certain losses of the Local Limited
Partnerships. The investments in such Local Limited Partnerships had reached $0
at March 31, 2004. Since the Partnership's liability with respect to its
investments is limited, losses in excess of investment are not recognized.
Year Ended March 31, 2003 Compared to Year Ended March 31, 2002. The
Partnership's net loss for the year ended March 31, 2003 was $(263,000),
reflecting a decrease of $88,000 from the net loss experienced for the year
ended March 31, 2002. The decrease in net loss is primarily due to the decrease
in the equity in losses from limited partnerships which decreased by $93,000 to
$(95,000) for the year ended March 31, 2003 from $(188,000) for the year ended
March 31, 2002. This decrease was a result of the Partnership not recognizing
certain losses of the Local Limited Partnerships. The investments in such Local
Limited Partnerships had reached $0 at March 31, 2003. Since the Partnership's
liability with respect to its investments is limited, losses in excess of
investment are not recognized.
Liquidity and Capital Resources
Year Ended March 31, 2004 Compared to Year Ended March 31, 2003. Net cash used
during the year ended March 31, 2004 was $(12,000), compared to net cash used
for the year ended March 31, 2003 of $(14,000). The decrease in cash used was
due primarily to a decrease in cash used in operating activities.
Year Ended March 31, 2003 Compared to Year Ended March 31, 2002. Net cash used
during the year ended March 31, 2003 was $(14,000), compared to net cash used
for the year ended March 31, 2002 of $(9,000). The decrease in cash used was due
primarily to a decrease in distributions from limited partnerships.
During the years ended March 31, 2004, 2003 and 2002, accrued payables, which
consist primarily of related party management fees due to the General Partner,
increased by $ 145,000, $140,000 and $138,000, respectively. The General Partner
does not anticipate that these accrued fees will be paid until such time as
capital reserves are in excess of future foreseeable working capital
requirements of the Partnership.
The Partnership expects its future cash flows, together with its net available
17
assets at March 31, 2004, to be sufficient to meet all currently foreseeable
future cash requirements. This excludes amounts owed to Associates by the
Partnership disclosed below.
Future Contractual Cash Obligations
The following table summarizes our future contractual cash obligations as of March 31, 2004:
2005 2006 2007 2008 2009 Thereafter Total
----------- --------- --------- --------- --------- ---------- -----------
Asset Management Fees (1) $ 1,903,436 $ 144,902 $ 144,902 $ 144,902 $ 144,902 $ 5,361,374 $ 7,844,358
Capital Contributions Payable to
Lower Tier Partnerships - - - - - - -
----------- --------- --------- --------- --------- ---------- -----------
Total contractual cash
obligations $ 1,903,436 $ 144,902 $ 144,902 $ 144,902 $ 144,902 $ 5,361,374 $ 7,844,358
=========== ========= ========= ========= ========= ========== ===========
(1) Asset Management Fees are payable annually until termination of the
Partnership, which is to occur no later than 2045. The estimate of the fees
payable included herein assumes the retention of the Partnership's interest
in all Housing Complexes until 2045. Amounts due to the General Partner as
of March 31, 2004 have been included in the 2005 column. The General
Partner does not anticipate that these fees will be paid until such time as
capital reserves are in excess of the future foreseeable working capital
requirements of the Partnership.
For additional information on our Asset Management Fees and Capital
Contributions Payable to Lower Tier Partnerships, see Notes 2 and 3 to the
financial statements included elsewhere herein.
Off-Balance Sheet Arrangements
The Partnership has no off-balance sheet arrangements.
Exit Strategy
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, we are continuing our review of the Partnership's holdings,
with special emphasis on the more mature properties such as any that have
satisfied the IRS compliance requirements. Our review will consider many factors
including extended use requirements on the property (such as those due to
mortgage restrictions or state compliance agreements), the condition of the
property, and the tax consequences to the Limited Partners from the sale of the
property.
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, we expect to proceed with efforts to liquidate
those properties. Our objective is to maximize the Limited Partners' return
wherever possible and, ultimately, to wind down those funds that no longer
provide tax benefits to Limited Partners. To date no properties in the
Partnership have been selected.
Impact of New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities." FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both.
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created after
January 31, 2003, but prior to January 1, 2004, may be accounted for either
based on the original interpretations or the revised interpretations. However,
all VIEs must be accounted for under the revised interpretations as of March 31,
2004, when FIN 46R is effective for the Partnership.
18
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
NOT APPLICABLE
Item 8. Financial Statements and Supplementary Data
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
WNC Housing Tax Credit Fund II, L.P.
We have audited the accompanying balance sheet of WNC Housing Tax Credit
Fund II, L.P. (a California Limited Partnership) (the "Partnership") as of March
31, 2004 and the related statements of operations, partners' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit. A significant portion of the
financial statements of the limited partnerships in which the Partnership is a
limited partner were audited by other auditors whose reports have been furnished
to us. As discussed in Note 2 to the financial statements, the Partnership
accounts for its investments in limited partnerships using the equity method.
The portion of the Partnership's investment in limited partnerships audited by
other auditors represented $29,000 of the Partnership's net loss for the year
ended March 31, 2004. Our opinion, insofar as it relates to the amounts included
in the financial statements for the limited partnerships which were audited by
others, is based solely on the reports of the other auditors.
We conducted our audit in accordance with the standards of the Public
Company 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. 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 and the reports of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the reports of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of WNC Housing Tax Credit Fund II, L.P. (a
California Limited Partnership) as of March 31, 2004, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The Partnership currently has insufficient working capital to fund
obligations to an affiliate of the General Partner for asset management
services. As discussed in Note 1 to the financial statements, the Partnership
would be adversely affected, should the affiliate of the General Partner, WNC &
Associates, Inc., demand current payment of existing contractual obligations
and/or suspend services for this or any other reason.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
June 8, 2004
20
Report of Independent Registered Public Accounting Firm
To the Partners
WNC Housing Tax Credit Fund II, L.P.
We have audited the accompanying balance sheet of WNC Housing Tax Credit Fund
II, L.P. (a California Limited Partnership) (the "Partnership") as of March 31,
2003, and the related statements of operations, partners' equity (deficit) and
cash flows for the years ended March 31, 2003 and 2002. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. A significant portion of the financial statements of the limited
partnerships in which the Partnership is a limited partner were audited by other
auditors whose reports have been furnished to us. As discussed in Note 2 to the
financial statements, the Partnership accounts for its investments in limited
partnerships using the equity method. The portion of the Partnership's
investment in limited partnerships audited by other auditors represented 60% of
the total assets of the Partnership at March 31, 2003 and 68% and 77% of the
Partnership's equity in losses of limited partnerships for the years ended March
31, 2003 and 2002, respectively. Our opinion, insofar as it relates to the
amounts included in the financial statements for the limited partnerships which
were audited by others, is based solely on the reports of the other auditors.
We conducted our audits in accordance with standards of the Public Company
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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WNC Housing Tax Credit Fund II, L.P. (A California
Limited Partnership) as of March 31, 2003, and the results of its operations and
its cash flows for the years ended March 31, 2003 and 2002, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
April 23, 2003
21
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
BALANCE SHEETS
March 31
------------------------------
2004 2003
-------------- -------------
ASSETS
Cash and cash equivalents $ 101,711 $ 113,943
Investments in limited partnerships, net (Notes 2 and 3) - 308,868
-------------- -------------
$ 101,711 $ 422,811
============== =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued fees and expenses due to General Partner and
affiliates (Note 3) $ 1,758,534 $ 1,613,741
-------------- -------------
Commitments and contingencies
Partners' deficit:
General partner (76,111) (71,452)
Limited partners (12,000 units authorized; 7,000 units
issued and outstanding) (1,580,712) (1,119,478)
-------------- -------------
Total partners' deficit (1,656,823) (1,190,930)
-------------- -------------
$ 101,711 $ 422,811
============== =============
See accompanying notes to financial statements
22
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended
March 31
------------------------------------------------
2004 2003 2002
-------------- ------------- -------------
Interest income $ 534 $ 1,393 $ 3,192
Distribution income 15,589 11,110 12,032
------------- ------------- --------------
Total income 16,123 12,503 15,224
-------------- ------------- -------------
Operating expenses:
Amortization (Notes 2 and 3) 11,583 11,584 8,341
Asset management fees (Note 3) 144,902 144,902 144,902
Impairment loss (Note 2) 256,646 - -
Other 29,664 23,739 25,283
-------------- ------------- -------------
Total operating expenses 442,795 180,225 178,526
-------------- ------------- -------------
Loss from operations (426,672) (167,722) (163,302)
Equity in losses of limited
partnerships (Note 2) (39,221) (95,444) (188,049)
-------------- ------------- -------------
Net loss $ (465,893) $ (263,166) $ (351,351)
============== ============= =============
Net loss allocated to:
General partner $ (4,659) $ (2,632) $ (3,514)
============== ============= =============
Limited partners $ (461,234) $ (260,534) $ (347,837)
============== ============= =============
Net loss per limited partnership unit $ (65.89) $ (37.22) $ (49.69)
============== ============= =============
Outstanding weighted limited
partner units 7,000 7,000 7,000
============== ============= =============
See accompanying notes to financial statements
23
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
STATEMENTS OF PARTNERS' DEFICIT
For The Years Ended March 31, 2004, 2003 and 2002
General Limited
Partner Partners Total
--------------- --------------- ---------------
Partners' deficit at March 31, 2001 $ (65,306)$ (511,107)$ (576,413)
Net loss (3,514) (347,837) (351,351)
--------------- --------------- ---------------
Partners' deficit at March 31, 2002 (68,820) (858,944) (927,764)
Net loss (2,632) (260,534) (263,166)
--------------- --------------- ---------------
Partners' deficit at March 31, 2003 (71,452) (1,119,478) (1,190,930)
Net loss (4,659) (461,234) (465,893)
--------------- --------------- ---------------
Partners' deficit at March 31, 2004 $ (76,111) (1,580,712) (1,656,823)
=============== =============== ===============
See accompanying notes to financial statements
24
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
For the Years Ended March 31
------------------------------------------------
2004 2003 2002
------------- -------------- -------------
Cash flows from operating activities:
Net loss $ (465,893)$ (263,166)$ (351,351)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization 11,583 11,584 8,341
Equity in losses of limited
partnerships 39,221 95,444 188,049
Impairment loss 256,646 - -
Increase in accrued fees and
expenses due to general partner
and affiliates 144,793 140,177 138,003
------------- -------------- -------------
Net cash used in operating activities (13,650) (15,961) (16,958)
------------- -------------- -------------
Cash flows from investing activities:
Distributions from limited
partnerships 1,418 2,350 7,886
------------- -------------- -------------
Net decrease in cash and
cash equivalents (12,232) (13,611) (9,072)
Cash and cash equivalents, beginning of
period 113,943 127,554 136,626
------------- -------------- -------------
Cash and cash equivalents, end of period $ 101,711 $ 113,943 $ 127,554
============= ============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Taxes paid $ 800 $ 800 $ 800
============= ============== =============
See accompanying notes to financial statements
25
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
WNC Housing Tax Credit Fund II, L.P., a California Limited Partnership (the
"Partnership"), was formed on January 19, 1990 under the laws of the State of
California. The Partnership was formed to invest primarily in other limited
partnerships (the "Local Limited Partnerships") which own and operate
multifamily housing complexes (the "Housing Complexes") that are eligible for
low income housing tax credits. The local general partners (the "Local General
Partners") of each Local Limited Partnership retain responsibility for
maintaining, operating and managing the Housing Complex.
The general partner is WNC Financial Group, L.P., a California partnership (the
"General Partner") of the Partnership. The chairman and president of Associates
own substantially all of the outstanding stock of Associates. The business of
the Partnership is conducted primarily through Associates, as the Partnership
has no employees of its own.
The Partnership shall continue in full force and effect until December 31, 2045
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 12,000 units at $1,000
per Unit ("Units"). The offering of Units concluded on December 31, 1992 at
which time 7,000 Units representing subscriptions in the amount of $7,000,000
had been accepted. The General Partner has a 1% interest in operating profits
and losses, taxable income and losses, in cash available for distribution from
the Partnership and tax credits of the Partnership. The limited partners will be
allocated the remaining 99% of these items in proportion to their respective
investments.
After the limited partners have received proceeds from a sale or refinancing
equal to their capital contributions and their return on investment (as defined
in the Partnership Agreement) and the General Partner has received proceeds
equal to its capital contribution and a subordinated disposition fee (as
described in Note 3) from the remainder, any additional sale or refinancing
proceeds will be distributed 95% to the limited partners (in proportion to their
respective investments) and 5% to the General Partner.
Risks and Uncertainties
- -----------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low Income Housing Credit rules are extremely complicated. Noncompliance
with these rules results in the loss of future Low Income Housing Credit s and
the fractional recapture of Low Income Housing Credits already taken. In most
cases the annual amount of Low Income Housing Credits that an individual can use
is limited to the tax liability due on the person's last $25,000 of taxable
income. The Local Limited Partnerships may be unable to sell the Housing
Complexes at a price which would result in the Partnership realizing cash
distributions or proceeds from the transaction. Accordingly, the Partnership may
be unable to distribute any cash to its Limited Partners. Low Income Housing
Credits may be the only benefit from an investment in the Partnership.
26
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
Low Income Housing Credits, a fractional recapture of prior Low Income Housing
Credits, and a loss of the Partnership's investment in the Housing Complex would
occur. The Partnership is a limited partner or non-managing member of each Local
Limited Partnership. Accordingly, the Partnership will have very limited rights
with respect to management of the Local Limited Partnerships. The Partnership
will rely totally on the Local General Partners. Neither the Partnership's
investments in Local Limited Partnerships, nor the Local Limited Partnerships'
investments in Housing Complexes, are readily marketable. To the extent the
Housing Complexes receive government financing or operating subsidies, they may
be subject to one or more of the following risks: difficulties in obtaining
tenants for the Housing Complexes; difficulties in obtaining rent increases;
limitations on cash distributions; limitations on sales or refinancing of
Housing Complexes; limitations on transfers of interests in Local Limited
Partnerships; limitations on removal of Local General Partners; limitations on
subsidy programs; and possible changes in applicable regulations. Uninsured
casualties could result in loss of property and Low Income Housing Credits and
recapture of Low Income Housing Credits previously taken. The value of real
estate is subject to risks from fluctuating economic conditions, including
employment rates, inflation, tax, environmental, land use and zoning policies,
supply and demand of similar properties, and neighborhood conditions, among
others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low Income Housing
Credits and tax losses allocable to the Limited Partners could be reduced if the
IRS were successful in such a challenge. The alternative minimum tax could
reduce tax benefits from an investment in the Partnership. Changes in tax laws
could also impact the tax benefits from an investment in the Partnership and/or
the value of the Housing Complexes.
Substantially all of the Low Income Housing Credits anticipated to be realized
from the Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated a significant amount of Low Income Housing Credits
from the Local Limited Partnerships in the future. Until the Local Limited
Partnerships have completed the 15 year Low Income Housing Credit compliance
period risks exist for potential recapture of prior low Income Housing Credits.
No trading market for the Units exists or is expected to develop. Limited
Partners may be unable to sell their Units except at a discount and should
consider their Units to be a long-term investment. Individual Limited Partners
will have no recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
Anticipated future and existing cash resources of the Partnership are not
sufficient to meet existing contractual cash obligations. Substantially all of
the future contractual cash obligations of the Partnership are payable to the
General Partner. Though a substantial portion of the amounts contractually
obligated to the General Partner are contractually currently payable, the
Partnership anticipates that the General Partner will not require the payment of
these contractual obligations until capital reserves are in excess of the future
foreseeable working capital requirements of the Partnership. However, the
Partnership is contractually required to pay these obligations to the General
Partner and/or its affiliates on a current basis. The Partnership would be
adversely affected should the General Partner and/or its affiliates demand
current payment of these contractual obligations and or suspend services for
this or any other reason.
27
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
Exit Strategy
- -------------
The IRS compliance period for low-income housing tax credit properties is
generally 15 years from occupancy following construction or rehabilitation
completion. WNC was one of the first in the industry to offer investments using
the tax credit. Now these very first programs are completing their compliance
period.
With that in mind, the Partnership is continuing to review the Partnership's
holdings, with special emphasis on the more mature properties such as any that
have satisfied the IRS compliance requirements. The Partnership's review will
consider many factors including extended use requirements on the property (such
as those due to mortgage restrictions or state compliance agreements), the
condition of the property, and the tax consequences to the Limited Partners from
the sale of the property.
28
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
Upon identifying those properties with the highest potential for a successful
sale, refinancing or syndication, the Partnership expects to proceed with
efforts to liquidate those properties. The Partnership's objective is to
maximize the Limited Partners' return wherever possible and, ultimately, to wind
down those funds that no longer provide tax benefits to Limited Partners. To
date no properties in the Partnership have been selected for disposition.
Method of Accounting For Investments in Limited Partnerships
- ------------------------------------------------------------
The Partnership accounts for its investments in limited partnerships using the
equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the product of the remaining future
Low-Income Housing Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be consistent with those of the
Partnership. Costs incurred by the Partnership in acquiring the investments are
capitalized as part of the investment account and are being amortized over 30
years (see Notes 2 and 3).
Equity in losses of limited partnerships for each year ended March 31 have been
recorded by the Partnership based on nine months of reported results provided by
the Local Limited Partnerships for each year ended December 31 and on three
months of results estimated by management of the Partnership. Management's
estimate for the three-month period is based on either actual unaudited results
reported by the Local Limited Partnerships or historical trends in the
operations of the Local Limited Partnerships. Equity in losses from the Local
Limited Partnerships allocated to the Partnership are not recognized to the
extent that the investment balance would be adjusted below zero. As soon as the
investment balance reaches zero, amortization of the related costs of acquiring
the investment are accelerated to the extent of losses available (see Note 3).
If the Local Limited Partnerships report net income in future years, the
Partnership will resume applying the equity method only after its share of such
net income equals the share of net losses not recognized during the period(s)
the equity method was suspended.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
Cash and Cash Equivalents
- -------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. The Partnership
had no cash equivalents at the end of all periods presented.
Concentration of Credit Risk
- ----------------------------
At March 31, 2004, the Partnership maintained a cash balance at a financial
institution in excess of the federally insured maximum.
29
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- -------------------------------------------------------------------------------
Net Loss Per Limited Partner Unit
- ---------------------------------
Net loss per limited partner unit is calculated pursuant to Statement of
Financial Accounting Standards No. 128, Earnings Per Share. Net loss per unit
includes no dilution and is computed by dividing loss available to limited
partners by the weighted average number of units outstanding during the period.
Calculation of diluted net loss per unit is not required.
Income Taxes
- ------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liability and/or benefits for income tax purposes flows to the
partners of the Partnership and is their obligation and/or benefit. For income
tax purposes the Partnership reports on a calendar year basis.
Impact of New Accounting Pronouncements
- ---------------------------------------
In January 2003, the FASB issued Interpretation No. 46 ("FIN46"), "Consolidation
of Variable Interest Entities." FIN 46 provides guidance on when a company
should include the assets, liabilities, and activities of a variable interest
entity ("VIE") in its financial statements and when it should disclose
information about its relationship with a VIE. A VIE is a legal structure used
to conduct activities or hold assets, which must be consolidated by a company if
it is the primary beneficiary because it absorbs the majority of the entity's
expected losses, the majority of the expected returns, or both.
In December 2003, the FASB issued a revision of FIN 46 ("FIN 46R") to clarify
some of its provisions. The revision results in multiple effective dates based
on the nature as well as the creation date of the VIE. VIEs created after
January 31, 2003, but prior to January 1, 2004, may be accounted for either
based on the original interpretations or the revised interpretations. However,
all VIEs must be accounted for under the revised interpretations as of March 31,
2004, when FIN 46R is effective for the Partnership.
This Interpretation would require consolidation by the Partnership of certain
Local Limited Partnerships' assets and liabilities and results of operations if
the Partnership determined that the Local Limited Partnership was a VIE and that
the Partnership was the "Primary Beneficiary." Minority interests may be
recorded for the Local Limited Partnerships' ownership share attributable to
other Limited Partners. Where consolidation of Local Limited Partnerships is not
required, additional financial information disclosures of Local Limited
Partnerships may be required. The Partnership has assessed the potential
consolidation effects of the Interpretation and preliminarily concluded that the
adoption of the Interpretation will not have a material impact on the financial
statements of the Partnership.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
- --------------------------------------------
As of the periods presented, the Partnership had acquired limited partnership
interests in twenty-seven Local Limited Partnerships, each of which owns one
Housing Complex consisting of an aggregate of 784 apartment units. The
respective Local General Partners of the Local Limited Partnerships manage the
day-to-day operations of the entities. Significant Local Limited Partnership
business decisions, as defined, require the approval of the Partnership. The
Partnership, as a limited partner, is generally entitled to 99%, as specified in
the Local Limited Partnership agreements, of the operating profits and losses,
taxable income and losses and tax credits of the Local Limited Partnerships.
30
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
As discussed in Note 1, the Partnership accounts for its investments in limited
partnerships using the equity method of accounting. The Partnership's investment
in Local Limited Partnerships as shown in the balance sheets at March 31, 2004
and 2003 are approximately, $2,760,000 and $2,422,000, respectively, greater
than the Partnership's equity at the preceding December 31 as shown in the Local
Limited Partnerships' combined financial statements presented below. This
difference is primarily due to unrecorded losses, as discussed below,
acquisition, selection and other costs related to the acquisition of the
investments which have been capitalized in the Partnership's investment account,
impairment losses recorded in the Partnership's investment account and to
capital contributions payable to the limited partnerships which were netted
against partner capital in the Local Limited Partnership's financial statements.
The Partnership's investment is also lower than the Partnership's equity as
shown in the Local Limited Partnership's combined financial statements due to
the estimated losses recorded by the Partnership for the three month period
ended March 31.
Equity in losses of the Local Limited Partnerships is recognized in the
financial statements until the related investment account is reduced to a zero
balance. Losses incurred after the investment account is reduced to zero are not
recognized. If the Local Limited Partnerships report net income in future years,
the Partnership will resume applying the equity method only after its share of
such net income equals the share of net losses not recognized during the
period(s) the equity method was suspended.
A loss in value from a Local Limited Partnership other than a temporary decline
would be recorded as an impairment loss. Impairment is measured by comparing the
investment carrying amount to the sum of the total amount of the remaining tax
credits allocated to the fund and the estimated residual value of the
investment. Accordingly, the Partnership recorded an impairment loss of
$256,646, $0 and $0 during the years ended March 31, 2004, 2003 and 2002,
respectively.
Distributions from the Local Limited Partners are accounted for as a reduction
of the investment balance. Distributions received after the investment has
reached zero are recognized as income.
At March 31, 2004 and 2003, the investment accounts in certain Local Limited
Partnerships have reached a zero balance. Consequently, a portion of the
Partnership's estimate of its share of losses for the years ended March 31,
2004, 2003 and 2002 amounting to approximately $599,887, $536,512 and $430,845,
respectively, have not been recognized. As of March 31, 2004, the aggregate
share of net losses not recognized by the Partnership amounted to $2,820,609.
Following is a summary of the equity method activity of the investments in Local
Limited Partnerships for the periods presented:
For the Years Ended March 31
-------------------------------------------------
2004 2003 2002
-------------- -------------- --------------
Investments per balance sheet, beginning of period $ 308,868 $ 418,246 $ 622,522
Equity in losses of limited partnerships (39,221) (95,444) (188,049)
Impairment loss (256,646) - -
Distributions received from limited partnerships (1,418) (2,350) (7,886)
Amortization of paid acquisition fees and costs (11,583) (11,584) (8,341)
-------------- -------------- --------------
Investments per balance sheet, end of period $ - $ 308,868 $ 418,246
============== ============== ==============
31
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
The financial information from the individual financial statements of the Local
Limited Partnerships include rental and interest subsidies. Rental subsidies are
included in total revenues and interest subsidies are generally netted against
interest expense. Approximate combined condensed financial information from the
individual financial statements of the Local Limited Partnerships as of December
31 and for the years then ended is as follows:
COMBINED CONDENSED BALANCE SHEETS
2003 2002
--------------- ---------------
ASSETS
Buildings and improvements, net of accumulated
depreciation as of December 31, 2003 and 2002
$11,400,000, and $10,502,000, respectively $ 18,032,000 $ 18,840,000
Land 1,354,000 1,354,000
Other assets 2,173,000 2,123,000
--------------- ---------------
$ 21,559,000 $ 22,317,000
=============== ===============
LIABILITIES
Mortgage loans payable $ 23,092,000 $ 23,191,000
Due to related parties 172,000 184,000
Other liabilities 420,000 396,000
--------------- ---------------
23,684,000 23,771,000
--------------- ---------------
PARTNERS' CAPITAL (DEFICIT)
WNC Housing Tax Credit Fund II, L.P. (2,760,000) (2,113,000)
Other partners 635,000 659,000
--------------- ---------------
(2,125,000) (1,454,000)
--------------- ---------------
$ 21,559,000 $ 22,317,000
=============== ===============
32
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS, continued
- -------------------------------------------------------
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2003 2002 2001
--------------- --------------- ---------------
Total revenues, including interest and rent
subsidies $ 3,333,000 $ 3,189,000 $ 3,117,000
--------------- --------------- ---------------
Expenses:
Operating expenses 2,437,000 2,340,000 2,223,000
Interest expense 642,000 651,000 679,000
Depreciation and amortization 898,000 834,000 836,000
--------------- --------------- ---------------
Total expenses 3,977,000 3,825,000 3,738,000
--------------- --------------- ---------------
Net loss $ (644,000) $ (636,000) $ (621,000)
=============== =============== ===============
Net loss allocable to the Partnership $ (638,000) $ (630,000) $ (615,000)
=============== =============== ===============
Net loss recorded by the Partnership $ (39,000) $ (95,000) $ (188,000)
=============== =============== ===============
Certain Local Limited Partnerships have incurred significant operating losses
and/or have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership and/or the Local General Partner may be
required to sustain the operations of such Local Limited Partnerships. If
additional capital contributions are not made when they are required, the
Partnership's investment in certain of such Local Limited Partnerships could be
lost, and the loss and recapture of the related tax credits could occur.
NOTE 3 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or its affiliates for the following items:
Acquisition fees of up to 9% of the gross proceeds from the sale of
Units as compensation for services rendered in connection with the
acquisition of Local Limited Partnerships. At the end of all periods
presented, the Partnership incurred acquisition fees of $630,000.
Accumulated amortization of these capitalized costs was $630,000 and
$573,687 as of March 31, 2004 and 2003, respectively. Of the
accumulated amortization recorded on the balance sheet at March 31,
2004, $10,667, $30,710 and $42,391 of the related expense was
reflected as equity in losses of limited partnerships during the years
ended March 31, 2004, 2003 and 2002, respectively, to reduce the
respective net acquisition fee component of investments in local
limited partnerships to zero for those Local Limited Partnerships
which would otherwise be below a zero balance.
Reimbursement of costs incurred by an affiliate of WNC in connection
with the acquisition of Local Limited Partnerships. These
reimbursements have not exceeded 1.7% of the gross proceeds. As of the
end of all periods presented, the Partnership had incurred acquisition
costs of $10,581 which have been included in investments in limited
partnerships. At the end of all periods presented, accumulated
amortization amounted to $10,581.
33
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
An annual management fee equal to 0.5% of the invested assets of the
Local Limited Partnerships, including the Partnership's allocable
share of the mortgages, for the life of the Partnership. Management
fees of $144,902 were incurred during each of the years ended March
31, 2004, 2003 and 2002, of which $0, $5,250 and $5,250 were paid
during the years ended March 31, 2004, 2003 and 2002, respectively.
The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred in behalf of the Partnership. Operating
expense reimbursements were approximately $30,000 during the year
ended March 31, 2004.
A subordinated disposition fee in an amount equal to 1% of the sales
price of any real estate sold. Payment of this fee is subordinated to
the limited partners who receive a 6% preferred return (as defined in
the Partnership Agreement) and is payable only if the General Partner
or its affiliates render services in the sales effort. No such fee was
incurred in the three year period ending March 31, 2004.
The accrued fees and expenses due to General Partner and affiliates consist of the following at:
March 31
----------------------------------
2004 2003
--------------- ---------------
Advances from WNC $ 1,780 $ 1,890
Asset management fee payable 1,756,754 1,611,851
--------------- ---------------
$ 1,758,534 $ 1,613,741
=============== ===============
The General Partner does not anticipate that these accrued fees will be paid
until such time as capital reserves are in excess of the future foreseeable
working capital requirements of the Partnership.
34
WNC HOUSING TAX CREDIT FUND II, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended March 31, 2004, 2003 and 2002
NOTE 4 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------
The following is a summary of the quarterly operations for the years ended March 31:
June 30 September 30 December 31 March 31
--------------- --------------- --------------- ---------------
2004
----
Income $ 3,000 $ 8,000 $ 1,000 $ 4,000
Operating expenses (46,000) (55,000) (44,000) (298,000)
Equity in income (losses) of
limited partnerships (10,000) (21,000) (10,000) 2,000
Net loss (53,000) (68,000) (53,000) (292,000)
Net Loss available to limited
partners (53,000) (67,000) (53,000) (288,000)
Net Loss per limited partnership
unit (8) (10) (8) (41)
2003
----
Income $ 1,000 $ 7,000 $ - $ 4,000
Operating expenses (45,000) (51,000) (42,000) (42,000)
Equity in losses of limited
partnerships (9,000) (11,000) (7,000) (68,000)
Net loss (53,000) (55,000) (48,000) (107,000)
Net Loss available to limited
partners (53,000) (55,000) (48,000) (105,000)
Net Loss per limited partnership
unit (8) (8) (7) (15)
35
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
NOT APPLICABLE
Item 9a. Controls and Procedures
As of the end of the period covered by this report, the Partnership's General
Partner, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates carried out an evaluation of
the effectiveness of the Fund's "disclosure controls and procedures" as defined
in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that
evaluation, the Chief Executive Officer and Principal Financial Officer have
concluded that as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were adequate and effective in
timely alerting them to material information relating to the Partnership
required to be included in the Partnership's periodic SEC filings.
Changes in internal controls. There were no changes in the Partnership's
internal control over financial reporting that occurred during the quarter ended
March 31, 2004 that materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
PART III.
Item 10. Directors and Executive Officers of the Registrant
(a) Identification of Directors, (b) Identification of Executive Officers, (c)
--------------------------------------------------------------------------
Identification of Certain Significant Employees, (d) Family Relationships,
--------------------------------------------------------------------------
and (e) Business Experience
---------------------------
The Partnership has no directors, executive officers or employees of its own.
The following biographical information is presented for the directors, executive
officers a