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EX-31 - EXHIBIT 31-2 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex312.txt
EX-32 - EXHIBIT 32-1 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex321.txt
EX-32 - EXHIBIT 32-2 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex322.txt
EX-31 - EXHIBIT 31-1 - WNC CALIFORNIA HOUSING TAX CREDITS III LPex311.txt
EX-99 - EXHIBIT 99 COLONIAL FIANANCAILS 07 AND 06 - WNC CALIFORNIA HOUSING TAX CREDITS III LPcolonial07.txt
EX-99 - EX 99 COLONIAL 05 AND 04 - WNC CALIFORNIA HOUSING TAX CREDITS III LPcolvilroseaudit.txt


                                  UNITED STATES
                       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 year ended March 31, 2008

                                       OR

| |  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  5(d) OF  THE  SECURITIES
                              EXCHANGE ACT OF 1934

           For the transition period from ___________ to _____________

                         Commission file number: 0-23908


                  WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
             (Exact name of registrant as specified in its charter)

          California                                     33-0563307
      (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 if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act Yes_____ No___X__

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes_____ No___X__

                                       1


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 No X 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 "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer___ Accelerated filer___ Non-accelerated filer___X__ Small reporting company_____ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 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 California Housing Tax Credits III, L.P. (the "Partnership") is a California Limited Partnership formed under the laws of the State of California on October 5, 1992. The Partnership was formed to acquire limited partnership interests in other limited partnerships ("Local Limited Partnerships") which own multi-family housing complexes ("Housing Complexes") that are eligible for Federal low income housing tax credits ("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 Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the "Local Limited Partnership Agreement"). The general partner of the Partnership is WNC Tax Credit Partners III, L.P. (the "General Partner"). WNC & Associates, Inc. ("Associates") is the general partner of WNC Tax Credit Partners III, L.P. The chairman and president of Associates owns 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 February 17, 1993, the Partnership commenced a public offering of 30,000 units of limited partnership interest ("Partnership Units") at a price of $1,000 per Partnership Unit. As of the close of the public offering on July 22, 1994, a total of 18,000 Partnership Units representing $18,000,000 had been sold. Holders of Partnership Units are referred to herein as "Limited Partners". The Partnership shall continue in full force and effect until December 31, 2050 unless terminated prior to that date pursuant to the Partnership Agreement (as defined below) or law. Description of Business The Partnership's principal business objective is to provide its Limited Partners with Low Income Housing Tax 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 will own and operate a Housing Complex which will qualify for the Low Income Housing Tax Credits. In general, under Section 42 of the Internal Revenue Code, an owner of low income housing can receive the Low Income Housing Tax Credits to be used to reduce Federal taxes otherwise due in each year of a ten-year credit period. Each Housing Complex is subject to a 15 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 Tax 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 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 September 15, 1988 (the "Partnership Agreement"), will be accomplished promptly at the end of the Compliance 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 Tax Credits. The Partnership invested in eighteen Local Limited Partnerships, none of which have been sold or otherwise disposed of as of March 31, 2008. Each of these Local Limited Partnerships owns a Housing Complex that was eligible for the Federal Low Income Housing Tax Credit and eight of them were eligible for the 3
California Low Income Housing Tax Credit. Certain Local Limited Partnerships may also benefit from additional government programs promoting low- or moderate-income housing. Exit Strategy The Compliance Period for a Housing Complex 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 Tax Credits. The initial programs are completing their Compliance Periods. The following table reflects the 15-year compliance period of the eighteen Housing Complexes: Expiration Date for 15-year compliance period Local Limited Partnership Name 15-year Expiration Date ----------------------------------------------------------------------- Almond Garden Apartment Associates 2009 Almond View Apartments, Ltd. 2010 Buccaneer Associates, Limited 2008 Candleridge Apartments of Perry L.P. II 2009 Colonial Village Roseville 2010 Dallas County Housing, Ltd. 2009 La Paloma del Sol Limited Partnership 2009 Memory Lane Limited Partnership 2009 Nueva Sierra Vista Associates 2010 Old Fort Limited Partnership 2008 Orosi Apartments, Ltd. 2009 Parlier Garden Apts. 2009 Rosewood Apartments Limited Partnership 2009 Sun Manor, L.P. 2009 Tahoe Pines Apartments 2009 Venus Retirement Village, Ltd. 2009 Walnut - Pixley, L.P. 2009 Winters Investment Group 2009 With that in mind, the General Partner is continuing its review of the Housing Complexes, with special emphasis on the more mature Housing Complexes such as any that have satisfied the IRS compliance requirements. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes. Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners' return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of March 31, 2008. Subsequent to March 31, 2008, the Partnership sold its Limited Partnership interest in Rosewood Apartments L.P. ("Rosewood"), Venus Retirement Village, Ltd ("Venus") and Winters Investment Group ("Winters"). The Partnership received $1, $15,000 and $25,000 for its Limited Partnership interest in the respective Local Limited Partnerships. Rosewood had an appraised value of $70,000 and the outstanding mortgage balance was approximately $398,000 therefore it was to the best interest of the Partnership to sell its Limited Partnership interest to the 4
Local General Partner. Venus and Winters were similar situations with Venus appraised at $170,000 with an outstanding mortgage balance of $700,000 and Winters appraised at $1,460,000 with an outstanding mortgage balance of $1,765,000. The Partnership collected $40,001 in total for the sale of the three Limited Partnership interests and those funds are being kept in the Partnership's reserves to pay for future operating expenses and accrued asset management fees. Item 1A. Risk Factors Set forth below are the principal risks the Partnership believes are material to the Limited Partners. The Partnership and the Local Limited Partnerships operate in a continually changing business environment and, therefore, new risks emerge from time to time. This section contains some forward-looking statements. For an explanation of the qualifications and limitations on forward-looking statements, see Item 7. a. Risks arising from the Internal Revenue Code rules governing Low Income Housing Tax Credits Unless a bond is posted or a Treasury Direct Account is established, Low Income Housing Tax Credits may be recaptured if Housing Complexes are not owned and operated for 15 years. Housing Complexes must comply with Internal Revenue Code Section 42 for the 15-year Compliance Period. Low Income Housing Tax Credits will be recaptured with interest to the extent that a Housing Complex is not rented as low income housing or in some other way does not satisfy the requirements of Internal Revenue Code Section 42 during the Compliance Period. For example, unless a bond is posted or a Treasury Direct Account is established, recapture with interest would occur if: o a Local Limited Partnership disposed of its interest in a Housing Complex during the Compliance Period, or o the Partnership disposed of its interest in a Local Limited Partnership during the Compliance Period. For these purposes, disposition includes transfer by way of foreclosure. It will be up to the Partnership to determine whether to post a bond. There is no obligation under the agreements with the Local Limited Partnerships that the Local Limited Partnerships must do so. There can be no assurance that recapture will not occur. If it does, recapture will be a portion of all Low Income Housing Tax Credits taken in prior years for that Housing Complex, plus interest. During the first 11 years of the Compliance Period, non-compliance results in one-third of the credits up to that point for the particular Housing Complex being recaptured, plus interest. Between years 12 and 15, the recapture is phased out ratably. Sales of Housing Complexes after 15 years are subject to limitations which may impact a Local Limited Partnership's ability to sell its Housing Complex. Each Local Limited Partnership executes an extended low income housing commitment with the state in which the Housing Complex is located. The extended low income housing commitment states the number of years that the Local Limited Partnership and any subsequent owners must rent the Housing Complex as low income housing. Under Federal law, the commitment must be for at least 30 years. The commitment, actually agreed to, may be significantly longer than 30 years. In prioritizing applicants for Low Income Housing Tax Credits, most states give additional points for commitment periods in excess of 30 years. On any sale of the Housing Complex during the commitment period, the purchaser would have to agree to continue to rent the Housing Complex as low income housing for the duration of the commitment period. This requirement reduces the potential market, and possibly the sales price, for the Housing Complexes. The sale of a Housing Complex may be subject to other restrictions. For example, Federal lenders or subsidizers may have the right to approve or disapprove a purchase of a Housing Complex. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amount of cash will be distributed to the Limited Partners. As a result, a material portion of the Low Income Housing Tax Credits may represent a return of the money originally invested in the Partnership. b. Risks related to investment in Local Limited Partnerships and Housing Complexes Because the Partnership has few investments, each investment will have a great impact on the Partnership's results of operations. Any single Housing Complex experiencing poor operating performance, impairment of value or recapture of Low Income Housing Tax Credits will have a significant impact upon the Partnership as a whole. 5
The failure to pay mortgage debt could result in a forced sale of a Housing Complex. Each Local Limited Partnership leverages the Partnership's investment therein by incurring mortgage debt. A Local Limited Partnership's revenues could be less than its debt payments and taxes and other operating costs. If so, the Local Limited Partnership would have to use working capital reserves, seek additional funds, or suffer a forced sale of its Housing Complex, which could include a foreclosure. The same results could occur if government subsidies ceased. Foreclosure would result in a loss of the Partnership's capital invested in the Housing Complex. Foreclosure could also result in a recapture of Low Income Housing Tax Credits, and a loss of Low Income Housing Tax Credits for the year in which the foreclosure occurs. If the Housing Complex is highly-leveraged, a relatively slight decrease in the rental revenues could adversely affect the Local Limited Partnership's ability to pay its debt service requirements. Mortgage debt may be repayable in a self-amortizing series of equal installments or with a large balloon final payment. Balloon payments maturing prior to the end of the anticipated holding period for the Housing Complex create the risk of a forced sale if the debt cannot be refinanced. There can be no assurance that additional funds will be available to any Local Limited Partnership if needed on acceptable terms or at all. The Partnership does not control the Local Limited Partnerships and must rely on the Local General Partners. The Local General Partners will make all management decisions for the Local Limited Partnerships and the Housing Complexes. The Partnership has very limited rights with respect to management of the Local Limited Partnerships. The Partnership will not be able to exercise any control with respect to Local Limited Partnership business decisions and operations. Consequently, the success of the Partnership will depend on the abilities of the Local General Partners. Housing Complexes subsidized by other government programs are subject to additional rules which may make it difficult to operate and sell Housing Complexes. Some or all of the Housing Complexes receive or may receive government financing or operating subsidies in addition to Low Income Housing Tax Credits. The following are risks associated with some such subsidy programs: o Obtaining tenants for the Housing Complexes. Government regulations limit the types of people who can rent subsidized housing. These regulations may make it more difficult to rent the residential units in the Housing Complexes. o Obtaining rent increases. In many cases rents can only be increased with the prior approval of the subsidizing agency. o Limitations on cash distributions. The amount of cash that may be distributed to owners of subsidized Housing Complexes is less than the amount that could be earned by the owners of non-subsidized Housing Complexes. o Limitations on sale or refinancing of the Housing Complexes. A Local Limited Partnership may be unable to sell its Housing Complex or to refinance its mortgage loan without the prior approval of the subsidizer. The subsidizer may withhold such approval in the discretion of the subsidizer. Approval may be subject to conditions, including the condition that the purchaser continues to operate the property as affordable housing for terms which could be as long as 30 years or more. In addition, any prepayment of a mortgage may result in the assessment of a prepayment penalty. o Limitations on transfers of interests in Local Limited Partnerships. The Partnership may be unable to sell its interest in a Local Limited Partnership without the prior approval of the subsidizer. The subsidizer may withhold such approval in the discretion of the subsidizer. Approval may be subject to conditions. o Limitations on removal and admission of Local General Partners. The Partnership may be unable to remove a Local General Partner from a Local Limited Partnership except for cause, such as the violation of the rules of the subsidizer. Regulations may prohibit the removal of a Local General Partner or permit removal only with the prior approval of the subsidizer. Regulations may also require approval of the admission of a successor Local General Partner even upon the death or other disability of a Local General Partner. o Limitations on subsidy payments. Subsidy payments may be fixed in amount and subject to annual legislative appropriations. The rental revenues of a Housing Complex, when combined with the maximum committed subsidy, may be insufficient to meet obligations. Congress or the state legislature, as the case may be, may fail to appropriate or increase the necessary subsidy. In those events, the mortgage lender could foreclose on the Housing Complex unless a workout arrangement could be negotiated. 6
o Possible changes in applicable regulations. Legislation may be enacted which adversely revises provisions of outstanding mortgage loans. Such legislation has been enacted in the past. o Limited Partners may not receive distributions if Housing Complexes are sold. There is no assurance that Limited Partners will receive any cash distributions from the sale or refinancing of a Housing Complex. The price at which a Housing Complex is sold may not be high enough to pay the mortgage and other expenses which must be paid at such time. If that happens, a Limited Partne's return may be derived only from the Low Income Housing Tax Credits and tax losses. Uninsured casualties could result in losses and recapture. There are casualties which are either uninsurable or not economically insurable. These include earthquakes, floods, wars and losses relating to hazardous materials or environmental matters. If a Housing Complex experienced an uninsured casualty, the Partnership could lose both its invested capital and anticipated profits in such property. Even if the casualty were an insured loss, the Local Limited Partnership might be unable to rebuild the destroyed property. A portion of prior tax credits could be recaptured and future tax credits could be lost if the Housing Complex were not restored within a reasonable period of time. And liability judgments against the Local Limited Partnership could exceed available insurance proceeds or otherwise materially and adversely affect the Local Limited Partnership. The cost of liability and casualty insurance has increased in recent years. Casualty insurance has become more difficult to obtain and may require large deductible amounts. Housing Complexes without financing or operating subsidies may be unable to pay operating expenses. If a Local Limited Partnership were unable to pay operating expenses, one result could be a forced sale of its Housing Complex. If a forced sale occurs during the first 15 years of a Housing Complex, a partial recapture of Low Income Housing Tax Credits could occur. In this regard, some of the Local Limited Partnerships may own Housing Complexes which have no subsidies other than Low Income Housing Tax Credits. Those Housing Complexes do not have the benefit of below-market-interest-rate financing or operating subsidies which often are important to the feasibility of low income housing. Those Housing Complexes rely solely on rents to pay expenses. However, in order for any Housing Complex to be eligible for Low Income Housing Tax Credits, it must restrict the rent which may be charged to tenants. Over time, the expenses of a Housing Complex will increase. If a Local Limited Partnership cannot increase its rents, it may be unable to pay increased operating expenses. The Partnership's investment protection policies will be worthless if the net worth of the Local General Partners is not sufficient to satisfy their obligations. There is a risk that the Local General Partners will be unable to perform their financial obligations to the Partnership. The General Partner has not established a minimum net worth requirement for the Local General Partners. Rather, each Local General Partner demonstrates a net worth which the General Partner believes is appropriate under the circumstances. The assets of the Local General Partners are likely to consist primarily of real estate holdings and similar assets. The fair market value of these types of assets is difficult to estimate. These types of assets cannot be readily liquidated to satisfy the financial guarantees and commitments which the Local General Partners make to the Partnership. Moreover, other creditors may have claims on these assets. No escrow accounts or other security arrangements will be established to ensure performance of a Local General Partner's obligations. The cost to enforce a Local General Partner's obligations may be high. If a Local General Partner does not satisfy its obligations the Partnership may have no remedy, or the remedy may be limited to removing the Local General Partner as general partner of the Local Limited Partnership. Fluctuating economic conditions can reduce the value of real estate. The Partnership's principal business objective is providing its Limited Partners with low income housing tax credits, not the generation of gains from the appreciation of real estate held by the Local Limited Partnerships. In its financial statements, the Partnership has carried its investments in Local Limited Partnerships at values reflecting the sum of the total amount of the remaining future low income housing tax credits estimated to be allocated to the Partnership and the estimated residual value to the Partnership of its interests in the Local Limited Partnerships. As of the beginning of the first year covered by this report, the Partnership had reduced the carrying amount to $0 with respect to all but one of its investments. Any investment in real estate is subject to risks from fluctuating economic conditions. These conditions can adversely affect the ability to realize a profit or even to recover invested capital. Among these conditions are: o the general and local job market, o the availability and cost of mortgage financing, 7
o monetary inflation, o tax, environmental, land use and zoning policies, o the supply of and demand for similar properties, o neighborhood conditions, o the availability and cost of utilities and water. c. Tax risks other than those relating to tax credits In addition to the risks pertaining specifically to Low Income Housing Tax Credits, there are other Federal income tax risks. Additional Federal income tax risks associated with the ownership of Partnership Units and the operations of the Partnership and the Local Limited Partnerships include, but are not limited to, the following: No opinion of counsel as to certain matters. No legal opinion is obtained regarding matters: o the determination of which depends on future factual circumstances, o which are peculiar to individual Limited Partners, or o which are not customarily the subject of an opinion. The more significant of these matters include: o allocating purchase price among components of a property, particularly as between buildings and fixtures, the cost of which is depreciable, and the underlying land, the cost of which is not depreciable, o characterizing expenses and payments made to or by the Partnership or a Local Limited Partnership, o identifying the portion of the costs of any Housing Complex which qualify for historic and other tax credits, o applying to any specific Limited Partner the limitation on the use of tax credits and tax losses. Limited Partners must determine for themselves the extent to which they can use tax credits and tax losses, and o the application of the alternative minimum tax to any specific Limited Partner, or the calculation of the alternative minimum tax by any Limited Partner. The alternative minimum tax could reduce the tax benefits from an investment in the Partnership. There can be no assurance, therefore, that the IRS will not challenge some of the tax positions adopted by the Partnership. The courts could sustain an IRS challenge. An IRS challenge, if successful, could have a detrimental effect on the Partnership's ability to realize its investment objectives. Passive activity rules will limit deduction of the Partnership's losses and impose tax on interest income. The Internal Revenue Code imposes limits on the ability of most investors to claim losses from investments in real estate. An individual may claim these so-called passive losses only as an offset to income from investments in real estate or rental activities. An individual may not claim passive losses as an offset against other types of income, such as salaries, wages, dividends and interest. These passive activity rules will restrict the ability of most Limited Partners to use losses from the Partnership as an offset of non-passive income. The Partnership may earn interest income on its reserves and loans. The passive activity rules generally will categorize interest as portfolio income, and not passive income. Passive losses cannot be used as an offset to portfolio income. Consequently, a Limited Partner could pay tax liability on portfolio income from the Partnership. At risk rules might limit deduction of the Partnership's losses. If a significant portion of the financing used to purchase Housing Complexes does not consist of qualified nonrecourse financing, the "at risk" rules will limit a Limited Partner's ability to claim Partnership losses to the amount the Limited Partner invests in the Partnership. The "at risk" rules of the Internal Revenue Code generally limit a Limited Partner's ability to deduct Partnership losses to the sum of: o the amount of cash the Limited Partner invests in the Partnership, and o the Limited Partner's share of Partnership qualified nonrecourse financing. 8
Qualified nonrecourse financing is non-convertible, nonrecourse debt which is borrowed from a government, or with exceptions, any person actively and regularly engaged in the business of lending money. Tax liability on sale of Housing Complex or Local Limited Partnership Interest may exceed the cash available from the sale. When a Local Limited Partnership sells a Housing Complex it will recognize gain. Such gain is equal to the difference between: o the sales proceeds plus the amount of indebtedness secured by the Housing Complex, and o the adjusted basis for the Housing Complex. The adjusted basis for a Housing Complex is its original cost, plus capital expenditures, minus depreciation. Similarly, when the Partnership sells an interest in a Local Limited Partnership the Partnership will recognize gain. Such gain is equal to the difference between: o the sales proceeds plus the Partnership's share of the amount of indebtedness secured by the Housing Complex, and o the adjusted basis for the interest. The adjusted basis for an interest in a Local Limited Partnership is the amount paid for the interest, plus income allocations and cash distributions, less loss allocations. Accordingly, gain will be increased by the depreciation deductions taken during the holding period for the Housing Complex. In some cases, a Limited Partner could have a tax liability from a sale greater than the cash distributed to the Limited Partner from the sale. Alternative minimum tax liability could reduce a Limited Partner's tax benefits. If a Limited Partner pays alternative minimum tax, the Limited Partner could suffer a reduction in benefits from an investment in the Partnership. The application of the alternative minimum tax is personal to each Limited Partner. Tax credits may not be utilized to reduce alternative minimum tax liability. IRS could audit the returns of the Partnership, the Local Limited Partnerships or the Limited Partners. The IRS can audit the Partnership or a Local Limited Partnership at the entity level with regard to issues affecting the entity. The IRS does not have to audit each Limited Partner in order to challenge a position taken by the Partnership or a Local Limited Partnership. Similarly, only one judicial proceeding can be filed to contest an IRS determination. A contest by the Partnership of any IRS determination might result in high legal fees. An audit of the Partnership or a Local Limited Partnership also could result in an audit of a Limited Partner. An audit of a Limited Partner's tax returns could result in adjustments both to items that are related to the Partnership and to unrelated items. The Limited Partner could then be required to file amended tax returns and pay additional tax plus interest and penalties. A successful IRS challenge to tax allocations of the Partnership or a Local Limited Partnership would reduce the tax benefits of an investment in the Partnership. Under the Internal Revenue Code, a partnership's allocation of income, gains, deductions, losses and tax credits must have substantial economic effect. Substantial economic effect is a highly-technical concept. The fundamental principle is two-fold. If a partner will benefit economically from an item of partnership income or gain, that item must be allocated to him so that he bears the correlative tax burden. Conversely, if a partner will suffer economically from an item of partnership deduction or loss, that item must be allocated to him so that he bears the correlative tax benefit. If a partnership's allocations do not have substantial economic effect, then the partnership's tax items are allocated in accordance with each partner's interest in the partnership. The IRS might challenge the allocations made by the Partnership: o between the Limited Partners and the General Partner, o among the Limited Partners, or o between the Partnership and a Local General Partner. 9
If any allocations were successfully challenged, a greater share of the income or gain or a lesser share of the losses or tax credits might be allocated to the Limited Partners. This would increase the tax liability or reduce the tax benefits to the Limited Partners. Tax liabilities could arise in later years of the Partnership. After a period of years following commencement of operations by a Local Limited Partnership, the Local Limited Partnership may generate profits rather than losses. A Limited Partner would have tax liability on his share of such profits unless he could offset the income with: o unused passive losses from the Partnership or other investments, or o current passive losses from other investments. In such circumstances, the Limited Partner would not receive a cash distribution from the Partnership with which to pay any tax liability. IRS challenge to tax treatment of expenditures could reduce losses. The IRS may contend that fees and payments of the Partnership or a Local Limited Partnership: o should be deductible over a longer period of time or in a later year, o are excessive and may not be capitalized or deducted in full, o should be capitalized and not deducted, or o may not be included as part of the basis for computing tax credits. Any such contention by the IRS could adversely impact, among other things: o the eligible basis of a Housing Complex used to compute Low Income Housing Tax Credits, o the adjusted basis of a Housing Complex used to compute depreciation, o the correct deduction of fees, o the amortization of organization and offering expenses and start-up expenditures. If the IRS were successful in any such contention, the anticipated Low Income Housing Tax Credits and losses of the Partnership would be reduced, perhaps substantially. Changes in tax law might reduce the value of Low Income Housing Tax Credits. Although all Low Income Housing Tax Credits are allocated to a Housing Complex at commencement of the 10-year credit period, there can be no assurance that future legislation may not adversely affect an investment in the Partnership. For example, legislation could reduce or eliminate the value of Low Income Housing Tax Credits. In this regard, before 1986, the principal tax benefit of an investment in low income housing was tax losses. These tax losses generally were used to reduce an investor's income from all sources on a dollar-for-dollar basis. Investments in low income housing were made in reliance on the availability of such tax benefits. However, tax legislation enacted in 1986 severely curtailed deduction of such losses. New administrative or judicial interpretations of the law might reduce the value of Low Income Housing Tax Credits. Many of the provisions of the Internal Revenue Code related to low income housing and real estate investments have not been interpreted by the IRS in regulations, rulings or public announcements, or by the courts. In the future, these provisions may be interpreted or clarified by the IRS or the courts in a manner adverse to the Partnership or the Local Limited Partnerships. The IRS constantly reviews the Federal tax rules, and can revise its interpretations of established concepts. Any such revisions could reduce or eliminate tax benefits associated with an investment in the Partnership. State income tax laws may adversely affect the Limited Partners. A Limited Partner may be required to file income tax returns and be subject to tax and withholding in each state or local taxing jurisdiction in which: a Housing Complex is located, the Partnership or a Local Limited Partnership engages in business activities, or the Limited Partner is a resident. Corporate Limited Partners may be required to pay state franchise taxes. 10
The tax treatment of particular items under state or local income tax laws may vary materially from the Federal income tax treatment of such items. Nonetheless, many of the Federal income tax risks associated with an investment in the Partnership may also apply under state or local income tax law. The Partnership may be required to withhold state taxes from distributions or income allocations to Limited Partners in some instances. d. Risks related to the Partnership and the Partnership Agreement The Partnership may be unable to timely provide financial reports to the Limited Partners which would adversely affect their ability to monitor Partnership operations. Historically, the Partnership has been unable to timely file and provide investors with all of its required periodic reports. In some instances, the delay has been substantial. Each Local General Partner is required to retain independent public accountants and to report financial information to the Partnership in a timely manner. There cannot be any assurance that the Local General Partners will satisfy these obligations. If not, the Partnership would be unable to provide to the Limited Partners in a timely manner its financial statements and other reports. That would impact the Limited Partners' ability to monitor Partnership operations. The Partnership's failure to meet its filing requirements under the Securities Exchange Act of 1934 could reduce the liquidity for the Partnership Units due to the unavailability of public information concerning the Partnership. The failure to file could also result in sanctions imposed by the SEC. Any defense mounted by the Partnership in the face of such sanctions could entail legal and other fees, which would diminish cash reserves. Lack of liquidity of investment. It is unlikely that a public market will develop for the purchase and sale of Partnership Units. Accordingly, Limited Partners may not be able to sell their Partnership Units promptly or at a reasonable price. Partnership Units should be considered as a long-term investment because the Partnership is unlikely to sell any Local Limited Partnership Interests for at least 15 years. Partnership Units cannot be transferred to tax-exempt or foreign entities, or through a secondary market. The General Partner can deny effectiveness of a transfer if necessary to avoid adverse tax consequences from the transfer. The General Partner does not anticipate that any Partnership Units will be redeemed by the Partnership. The Limited Partners will not control the Partnership and must rely totally on the General Partner. The General Partner will make all management decisions for the Partnership. Management decisions include exercising powers granted to the Partnership by a Local Limited Partnership. Limited Partners have no right or power to take part in Partnership management. Individual Limited Partners will have no recourse if they disagree with actions authorized by a vote of the majority. The Partnership Agreement grants to Limited Partners owning more than 50% of the Partnership Units the right to: o remove the General Partner and elect a replacement general partner, o amend the Partnership Agreement, o terminate the Partnership. Accordingly, a majority-in-interest of the Limited Partners could cause any such events to occur, even if Limited Partners owning 49% of the Partnership Units opposed such action. Limitations on liability of the General Partner to the Partnership. The ability of Limited Partners to sue the General Partner and it affiliates is subject to limitations. The Partnership Agreement limits the liability of the General Partner and it affiliates to the Limited Partners. The General Partner and it affiliates will not be liable to the Limited Partners for acts and omissions: performed or omitted in good faith, and performed or omitted in a manner which the General Partner reasonably believed to be within the scope of its authority and in the best interest of the Limited Partners, provided such conduct did not constitute negligence or misconduct. Therefore, Limited Partners may be less able to sue the General Partner and it affiliates than would be the case if such provisions were not included in the Partnership Agreement. Payment of fees to the General Partner and its affiliates reduces cash available for investment in Local Limited Partnerships. The General Partner and it affiliates perform many services for the Partnership. They are paid fees for these services, which reduce the amount of the cash available for investment in Local Limited Partnerships. Accordingly, an investor investing directly in a 11
Housing Complex would have a greater amount available for investment than an investor investing in Housing Complexes through the Partnership. Associates and its affiliates are serving as the general partners of many other partnerships. Depending on their corporate area of responsibility, the officers of Associates initially devote approximately 5% to 50% of their time to the Partnership. These individuals spend significantly less time devoted to the Partnership after the investment of the Partnership's capital in Local Limited Partnerships. The interests of Limited Partners may conflict with the interests of the General Partner and its affiliates. The General Partner and its affiliates are committed to the management of more than 100 other limited partnerships that have investments similar to those of the Partnership. The General Partner and its affiliates receive substantial compensation from the Partnership. The General Partner decides how the Partnership's investments in Housing Complexes are managed, and when the investments will be sold. The General Partner may face a conflict in these circumstances because the General Partner's share of fees and cash distributions from the transaction may be more or less than their expected share of fees if a Housing Complex was not sold. The result of these conflicts could be that a Series may make investments which are less desirable, or on terms which are less favorable, to the Series than might otherwise be the case. The Partnership has not developed any formal process for resolving conflicts of interest. However, the General Partner is subject to a fiduciary duty to exercise good faith and integrity in handling the affairs of the Partnership, and that duty will govern its actions in all such matters. Furthermore, the manner in which the Partnership can operate and sell investments is subject to substantial restrictions as outlined in the Partnership Agreement. Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates. The Partnership's accrued payables consist primarily of the asset management fees payable to the General Partner. These accrued payables increased by approximately $131,000, $148,000, and $128,000 for the years ended March 31, 2008, 2007 and 2006, respectively. The Partnership's future contractual cash obligations consist solely of its obligations to pay future annual asset management fees. These will equal approximately $161,000 per year through the termination of the Partnership, which must occur no later than December 31, 2050. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of the existing contractual obligations and anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through October 31, 2010. Item 1B. Unresolved Staff Comments Not Applicable 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 eighteen Housing Complexes for which the Partnership had ownership during the year, as of the dates or for the periods indicated: 12
As of March 31, 2008 As of December 31, 2007 ----------------------------- ----------------------------------------------- Partnership's Estimated Total Amount of Aggregate Mortgage Investment in Investment Low Income Balances of Local Limited General Partner Local Limited Paid Number of Housing Tax Local Limited Partnership Name Location Name Partnerships to Date Units Occupancy Credits(1) Partnerships ------------------------------------------------------------------------------------------------------------------------------------ Almond Garden Delhi, Anthony Donovan $ 391,000 $ 391,000 34 100% $ 807,000 $ 1,345,000 Apt, Assoc. California Almond View Stockton, Daniel C. Logue and 1,639,000 1,639,000 72 94% 3,523,000 1,693,000 Apts., Ltd. California Cyrus Youssefi Buccaneer Assoc., Fernandia Clifford E. Olsen 365,000 365,000 48 98% 768,000 1,428,000 Ltd. Beach, Florida Candleridge Apts. Perry, Eric A. Sheldahl 126,000 126,000 24 96% 245,000 667,000 of Perry L.P. II Iowa Colonial Village Roseville, S.P. Thomas Company 2,811,000 2,811,000 56 98% 5,872,000 1,799,000 Roseville Calfornia of Northern California Inc. and Project Go, Inc. Dallas County Orrville, Thomas H. Cooksey 130,000 130,000 19 84% 287,000 595,000 Housing, Ltd. Alabama and Apartment Developers, Inc. La Paloma del Sol Deming, Dean Greenwalt 254,000 254,000 38 95% 625,000 1,385,000 L.P. New Mexico Memory Lane L.P. Yankton, Skogen - Peterson, 151,000 151,000 18 100% 295,000 657,000 South Inc. Dakota Nueva Sierra Vista Richgrove, Self-Help 1,688,000 1,688,000 35 100% 3,516,000 1,623,000 Assoc. California Enterprises, Inc. and Nueva Sierra Vista Corporation 13
As of March 31, 2008 As of December 31, 2007 ----------------------------- ----------------------------------------------- Partnership's Estimated Total Amount of Aggregate Mortgage Investment in Investment Low Income Balances of Local Limited General Partner Local Limited Paid Number of Housing Tax Local Limited Partnership Name Location Name Partnerships to Date Units Occupancy Credits(1) Partnerships ------------------------------------------------------------------------------------------------------------------------------------ Old Fort L.P. Hidalgo, Alan Deke Noftsker $ 249,000 $ 249,000 40 100% $ 547,000 $ 1,235,000 Texas and ABO Corporation Orosi Apts., Ltd. Orosi, Douglas W. Young 461,000 461,000 42 86% 902,000 1,826,000 California Parlier Garden Parlier, David J. Micheal 453,000 453,000 40 100% 917,000 1,656,000 Apts. California and Professional Apartment Management, Inc. Rosewood Apts. Superior, Duffy Development 185,000 185,000 20 95% 375,000 398,000 L.P. (2) Wisconsin Company, Inc. Sun Manor, L.P. Itta Bena, Glenn D. Miller 230,000 230,000 36 89% 464,000 1,026,000 Mississippi Tahoe Pines Apts. South Lake David J. Michael, 1,633,000 1,633,000 28 89% 3,171,000 1,566,000 Tahoe, Bucky Fong, California Dean Pearson, Coy Elvis and Dr. Patricia Hatton Venus Retirement Venus, W. Joseph Chamy 161,000 161,000 24 96% 318,000 703,000 Village, Ltd. (2) Texas Walnut-Pixley, L.P. Orange, Walnut-Pixley, 1,078,000 1,078,000 22 95% 2,309,000 1,553,000 California Inc. Winters Investment Winters, John P. Casper 531,000 531,000 38 97% 1,072,000 1,775,000 Group (2) California --------- --------- --- ---- ---------- ---------- $ 12,536,000 $ 12,536,000 634 95% $ 26,013,000 $ 22,930,000 ============ ============ === ==== ============ ============ (1) Represents aggregate total anticipated Low Income Housing Tax 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. All of the anticipated Low Income Housing Tax Credits have been received from the Local Limited Partnerships. Accordingly, the Partnership does not anticipate a significant amount of Low Income Housing Tax Credits being allocated to the Limited Partners in the future. 14
2) The Partnership sold its Limited Partnership interest in these Local Limited Partnerships subsequent to March 31, 2008 15
---------------------------------------------------------- For the year ended December 31, 2007 ---------------------------------------------------------- Low Income Housing Tax Credits Local Limited Net Income Allocated to Partnership Name Rental Income (Loss) Partnership ---------------------------------------------------------------------------------------------------------- Almond Garden Apartment Associates $ 199,000 $ (21,000) 99% Almond View Apartments, Ltd. 256,000 (259,000) 99% Buccaneer Associates, Limited 282,000 (12,000) 99% Candleridge Apartments of Perry L.P. II 154,000 5,000 99% Colonial Village Roseville 554,000 (35,000) 99% Dallas County Housing, Ltd. 86,000 (10,000) 99% La Paloma del Sol Limited Partnership 192,000 (18,000) 99% Memory Lane Limited Partnership 87,000 (10,000) 99% Nueva Sierra StateVista Associates 176,000 (123,000) 99% Old Fort Limited Partnership 232,000 (24,000) 99% Orosi Apartments, Ltd. 210,000 (39,000) 99% Parlier Garden Apts. 287,000 (3,000) 95% Rosewood Apartments Limited Partnership 100,000 3,000 99% Sun Manor, L.P. 179,000 (36,000) 99% Tahoe Pines Apartments 237,000 (119,000) 99% Venus Retirement Village, Ltd. 108,000 (16,000) 99% Walnut - Pixley, L.P. 193,000 12,000 99% Winters Investment Group 276,000 (44,000) 99% ----------- ------------- $ 3,808,000 $ (749,000) =========== ============= 16
WNC California Housing Tax Credit Fund III, L.P. March 31, 2007 Occupancy Rates --------------------------------------------------------------------------- As of December 31, --------------------------------------------------------------------------- Local Limited Partnership Name Location General Partner Name 2007 2006 2005 2004 2003 ------------------------------------------------------------------------------------------------------------------------------------ Almond Garden Delhi, Anthony Donovan 100% 97% 100% 97% 97% Apt, Assoc. California Almond View Stockton, Daniel C. Logue and 94% 94% 100% 99% 97% Apts., Ltd. California Cyrus Youssefi Buccaneer Assoc., Fernandia Clifford E. Olsen 98% 100% 100% 100% 96% Ltd. Beach, Florida Candleridge Apts. Perry, Eric A. Sheldahl 96% 96% 100% 100% 83% of Perry L.P. II Iowa Colonial Village Roseville, S.P. Thomas Company 98% 93% 100% 98% 98% Roseville Calfornia of Northern California Inc. and Project Go, Inc. Dallas County Orrville, Thomas H. Cooksey 84% 79% 84% 89% 89% Housing, Ltd. Alabama and Apartment Developers, Inc. La Paloma del Sol Deming, Dean Greenwalt 95% 95% 95% 89% 92% L.P. New Mexico Memory Lane L.P. Yankton, Skogen - Peterson, 100% 100% 94% 94% 100% South Inc. Dakota Nueva Sierra Vista Richgrove, Self-Help 100% 100% 100% 97% 91% Assoc. California Enterprises, Inc. and Nueva Sierra Vista Corporation 17
WNC California Housing Tax Credit Fund III, L.P. March 31, 2007 Occupancy Rates --------------------------------------------------------------------------- As of December 31, --------------------------------------------------------------------------- Local Limited Partnership Name Location General Partner Name 2007 2006 2005 2004 2003 ------------------------------------------------------------------------------------------------------------------------------------ Old Fort L.P. Hidalgo, Alan Deke Noftsker 100% 95% 93% 98% 97% Texas and ABO Corporation Orosi Apts., Ltd. Orosi, Douglas W. Young 86% 95% 93% 93% 100% California Parlier Garden Parlier, David J. Micheal 100% 100% 100% 98% 98% Apts. California and Professional Apartment Management, Inc. Rosewood Apts. Superior, Duffy Development 95% 95% 85% 85% 95% L.P. (2) Wisconsin Company, Inc. Sun Manor, L.P. Itta Bena, Glenn D. Miller 89% 100% 100% 94% 100% Mississippi Tahoe Pines Apts. South Lake David J. Michael, 89% 96% 96% 100% 89% Tahoe, Bucky Fong, California Dean Pearson, Coy Elvis and Dr. Patricia Hatton Venus Retirement Venus, W. Joseph Chamy 96% 96% 100% 100% 96% Village, Ltd. (2) Texas Walnut-Pixley, L.P. Orange, Walnut-Pixley, 95% 100% 95% 100% 100% California Inc. Winters Investment Winters, John P. Casper 97% 100% 100% 100% 100% Group (2) California ---- ---- ---- ---- ---- 95% 96% 96% 96% 95% ===== ==== ==== ==== ==== 1 18
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 Partnership 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 Partnership Units and none exists. Partnership Units can be assigned or otherwise transferred only if certain requirements in the Partnership Agreement are satisfied. (b) At March 31, 2008, there were 907 Limited Partners and 0 assignees of Partnership 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. No cash distributions were made to the Limited Partners for the periods presented. (d) No securities are authorized for issuance by the Partnership under equity compensation plans. (e) The Partnership does not issue common stock (f) No unregistered securities were sold by the Partnership during the year ended March 31, 2008. Item 5b. Use of Proceeds NOT APPLICABLE Item 5c. Purchases of Equity Securities by the Issuer and Affiliated Purchasers NONE 19
Item 6. Selected Financial Data Selected balance sheet information for the Partnership is as follows: March 31 ---------------------------------------------------------------------- 2008 2007 2006 2005 2004 ----------- ----------- ------------ ------------ ------------ ASSETS Cash $ 228,980 $ 239,164 $ 253,910 $ 293,367 $ 310,717 Investments in Local Limited Partnerships, net 1,740,459 1,815,552 1,891,029 2,173,564 3,525,413 ----------- ----------- ------------ ------------ ------------ Total Assets $1,969,439 $ 2,054,716 $ 2,144,939 $ 2,466,931 $ 3,836,130 =========== =========== ============ ============ ============ LIABILITIES Accrued fees and expenses due to General Partner and affiliates $1,841,301 $ 1,686,278 $ 1,539,639 $ 1,413,074 $ 1,256,656 PARTNERS' EQUITY 128,138 368,438 605,300 1,053,857 2,579,474 ----------- ----------- ----------- ------------ ------------ Total Liabilities and Partners' Equity $ 1,969,439 $ 2,054,716 $2,144,939 $2,466,931 $ 3,836,130 =========== =========== =========== =========== ============= Selected results of operations, cash flows and other information for the Partnership are as follows: For the Years Ended March 31 ---------------------------------------------------------------------- 2008 2007 2006 2005 2004 ----------- ----------- ------------ ------------ ------------ Loss from operations (Note 1) $ (206,166) $ (203,083) $ (317,823) $(1,217,245) $ (1,948,46) Equity in losses of Local Limited Partnerships (34,537) (34,921) (132,114) (309,324) (289,176) Interest income 403 1,142 1,380 952 - ----------- ----------- ------------ ------------ ------------ Net loss $ (240,300) $ (236,862) $ (448,557) $(1,525,617) $ (2,237,64) =========== =========== ============ ============ ============ Net loss allocated to: General Partner $ (2,403) $ (2,369) $ (4,486) $ (15,256) $ (22,376) =========== =========== ============ ============ ============ Limited Partners $ (237,897) $ (234,493) $ (444,071) $(1,510,361) $(2,215,268) =========== =========== ============ ============ ============ Net loss per Partnership Unit $ (13.22) $ (13.03) $ (24.67) $ (83.90) $ (123.07) =========== =========== ============ ============ ============ Outstanding weighted Partnership Units 18,000 18,000 18,000 18,000 18,000 =========== =========== ============ ============ ============ Note 1 - Net loss for the years ended March 31, 2008, 2007, 2006, 2005 and 2004 includes a charge for impairment losses and write- off of acquisition cost and fees on investments in Local Limited Partnerships of $0, $0, $101,658, $972,589 and $1,701,293, respectively. 20
For the Years Ended March 31 ---------------------------------------------------------------------- 2008 2007 2006 2005 2004 ----------- ----------- ------------ ------------ ------------ Net cash provided by (used in): Operating activities $ (42,224) $ (46,786) $ (77,214) $ (44,726) $ (69,359) Investing activities 32,040 32,040 37,757 27,376 8,650 ----------- ----------- ------------ ------------ ------------ Net decrease in cash (10,184) (14,746) (39,457) (17,350) (60,709) Cash, beginning of period 239,164 253,910 293,367 310,717 371,426 ----------- ----------- ------------ ------------ ------------ Cash, end of period $ 228,980 $ 239,164 $ 253,910 $ 293,367 $ 310,717 =========== =========== ============ =========== ============ Low Income Housing Tax Credits per Partnership Unit were as follows for the years ended December 31: 2007 2006 2005 2004 2003 ----------- ----------- ------------ ----------- ------------- Federal $ - $ - $ 21 $ 83 $ 111 State - - - - - ----------- ------------ ------------ ----------- ------------- Total $ - $ - $ 21 $ 83 $ 111 =========== ============ ============ =========== ============= 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements With the exception of the discussion regarding historical information, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other discussions elsewhere in this Form 10-K contain forward 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, the Partnerhip's future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the Low Income Housing Tax Credits 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 the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-K and in other reports 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 Partnership's 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 Local Limited Partnerships The Partnership accounts for its investments in Local 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 Tax 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 to the financial statements) "Equity in losses of Local Limited Partnerships" for each year ended March 31 has 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. In subsequent annual 22
financial statements, upon receiving the actual annual results reported by the Local Limited Partnerships, management reverses its prior estimate and records the actual results reported by the Local Limited Partnerships. Equity in losses from the Local Limited Partnerships allocated to the Partnership is not recognized to the extent that the investment balance would be adjusted below zero. As soon as the investment balance reaches zero, the related costs of acquiring the investment are impaired. 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 distribution 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. The Partnership does not consolidate the accounts and activities of the Local Limited Partnerships which are Variable Interest Entities under Financial Accounting Standards Board Interpretation No. 46-Revised, "Consolidation of Variable Interest Entities", because the Partnership is not considered the primary beneficiary. The Partnership's balance in Investments in Local Limited Partnerships represents the maximum exposure to loss in connection with such investments. The Partnership's exposure to loss on the Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners. Income Taxes No provision for income taxes has been recorded in the financial statements as any liabilities and/or benefits from income taxes flow to the partners of the Partnership and are their obligations and/or benefits. For income tax purposes, the Partnership reports on a calendar year basis. In June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership's tax returns to determine whether the tax positions are more-likely-than-not of being sustained upon examination by the applicable tax authority, based on the technical merits of the tax position, and then recognizing the tax benefit that is more-likely-than-not to be realized. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current reporting period. As required, the Partnership adopted FIN 48 effective April 1, 2007 and concluded that the effect is not material to its financial statements. Accordingly, no cumulative effect adjustment related to the adoption of FIN 48 was recorded. Impact of New Accounting Pronouncements --------------------------------------- In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also requires expanded information about the extent to which the Partnership measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. In 2008, the FASB issued FASB Staff Position 157-2 ("FAS FSP 157-2"), Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Partnership does not anticipate either of these pronouncements will have a material impact on the Partnership's financial statements. 23
In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS 159 permits the choice of measuring financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Partnership does not anticipate that this pronouncement will have a material impact on the Partnership's financial statements. In December 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 141(R) ("SFAS 141R"), which amends SFAS No. 141, and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively. SFAS 141R also requires changes to the accounting for transaction costs, certain contingent assets and liabilities, and other balances in a business combination. In addition, in partial acquisitions, when control is obtained, the acquiring company must measure and record all of the target's assets and liabilities, including goodwill, at fair value as if the entire target company had been acquired. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Partnership is currently evaluating the impacts and disclosures of this pronouncement, but would not expect SFAS 141R to have a material impact on the Partnership's financial statements. On December 4, 2007, the FASB issued SFAS No. 160 ("SFAS 160"), Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 160 replaces the concept of minority interest with noncontrolling interests in subsidiaries. Noncontrolling interests will now be reported as a component of equity in the consolidated statement of financial position. Earnings attributable to noncontrolling interests will continue to be reported as part of consolidated earnings; however, SFAS 160 requires that income attributable to both controlling and noncontrolling interests be presented separately on the face of the consolidated income statement. In addition, SFAS 160 provides that when losses attributable to noncontrolling interests exceed the noncontrolling interest's basis, losses continue to be attributed to the noncontrolling interest as opposed to being absorbed by the consolidating entity. SFAS 160 required retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. SAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008. The Partnership does not expect SFAS 160 to have a material impact on the Partnership's financial statements. In November 2008 the FASB ratified EITF No. 08-6, Equity Method Investment Accounting Considerations, which clarifies the accounting for how to account for certain transactions and impairment considerations involving equity method investments. This Issue shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. This Issue shall be applied prospectively. Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. The transition disclosures in paragraphs 17 and 18 of Statement 154 shall be provided, if applicable. The Partnership does not expect this pronouncement to have a material impact on the Partnership's financial statements. In December 2008, the FASB issue FASB Staff Position No. FAS 140-4 and FIN46(R)-8 (the "FSP"), Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. It amends SFAS 140 to require public entities to provide additional disclosures about transferors' continuing involvements with transferred financial assets. The FSP is effective for public companies in their first reporting period (interim or annual) that ends after December 15, 2008. The FSP also amends FIN46R to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. The FSP also requires disclosures by a public enterprise that is (a) a sponsor of a qualifying special-purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE. The Partnership does not expect the FSP to have a material impact on the Partnership's financial statements. Certain Risks and Uncertainties See Item 1A for a discussion of risks regarding the Partnership. All of the Low Income Housing Tax 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 Tax Credits from the Local Limited Partnerships in the future. Until the Local Limited Partnerships have completed the 15 year Low Income Housing Tax Credit compliance period risks exist for potential recapture of prior Low Income Housing Tax Credits. 24
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 Partners 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 Low Income Housing Tax Credits could occur. Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or its affiliates. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason. Financial Condition The Partnership's assets at March 31, 2008 consisted of $229,000 in cash and aggregate investments in eighteen Local Limited Partnerships of $1,740,000. Liabilities at March 31, 2008 primarily consisted of $1,814,000 of accrued asset management fees and $27,000 in advance payables due to the General Partners. (See "Future Contractual Cash Obligations' below). Results of Operations Year Ended March 31, 2008 Compared to Year Ended March 31, 2007 The Partnership's net loss for the year ended March 31, 2008 was $(240,000), reflecting an increase of $(3,000) from the net loss of $(237,000) experienced for the year ended March 31, 2007. The increase in net loss was due to an increase of legal and accounting expenses of $(24,000) due to the timing of the accounting work being performed. The increase in legal and accounting was offset by an increase of $16,000 in distribution income along with a $3,000 increase in reporting fees due to the fact that Local Limited Partnerships pay the reporting fee and distribution income to the Partnership when the Local Limited Partnership's cash flow will allow for the payment. Additionally, there was a decrease of $2,000 in other operating expenses. Year Ended March 31, 2007 Compared to Year Ended March 31, 2006. The partnership's net loss for the year ended March 31, 2007 was $(237,000), reflecting a decrease of $212,000 from the net loss experienced for the year ended March 31, 2006 of $(449,000). The decrease in net loss is due to a decrease in loss from operations of $115,000 along with a decrease in equity in losses from Local Limited Partnerships of $97,000. The decrease in equity in losses of Local Limited Partnerships is primarily due to the Partnership not recognizing losses of certain of Local Limited Partnerships. The investments in such Local Limited Partnerships had reached zero as of March 31, 2007. Since the Partnership's liability with respect to its investments is limited, losses in excess of the investment are not recognized. The decrease of $115,000 in loss from operations was due to a decrease of $11,000 in accounting fees, a $2,000 decrease in amortization, a $1,000 decrease in other operating expenses, and a $2,000 increase in distribution income offset by a $(3,000) decrease in reporting fee income. In addition, impairment loss of $(102,000) was incurred for the year ended March 31, 2006 and $0 was incurred for the year ended March 31, 2007. Liquidity and Capital Resources Year Ended March 31, 2008 Compared to Year Ended March 31, 2007 Net decrease in cash during the year ended March 31, 2008 was $(10,000) compared to net decrease in cash for the year ended March 31, 2007 of $(15,000). The net cash increase of $5,000 was due to an increase of $8,000 in accrued fees and expenses due to the General Partner and affiliates offset by a $3,000 increase in reporting fees paid to the Partnership. Year Ended March 31, 2007 Compared to Year Ended March 31, 2006. Net cash used during the year ended March 31, 2007 was $(15,000), reflecting a decrease in cash used of $24,000 compared to net cash used for the year ended March 31, 2006 25
of $(39,000). The change was due primarily to a decrease of $(2,000) in amortization, a $(6,000) decrease in cash provided by distribution from Local Limited Partnerships, offset by a $20,000 increase in accrued fees and expenses due to General Partner and affiliates. Accrued payables, which consist primarily of related party management fees due to the General Partner, increased by approximately $155,000, $147,000 and $127,000 for the years ended March 31, 2008, 2007 and 2006, 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 currently has insufficient working capital to fund its operations. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through October 31, 2010. The following table summarizes the Partnership's future contractual cash obligations as of March 31, 2008: 2009 2010 2011 2012 2013 Thereafter Total ---------- --------- --------- ---------- --------- ------------ ---------- Asset management fees (1) $1,993,093 $ 161,339 $ 161,339 $ 161,339 $ 161,339 $ 5,969,543 $8,607,992 ---------- --------- --------- ---------- --------- ------------ ---------- Total contractual cash obligations $1,993,093 $ 161,339 $ 161,339 $ 161,339 $ 161,339 $ 5,969,543 $8,607,992 ========== ========= ========= ========== ========= ============ ========== (1) Asset management fees are payable annually until termination of the Partnership, which is to occur no later than 2050. The estimate of the fees payable included herein assumes the retention of the Partnership's interest in all Housing Complexes until 2050. Amounts due to the General Partner as of March 31, 2008 have been included in the 2009 column. The General Partner does not anticipate that these fees will be paid until such time as capital reserves are in excess of the aggregate of the existing contractual obligations and the anticipated future foreseeable obligations of the Partnership. For additional information regarding asset management fees, see Note 3 to the financial statements included elsewhere herein. Off-Balance Sheet Arrangements The Partnerships has no off-balance sheet arrangements. Exit Strategy See Item 1 for information in this regard. Impact of New Accounting Pronouncements See footnote 1 to the financial statements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk NOT APPLICABLE Item 8. Financial Statements and Supplementary Data 26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners WNC California Housing Tax Credits III, L.P. We have audited the accompanying balance sheets of WNC California Housing Tax Credits III, L.P. (a California Limited Partnership) (the Partnership) as of March 31, 2008 and 2007, and the related statements of operations, partners' equity (deficit) and cash flows for each of the years in the three-year period ended March 31, 2008. The Partnership's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain local limited partnerships which investments represent $1,612,697 and $0 of the total Partnership assets as of March 31, 2008 and 2007, respectively, and $(34,537), $0 and $0 of the total Partnership loss for the years ended March 31, 2008, 2007 and 2006, respectively. Those statements were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to those local limited partnerships, is based solely on the reports of the other auditors. We conducted our audits 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. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of WNC California Housing Tax Credits III, L.P. (a California Limited Partnership) as of March 31, 2008 and 2007, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed under Item 15(a)(2) in the index related to years above are presented for the purpose of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied to the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial statement data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. ----------------------- Bethesda, Maryland October 9, 2009
INDEPENDENT AUDITOR'S REPORT To the Partners COLONIAL VILLAGE ROSEVILLE (A California Limited Partnership) We have audited the accompanying balance sheets of COLONIAL VILLAGE ROSEVILLE, (A California Limited Partnership), as of December 31, 2007 and 2006, and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the Standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of COLONIAL VILLAGE ROSEVILLE, (A California Limited Partnership), as of December 31, 2007 and 2006, and the results of its operations, changes in partners' capital and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Pailet, Meunier and LeBlanc, L.L.P. --------------------------------------- Metairie, Louisiana August 21, 2009
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. (A California Limited Partnership) BALANCE SHEETS March 31 ------------------------------ 2008 2007 ------------- ------------- ASSETS Cash and cash equivalent $ 228,980 $ 239,164 Investments in Local Limited Partnerships, net (Notes 2 and 3) 1,740,459 1,815,552 ------------- ------------- Total Assets $ 1,969,439 $ 2,054,716 ============= ============= LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Accrued fees and expenses due to General Partner and affiliates (Note 3) $ 1,841,301 $ 1,686,278 ------------- ------------- Partners' equity (deficit): General Partner (168,850) (166,447) Limited Partners (30,000 Partnership Units authorized; 18,000 Partnership Units issued and outstanding) 296,988 534,885 ------------- ------------- Total partners' equity 128,138 368,438 ------------- ------------- Total Liabilities and Partners' Equity (Deficit) $ 1,969,439 $ 2,054,716 ============= ============= See accompanying notes to financial statements 28
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. (A California Limited Partnership) STATEMENTS OF OPERATIONS For the years ended March 31, 2008, 2007 and 2006 For the Years Ended March 31 ---------------------------------------------- 2008 2007 2006 ------------- ------------ ------------ Reporting fees $ 8,173 $ 5,669 $ 9,241 Distribution income 18,033 2,484 718 ------------- ------------ ------------ Total income 26,206 8,153 9,959 ------------- ------------ ------------ Operating expenses: Amortization (Notes 2 and 3) 8,516 8,516 11,006 Asset management fees (Note 3) 181,384 181,384 181,385 Impairment loss (Note 2) - - 101,658 Accounting fees 38,634 15,083 26,472 Other 3,838 6,253 7,261 ------------- ------------ ------------ Total operating expenses 232,372 211,236 327,782 ------------- ------------ ------------ Loss from operations (206,166) (203,083) (317,823) Equity in losses of Local Limited Partnerships (Note 2) (34,537) (34,921) (132,114) Interest income 403 1,142 1,380 ------------- ------------ ------------ Net loss $ (240,300) $ (236,862) $ (448,557) ============= ============ ============ Net loss allocated to: General Partner $ (2,403) $ (2,369) $ (4,486) ============= ============ ============ Limited Partners $ (237,897) $ (234,493) $ (444,071) ============= ============ ============ Net loss per Partnership Unit $ (13.22) $ (13.03) $ (24.67) ============= ============ ============ Outstanding weighted Partnership Units 18,000 18,000 18,000 ============= ============ ============ See accompanying notes to financial statements 29
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. (A California Limited Partnership) STATEMENTS OF PARTNERS EQUITY (DEFICIT) For the years ended March 31, 2008, 2007 and 2006 General Limited Total Partner Partners --------------- --------------- --------------- Partners' equity (deficit) at March 31, 2005 $ (159,592) $ 1,213,449 $ 1,053,857 Net loss (4,486) (444,071) (448,557) --------------- --------------- --------------- Partners' equity (deficit) at March 31, 2006 (164,078) 769,378 605,300 Net loss (2,369) (234,493) (236,862) --------------- --------------- --------------- Partners' equity (deficit) at March 31, 2007 (166,447) 534,885 368,438 Net loss (2,403) (237,897) (240,300) --------------- --------------- --------------- Partners' equity (deficit) at March 31, 2008 $ (168,850) $ 296,988 $ 128,138 =============== =============== =============== See accompanying notes to financial statements 30
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. (A California Limited Partnership) STATEMENTS OF CASH FLOWS For the Years Ended March 31, 2008, 2007 and 2006 For the Years Ended March 31 ------------------------------------------------- 2008 2007 2006 -------------- -------------- ------------- Cash flows from operating activities: Net loss $ (240,300) $ (236,862) $ (448,557) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 8,516 8,516 11,006 Equity in losses of Local Limited Partnerships 34,537 34,921 132,114 Impairment loss - - 101,658 Change in accrued fees and expenses due to General Partner and affiliates 155,023 146,639 126,565 -------------- -------------- ------------- Net cash used in operating activities (42,224) (46,786) (77,214) -------------- -------------- ------------- Cash flows from investing activities: Distributions from Local Limited Partnerships 32,040 32,040 37,757 -------------- -------------- ------------- Net cash provided by investing activities 32,040 32,040 37,757 -------------- -------------- ------------- Net decrease in cash (10,184) (14,746) (39,457) Cash, beginning of year 239,164 253,910 293,367 -------------- -------------- ------------- Cash, end of year $ 228,980 $ 239,164 $ 253,910 ============== ============== ============= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Taxes paid $ 800 $ 800 $ 800 ============== ============== ============= See accompanying notes to financial statements 31
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS For the Years Ended March 31, 2008, 2007 and 2006 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------------------------------- Organization ------------ WNC California Housing Tax Credits III, L.P. (the "Partnership") is a California Limited Partnership formed under the laws of the State of California on October 5, 1992 and began operations on July 19, 1993. The Partnership was formed to acquire limited partnership interests in other limited partnerships ("Local Limited Partnerships") which own multi-family housing complexes ("Housing Complexes") that are eligible for Federal low income housing tax credits ("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 Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the "Local Limited Partnership Agreement"). The general partner of the Partnership is WNC Tax Credit Partners III, L.P. (the "General Partner"). WNC & Associates, Inc. ("Associates") is the general partner of WNC Tax Credit Partners III, L.P. The chairman and president of Associates owns 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 to be in full force and effect until December 31, 2050 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. Pursuant to a registration statement filed with the Securities and Exchange Commission, on February 17, 1993, the Partnership commenced a public offering of 30,000 units of limited partnership interest ("Partnership Units") at a price of $1,000 per Partnership Unit. As of the close of the public offering on July 22, 1994, a total of 17,990 Partnership Units representing $17,990,000 had been sold. During 1995, an additional 10 Partnership Units amounting to $10,000 was collected on subscriptions accepted and previously deemed uncollectible. 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 Low Income Housing Tax Credits of the Partnership. The investors in the Partnership ("Limited Partners") will be allocated the remaining 99% of these items in proportion to their respective investments. The proceeds from the disposition of any of the Local Limited Partnership properties will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement. Any remaining proceeds will then be paid to the Partnership. The sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership. Should such distributions occur, the Limited Partners will be entitled to receive distributions equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partners would then be entitled to receive proceeds equal to their capital contributions from the remainder. Any additional sale or refinancing proceeds will be distributed 90% to the Limited Partners (in proportion to their respective investments) and 10% to the General Partner. 32
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- 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 Tax Credit rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Tax Credits and the fractional recapture of Low Income Housing Tax Credits already taken. In most cases the annual amount of Low Income Housing Tax 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 Tax 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 future Low Income Housing Tax Credits, a fractional recapture of prior Low Income Housing Tax 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 Tax Credits and recapture of Low Income Housing Tax 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 Tax 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. All of the Low Income Housing Tax 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 Tax Credits from the Local Limited Partnerships in the future. Until the Local Limited Partnerships have completed the 15 year Low Income Housing Tax Credit compliance period, risks exist for potential recapture of prior Low Income Housing Tax Credits received. 33
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- Anticipated future and existing cash resources of the Partnership are not sufficient to pay existing liabilities of the Partnership. However, substantially all of the existing liabilities of the Partnership are payable to the General Partner and/or their affiliates. Though the amounts payable to the General Partner and/or its affiliates are contractually currently payable, the Partnership anticipates that the General Partner and/or its affiliates will not require the payment of these contractual obligations until capital reserves are in excess of the aggregate of then existing contractual obligations and then anticipated future foreseeable obligations of the Partnership. The Partnership would be adversely affected should the General Partner and/or its affiliates demand current payment of the existing contractual obligations and or suspend services for this or any other reason. Associates has agreed to continue providing advances sufficient enough to fund the operations and working capital requirements of the Partnership through October 31, 2010, if the Partnership were to experience a working capital deficiency. No trading market for the Partnership Units exists or is expected to develop. Limited Partners may be unable to sell their Partnership Units except at a discount and should consider their Partnership 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. Exit Strategy ------------- The Compliance Period for a Housing Complex 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 Tax Credits. The initial programs are completing their Compliance Periods. With that in mind, the General Partner is continuing its review of the Housing Complexes, with special emphasis on the more mature Housing Complexes such as any that have satisfied the IRS compliance requirements. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes. Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners' return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of March 31, 2008. As of March 31, 2008 two Local Limited Partnerships had completed the 15 year compliance period. Subsequent to March 31, 2008, the Partnership sold its Limited Partnership interest in Rosewood Apartments L.P. ("Rosewood"), Venus Retirement Village, Ltd ("Venus") and Winters Investment Group ("Winters"). The Partnership received $1, $15,000 and $25,000 for its Limited Partnership interest in the respective Local Limited Partnerships. Rosewood had an appraised value of $70,000 and the outstanding mortgage balance was approximately $398,000 therefore it was to the best interest of the Partnership to sell its Limited Partnership interest to the Local General Partner. Venus and Winters were similar situations with Venus appraising at $170,000 with an outstanding mortgage balance of $700,000 and Winters appraised at $1,460,000 with an outstanding mortgage balance of $1,765,000. The Partnership collected $40,001 in total for the sell of the three Limited Partnership interests and those funds are being kept in the Partnerships reserves to pay for future operating expenses and accrued asset management fees. 34
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- Method of Accounting For Investments in Local Limited Partnerships ------------------------------------------------------------------ The Partnership accounts for its investments in Local 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 sum of the remaining future Low Income Housing Tax Credits estimated to be allocated 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 and are being amortized over 30 years. (See Notes 2 and 3) "Equity in losses of Local 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. In subsequent annual financial statements, upon receiving the actual annual results reported by the Local Limited Partnerships, management reverses its prior estimate and records the actual results reported by the Local Limited Partnerships. Equity in losses of 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, the related costs of acquiring the investment are impaired (see Note 3). If the Local Limited Partnerships reported 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. The Partnership does not consolidate the accounts and activities of the Local Limited Partnerships which are considered Variable Interest Entities under Financial Accounting Standards Board ("FASB") Interpretation No. 46-Revised, "Consolidation of Variable Interest Entities", because the Partnership is not considered the primary beneficiary. The Partnership's balance in Investments in Local Limited Partnerships, plus the risk of recapture of Low Income Housing Tax Credits previously recognized on such investments, represents the maximum exposure to loss in connection with such investments. The Partnership's exposure to loss on the Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners and their guarantees against Low Income Housing Tax Credit recapture. 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 distribution income. 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. 35
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- 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. As of March 31, 2008 and 2007, the Partnership had no cash equivalents. Concentration of Credit Risk ---------------------------- At March 31, 2008, the Partnership maintained cash balances at a certain financial institution in excess of the federally insured maximum. The Partnership believes it is not exposed to any significant financial risk on cash. Reporting Comprehensive Income ------------------------------ The Statement Of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income established standards for the reporting and display of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Partnership had no items of other comprehensive income for all periods presented, as defined by SFAS No. 130. Net Loss Per Partnership Unit ----------------------------- Net loss per Partnership Unit is calculated pursuant to Statement of Financial Accounting Standards No. 128, Earnings per Share. Net loss per Partnership Unit includes no dilution and is computed by dividing loss available to Limited Partners by the weighted average number of Partnership Units outstanding during the period. Calculation of diluted net loss per Partnership Unit is not required. Income Taxes ------------ No provision for income taxes has been recorded in the accompanying financial statements as any liabilities and/or benefits for income taxes flow to the partners of the Partnership and are their obligations and/or benefits. For income tax purposes, the Partnership reports on a calendar year basis. In June 2006, the FASB issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership's tax returns to determine whether the tax positions are more-likely-than-not of being sustained upon examination by the applicable tax authority, based on the technical merits of the tax position, and then recognizing the tax benefit that is more-likely-than-not to be realized. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current reporting period. As required, the Partnership adopted FIN 48 effective April 1, 2007 and concluded that the effect is not material to its financial statements. Accordingly, no cumulative effect adjustment related to the adoption of FIN 48 was recorded. Impact of New Accounting Pronouncements --------------------------------------- In September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), Fair Value Measurements, which provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also requires expanded information about the extent to which the Partnership measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. In 2008, the 36
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- FASB issued FASB Staff Position 157-2 ("FAS FSP 157-2"), Effective Date of FASB Statement No. 157, which delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Partnership does not anticipate either of these pronouncements will have a material impact on the Partnership's financial statements. In February 2007, the FASB issued SFAS No. 159 ("SFAS 159"), The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115. SFAS 159 permits the choice of measuring financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Partnership does not anticipate that this pronouncement will have a material impact on the Partnership's financial statements. In December 2007, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 141(R) ("SFAS 141R"), which amends SFAS No. 141, and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141R is effective for fiscal years beginning after December 5, 2008 and is to be applied prospectively. SFAS 141R also requires changes to the accounting for transaction costs, certain contingent assets and liabilities, and other balances in a business combination. In addition, in partial acquisitions, when control is obtained, the acquiring company must measure and record all of the target's assets and liabilities, including goodwill, at fair value as if the entire target company had been acquired. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Partnership is currently evaluating the impacts and disclosures of this pronouncement, but would not expect SFAS 141R to have a material impact on the Partnershi's financial statements. On December 4, 2007, the FASB issued SFAS No. 160 ("SFAS 160"), Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 160 replaces the concept of minority interest with noncontrolling interests in subsidiaries. Noncontrolling interests will now be reported as a component of equity in the consolidated statement of financial position. Earnings attributable to noncontrolling interests will continue to be reported as part of consolidated earnings; however, SFAS 160 requires that income attributable to both controlling and noncontrolling interests be presented separately on the face of the consolidated income statement. In addition, SFAS 160 provides that when losses attributable to noncontrolling interests exceed the noncontrolling interest's basis, losses continue to be attributed to the noncontrolling interest as opposed to being absorbed by the consolidating entity. SFAS 160 required retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall be applied prospectively. SAS 160 is effective for the first annual reporting period beginning on or after December 15, 2008. The Partnership does not expect SFAS 160 to have a material impact on the Partnership's financial statements. In November 2008 the FASB ratified EITF No. 08-6, Equity Method Investment Accounting Considerations, which clarifies the accounting for how to account for certain transactions and impairment considerations involving equity method investments. This Issue shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. This Issue shall be applied prospectively. Earlier application by an entity that has previously adopted an alternative accounting policy is not permitted. The transition disclosures in paragraphs 17 and 18 of Statement 154 shall be provided, if applicable. The Partnership does not expect this pronouncement to have a material impact on the Partnership's financial statements. 37
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued ------------------------------------------------------------------------------- In December 2008, the FASB issue FASB Staff Position No. FAS 140-4 and FIN46(R)-8 (the "FSP"), Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities. It amends SFAS 140 to require public entities to provide additional disclosures about transferors' continuing involvements with transferred financial assets. The FSP is effective for public companies in their first reporting period (interim or annual) that ends after December 15, 2008. The FSP also amends FIN46R to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. The FSP also requires disclosures by a public enterprise that is (a) a sponsor of a qualifying special-purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE. The Partnership does not expect the FSP to have a material impact on the Partnership's financial statements. Revenue Recognition ------------------- The Partnership is entitled to receive reporting fees from the Local Limited Partnerships. The intent of the reporting fees is to offset (in part) administrative costs incurred by the Partnership in corresponding with the Local Limited Partnerships. Due to the uncertainty of the collection of these fees, the Partnership recognizes reporting fees as collections are made. Amortization ------------ Acquisition fees and costs are being amortized over 30 years using the straight-line method. Amortization expense for the years ended March 31, 2008, 2007 and 2006 was $8,516, $8,516 and $11,006, respectively. Impairment ---------- A loss in value of an investment in a Local Limited Partnership other than a temporary decline is recorded as an impairment loss. Impairment is measured by comparing the investment's carrying amount to the sum of the total amount of the remaining future Low Income Housing Tax Credits estimated to be allocated to the Partnership and the estimated residual value to the Partnership. For the years ended March 31, 2008, 2007 and 2006 impairment expense related to investments in Local Limited Partnerships as $0, $0 and $101,658, respectively. When the value of the Partnership's investment in a Local Limited Partnership has been reduced to zero, the respective net acquisition fees and costs component of investments in Local Limited Partnerships are impaired. For each of the years ended March 31, 2008, 2007 and 2006, impairment expense related to acquisition fees and costs was $0. NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS -------------------------------------------------- As of the periods presented, the Partnership owns Local Limited Partnership interests in 18 Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate of 634 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 require approval from 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 Low Income Housing Tax Credits of the Local Limited Partnerships. 38
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued ------------------------------------------------------------- The Partnership's investments in Local Limited Partnerships as shown in the balance sheets at March 31, 2008 and 2007, are approximately $1,378,000 and $653,000 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, and acquisition, selection and other costs related to the acquisition of the investments which have been capitalized in the Partnership's investment account along with impairment losses recorded in the Partnership's investment account. At March 31, 2008, 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, 2008, 2007 and 2006, amounting to approximately $707,000, $642,000 and $661,000, respectively, have not been recognized. As of March 31, 2008, the aggregate share of net losses not recognized by the Partnership amounted to $3,784,000. Following is a summary of the equity method activity of the investments in Local Limited Partnerships for periods presented: For the Years Ended March 31 ---------------------------------------------------- 2008 2007 2006 --------------- --------------- -------------- Investments per balance sheet, beginning of period $ 1,815,552 $ 1,891,029 $ 2,173,564 Distributions received from Local Limited Partnerships (32,040) (32,040) (37,757) Equity in losses of Local Limited Partnerships (34,537) (34,921) (132,114) Impairment loss - - (101,658) Amortization of paid acquisition fees and costs (8,516) (8,516) (11,006) --------------- --------------- -------------- Investments per balance sheet, end of period $ 1,740,459 $ 1,815,552 $ 1,891,029 =============== =============== ============== For the Years Ended March 31 ---------------------------------------------------- 2008 2007 2006 --------------- --------------- -------------- Investments in Local Limited Partnerships, net $ 1,612,697 $ 1,679,274 $ 1,746,236 Acquisition fees and costs, net of accumulated Amortization of $1,686,257, $1,677,741 and $1,669,226 127,762 136,278 144,793 --------------- --------------- -------------- Investments per balance sheet, end of period $ 1,740,459 $ 1,815,552 $ 1,891,029 =============== =============== ============== 39
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued ------------------------------------------------------------- The financial information from the individual financial statements of the Local Limited Partnerships includes 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 2007 2006 --------------- --------------- ASSETS Buildings and improvements, net of accumulated depreciation as of December 31, 2007 and 2006 of $15,387,000 and $14,283,000, respectively. $ 21,088,000 $ 22,078,000 Land 2,234,000 2,233,000 Other assets 3,404,000 3,237,000 --------------- --------------- Total Assets $ 26,726,000 $ 27,548,000 =============== =============== LIABILITIES Mortgage loans payable $ 22,930,000 $ 23,129,000 Due to related parties 738,000 1,414,000 Other liabilities 2,478,000 1,525,000 --------------- --------------- Total Liabilities 26,146,000 26,068,000 --------------- --------------- PARTNERS' EQUITY WNC California Housing Tax Credits III, L.P. 362,000 1,163,000 Other partners 218,000 317,000 --------------- --------------- Total Partners' Equity 580,000 1,480,000 --------------- --------------- Total Liabilities and Partners' Equity $ 26,726,000 $ 27,548,000 =============== =============== 40
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued ------------------------------------------------------------- COMBINED CONDENSED STATEMENTS OF OPERATIONS 2007 2006 2005 ---------------- ---------------- ----------------- Revenues $ 4,042,000 $ 3,838,000 $ 3,704,000 -------- ---------------- ---------------- ----------------- Expenses: Operating expenses 2,774,000 2,730,000 2,524,000 Interest expense 898,000 783,000 829,000 Depreciation and amortization 1,119,000 1,118,000 1,117,000 ---------------- ---------------- ----------------- Total expenses 4,791,000 4,631,000 4,470,000 ---------------- ---------------- ----------------- Net loss $ (749,000) $ (793,000) $ (766,000) ================ ================ ================= Net loss allocable to the Partnership $ (741,000) $ (667,000) $ (758,000) ================ ================ ================= Net loss recorded by the Partnership $ (35,000) $ (35,000) $ (132,000) ================ ================ ================= 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 Partners may be required to sustain 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 impaired, and the loss and recapture of the related Low Income Housing 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 Partners or their affiliates for the following items: Acquisition fees equal to 9% of the gross proceeds from the sale of Partnership 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 $1,620,000. Accumulated amortization of these capitalized costs was $1,492,238 and $1,483,722 as of March 31, 2008 and 2007, respectively. Of the accumulated amortization recorded on the balance sheet at March 31, 2008, $0, $0 and $95,525 of the related expense was reflected as impairment loss during the years ended March 31, 2008, 2007, and 2006, 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 the General Partners or an affiliate in connection with the acquisition of the Local Limited Partnerships. These reimbursements have not exceeded 1.5% of the gross proceeds. As of the end of all periods presented, the Partnership had incurred acquisition costs of $194,019 which have been included in investments in Local Limited Partnerships. Accumulated amortization was $194,019 for each of the years ended March 31, 2008 and 2007. Of the accumulated amortization recorded on the balance sheet at March 31, 2008, $0, $0 and $6,133 of the related expense was reflected as impairment loss during the years ended March 31, 2008, 2007 and 2006, respectively, to reduce the respective net acquisition cost component of investments in Local Limited Partnerships to zero for those Local Limited Partnerships which would otherwise be below a zero balance. 41
NOTE 3 - RELATED PARTY TRANSACTIONS, continued ---------------------------------------------- An annual asset management fee equal to 0.5% of the Invested Assets of the Partnership, as defined. "Invested Assets" means the sum of the Partnership's investment in Local Limited Partnership interests and the Partnership's allocable share of mortgage loans on and other debts related to the Housing Complexes owned by such Local Limited Partnerships. Management fees of $181,384, $181,384 and $181,385 were incurred during the years ended March 31, 2008, 2007 and 2006, respectively of which $50,000, $34,000 and $53,000 was paid during the years ended March 31, 2008, 2007 and 2006, respectively. The Partnership reimbursed the General Partner or its affiliates for operating expenses incurred by the Partnership and paid for by the General Partner or its affiliates on behalf of the Partnership. Operating expense reimbursements were approximately $19,000, $22,000 and $35,000 during the years ended March 31, 2008, 2007 and 2006, respectively. The accrued fees and expenses due to the General Partners and affiliates consist of the following at: March 31, ----------------------------- 2008 2007 ------------ -------------- Expenses paid by the General Partners or an affiliate on behalf of the Partnership $ 26,819 $ 3,180 Asset management fee payable 1,814,482 1,683,098 ------------ -------------- Total $ 1,841,301 $ 1,686,278 ============ ============== The General Partners and/or its affiliates do 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. 42
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 --------------- --------------- --------------- --------------- 2008 ---- Income $ 20,000 $ 4,000 $ - $ 2,000 Operating expenses (48,000) (61,000) (50,000) (73,000) Loss from operations (28,000) (57,000) (50,000) (71,000) Equity in losses of Local Limited Partnerships (8,000) (8,000) (7,000) (12,000) Net loss (36,000) (65,000) (57,000) (83,000) Net Loss available to Limited Partners (35,000) (64,000) (56,000) (83,000) Net Loss per Partnership Unit (2) (4) (3) (5) June 30 September 30 December 31 March 31 --------------- --------------- --------------- --------------- 2007 ---- Income $ 5,000 $ 3,000 $ - $ - Operating expenses (48,000) (64,000) (48,000) (51,000) Loss from operations (43,000) (61,000) (48,000) (51,000) Equity in losses of Local Limited Partnerships (8,000) (8,000) (8,000) (11,000) Interest income - - - 1,000 Net Loss (51,000) (69,000) (56,000) (61,000) Net Loss available to Limited Partners (50,000) (68,000) (55,000) (61,000) Net Loss per Partnership Unit (3) (4) (3) (4) 43
NOTE 4 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED), continued --------------------------------------------------------------- June 30 September 30 December 31 March 31 --------------- --------------- --------------- --------------- 2006 ---- Income $ 6,000 $ 12,000 $ - $ (8,000) Operating expenses (62,000) (62,000) (152,000) (52,000) Loss from operations (56,000) (50,000) (152,000) (60,000) Equity in losses of Local Limited Partnerships (42,000) (40,000) (36,000) (14,000) Interest income - - - 1,000 Net loss (98,000) (90,000) (188,000) (73,000) Net Loss available to Limited Partners (97,000) (89,000) (186,000) (72,000) Net Loss per Partnership Unit (5) (5) (10) (4) NOTE 5 - SUBSEQUENT EVENTS -------------------------- Subsequent to March 31, 2008, the Partnership sold its Limited Partnership interest in Rosewood Apartments L.P. ("Rosewood"), Venus Retirement Village, Ltd ("Venus") and Winters Investment Group ("Winters"). The Partnership received $1, $15,000 and $25,000 for its Limited Partnership interest in the respective Local Limited Partnerships. Rosewood had an appraised value of $70,000 and the outstanding mortgage balance was approximately $398,000 therefore it was to the best interest of the Partnership to sell its Limited Partnership interest to the Local General Partner. Venus and Winters were similar situations with Venus appraising at $170,000 with an outstanding mortgage balance of $700,000 and Winters appraised at $1,460,000 with an outstanding mortgage balance of $1,765,000. The Partnership collected $40,001 in total for the sell of the three Limited Partnership interests and those funds are being kept in the Partnerships reserves to pay for future operating expenses and accrued asset management fees. 44
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE Item 9A. Controls and Procedures (a) Disclosure 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 Partnership'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 Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Partnership's disclosure controls and procedures were not effective to ensure that material information required to be disclosed in the Partnership's periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC's rules and forms, consistent with the definition of "disclosure controls and procedures" under the Securities Exchange Act of 1934. The Partnership must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership's periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership's inability to file its periodic reports in a timely manner. Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer of Associates believe that the material information required to be disclosed in the Partnership's periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership's periodic reports. (b) Management's annual report on internal control over financial reporting ----------------------------------------------------------------------- The management of Associates is responsible for establishing and maintaining for the Partnership adequate internal control over financial reporting as that term is defined in Securities Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2008. The internal control process of Associates, as it is applicable to the Partnership, was designed to provide reasonable assurance to Associates regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that: (1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Partnership's receipts and expenditures are being made only in accordance with authorization of the management of Associates; and (3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership's assets that could have a material effect on the financial statements. All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 45
Management of Associates assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Partnership, as of the end of the Partnership's most recent fiscal year. In making this assessment, it used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management of Associates concluded that, for the reasons set forth above under "Disclosure controls and procedures", the internal control over financial reporting, as it is applicable to the Partnership, was not effective as of March 31, 2008. This annual report does not include an attestation report of the Partnership's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Partnership's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management's report in this annual report. For purposes of the Securities Exchange Act of 1934, the term "material weakness" is a deficiency, or a combination of deficiencies, in a reporting company's internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. For the reasons discussed above in this Item 9A, sub-section (a) under the caption "Disclosure Controls and Procedures," the Partnership's internal control over financial reporting has not been effective in permitting timely reporting of the Partnership's financial information. Accordingly, the management of Associates believes that this inability to generate timely reports constitutes a material weakness in its internal control over financial reporting. (c) 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, 2008 that materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 9B. Other Information NONE 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 --------------------------- Neither the General Partner nor the Partnership has directors, executives officers or employees of its own. The business of the Partnership is conducted primarily through Associates. Associates is a California corporation which was organized in 1971. The following biographical information is presented for the officers and employees of Associates with principal responsibility for the Partnership's affairs. Wilfred N. Cooper, Sr. Chairman Wilfred N. Cooper, Jr. President and Chief Executive Officer David N. Shafer, Esq. Executive Vice President Michael J. Gaber Executive Vice President Sylvester P. Garban Senior Vice President - Institutional Investments Thomas J. Riha, CPA Senior Vice President - Asset Management Thomas J. Hollingsworth Vice President - Asset Management Gregory S. Hand Vice President - Acquisitions Melanie R. Wenk Vice President - Chief Financial Officer Kay L. Cooper Director of WNC & Associates, Inc. Jennifer E. Cooper Director of WNC & Associates, Inc. 46
In addition to Wilfred N. Cooper, Sr., the directors of Associates are Wilfred N. Cooper, Jr., Kay L. Cooper, and Jennifer Cooper. The principal shareholders of Associates are a trust established by the Coopers. Wilfred N. Cooper, Sr., age 77, is the founder and Chairman of the Board of Directors of Associates, a Director of WNC Capital Corporation, and a general partner in some of the partnerships previously sponsored by Associates Mr. Cooper has been actively involved in the affordable housing industry since 1968. Previously, during 1970 and 1971, he was founder and a principal of Creative Equity Development Corporation, a predecessor of Associates, and of Creative Equity Corporation, a real estate investment firm. For 12 years before that, Mr. Cooper was employed by Rockwell International Corporation, last serving as its manager of housing and urban developments where he had responsibility for factory-built housing evaluation and project management in urban planning and development. He has testified before committees of the U.S. Senate and the U.S. House of Representatives on matters pertaining to the affordable housing industry. Mr. Cooper is a Life Director of the National Association of Home Builders, a National Trustee for NAHB's Political Action Committee, and a past Chairman of NAHB's Multifamily Council. He is a Director of the National Housing Conference and a member of NHC's Board of Governors, and a founder and Director of the California Housing Consortium. He is the husband of Kay Cooper and the father of Wilfred N. Cooper, Jr. Mr. Cooper graduated from Pomona State College in 1956 with a Bachelor of Arts degree. Wilfred N. Cooper, Jr., age 45, is President, Chief Executive Officer, Secretary, a Director and a member of the Acquisition Committee of Associates. He is President and a Director of, and a registered principal with, WNC Capital Corporation, and is a Director and Vice President of WNC Management, Inc. He has been involved in real estate investment and acquisition activities since 1988 when he joined Associates. Previously, he served as a Government Affairs Assistant with Honda North America in Washington, D.C. Mr. Cooper is a member of the Editorial Advisory Boards of Affordable Housing Finance and LIHTC Monthly --------------------------- ------------- Report, a Steering Member of the Housing Credit Group of the National ------ Association of Home Builders, a member of the Tax Policy Council for the National Trust for Historical Preservation, a member of the Advisory Board of the New York State Association for Affordable Housing, a member of the Urban Land Institute and a member of TEC International, a global network of business leaders and chief executives. He is the son of Wilfred Cooper, Sr. and Kay Cooper. Mr. Cooper graduated from The American University in 1985 with a Bachelor of Arts degree. David N. Shafer, age 56, is an Executive Vice President, and a member of the Acquisition Committee of Associates, and a Director, Vice President and Secretary of WNC Management, Inc. Mr. Shafer has been active in the real estate industry since 1984. Before joining Associates in 1990, he was engaged as an attorney in the private practice of law with a specialty in real estate and taxation. Mr. Shafer is a Director and past President of the California Council of Affordable Housing, and a member of the State Bar of California. Mr. Shafer graduated from the University of California at Santa Barbara in 1978 with a Bachelor of Arts degree, from the New England School of Law in 1983 with a Juris Doctor degree cum laude and from the University of San Diego in 1986 with a Master of Law degree in Taxation. Michael J. Gaber, age 42, is an Executive Vice President - Oversees the Originations, Acquisitions and Real Estate Development Department, and is a member of the Acquisition Committee of Associates and Vice President of WNC Management, Inc... Mr. Gaber has been involved in real estate acquisition, valuation and investment activities since 1989 and has been associated with Associates since 1997. Prior to joining Associates, he was involved in the valuation and classification of major assets, restructuring of debt and analysis of real estate taxes with H.F. Ahmanson & Company, parent of Home Savings of America. Mr. Gaber graduated from the California State University, Fullerton in 1991 with a Bachelor of Science degree in Business Administration - Finance. Sylvester P. Garban, age 62, is Senior Vice President - Institutional Investments of Associates and registered principal with WNC Capital Corporation. Mr. Garban has been involved in real estate investment activities since 1978. Before joining Associates in 1989, he served as Executive Vice President with MRW, Inc., a real estate development and management firm. Mr. Garban is a member of the National Association of Affordable Housing Lenders and the Financial Planning Association. He graduated from Michigan State University in 1967 with a Bachelor of Science degree in Business Administration. Thomas J. Riha, age 53, is Senior Vice President - Asset Management and a member of the Acquisition Committee and the Commercial Real Estate Group of Associates and Vice President, Treasurer and a Director of WNC Management, Inc. He has been 47
involved in real estate acquisition and investment activities since 1979. Before joining Associates in 1994, Mr. Riha was employed by Trust Realty Advisor, a real estate acquisition and Management Company, last serving as Vice President - Operations. He is a founding member of the Housing Credit Certified Professional Board of Governors, a national professional certification program administered by the NAHB and the National Affordable Housing Management Association. Mr. Riha graduated from the California State University, Fullerton in 1977 with a Bachelor of Arts degree cum laude in Business Administration with a concentration in Accounting and is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. Thomas J. Hollingsworth, CPA, age 57, is Vice President - Asset Management of WNC & Associates, Inc. and oversees WNC's asset management group. Mr. Hollingsworth has been involved in real estate acquisitions, operations and syndication of multifamily properties for 25 years. Prior to joining WNC in 2005, he was the senior workout specialist at Key Corporation Housing Management, Inc., a division of Key Bank. He has also been responsible for structuring several tax sheltered multifamily acquisitions during his career. Mr. Hollingsworth graduated from the University of Utah in 1973 with a Bachelor of Science degree (cum laude) in Business Administration. Gregory S. Hand, age 44, is Vice President - Acquisitions and a member of the Commercial Real Estate Group of Associates. He is responsible for the oversight of property underwriting. Mr. Hand has been involved in real estate analysis, development and management since 1987. Prior to joining Associates in 1998, he was a portfolio asset manager with a national tax credit sponsor with responsibility for the management of $200 million in assets. Prior to that, he was a finance manager with The Koll Company and a financial analyst with The Irvine Company. Mr. Hand graduated from Iowa State University in 1987 with a Bachelor of Business Administration degree in finance. Melanie R. Wenk, CPA, age 41, is Vice President - Chief Financial Officer of Associates. She is responsible for overseeing institutional and retail fund portfolio management, including partnership accounting, SEC reporting, quarterly and annual investor reporting and monitoring investment returns for all stabilized WNC institutional funds. Prior to joining Associates in 2003, Ms. Wenk was associated as a public accountant with BDO Seidman, LLP. She graduated from the California Polytechnic University, Pomona, in 1999 with a Bachelor of Science degree in accounting. Kay L. Cooper, age 72, is a Director of WNC & Associates, Inc. and has not otherwise been engaged in business activities during the previous five years. Kay Cooper was the sole proprietor of Agate 108, a manufacturer and retailer of home accessory products from 1975 until its sale in 1998. She is the wife of Wilfred Cooper, Sr. and the mother of Wilfred Cooper, Jr. Ms. Cooper graduated from the University of Southern California in 1958 with a Bachelor of Science degree. Jennifer E. Cooper, age 46, is a Director of WNC & Associates, Inc. and has not otherwise been engaged in business activities during the previous five years. She is the wife of Wilfred Cooper, Jr. and attended the University of Texas from 1981 to 1986. (f) Involvement in Certain Legal Proceedings ---------------------------------------- None. (g) Promoters and Control Persons ------------------------------ Inapplicable. (h) Audit Committee Financial Expert, and (i) Identification of the Audit --------------------------------------------------------------------------- Committee --------- Neither the Partnership nor the General Partners, has an audit committee. (j) Changes to Nominating Procedures -------------------------------- Inapplicable. 48
(k) Compliance With Section 16(a) of the Exchange Act ------------------------------------------------- None. (l) Code of Ethics -------------- Associates has adopted a Code of Ethics which applies to the Chief Executive Officer and Chief Financial Officer of Associates. The Code of Ethics will be provided without charge to any person who requests it. Such requests should be directed to: Investor Relations at (714)662-5565 extension 187. Item 11. Executive Compensation The General Partners and their Affiliates are not permitted under Section 5.6 of the Partnership's Agreement of Limited Partnership (the "Agreement," incorporated as Exhibit 3.1 to this report) to receive any salary, fees, profits, distributions or allocations from the Partnership or any Local Limited Partnership in which the Partnership invests except as expressly allowed by the Agreement. The compensation and other economic benefits to the General Partner and its Affiliates provided for in the Agreement are summarized below. (a) Compensation for Services For services rendered by the Managing General Partner or an Affiliate of the Managing General Partner in connection with the administration of the affairs of the Partnership, the Managing General Partner or any such Affiliate may receive an annual Asset Management Fee in an amount equal to 0.5% of Invested Assets in Local Limited Partnerships which are subsidized under one or more Federal, state or local housing assistance programs. The Asset Management Fee is payable with respect to the previous calendar quarter on the first day of each calendar quarter during the year. Accrued but unpaid Asset Management Fees for any year are deferred without interest and are payable in subsequent years from any funds available to the Partnership after payment of all other costs and expenses of the Partnership, including any capital reserves then determined by the Managing General Partner to no longer be necessary to be retained by the Partnership, or from the proceeds of a sale or refinancing of Partnership assets. Fees of $181,384, $181,384 and $181,385, were incurred during the years ended March 31, 2008, 2007 and 2006, respectively. The Partnership paid the General Partners and or their affiliates $50,000, $34,000 and $53,000 of those fees during the years ended March 31, 2008, 2007 and 2006, respectively. Subject to a number of terms and conditions set forth in the Agreement, the General Partner and its Affiliates may be entitled to compensation for services actually rendered or to be rendered in connection with (i) selecting, evaluating, structuring, negotiating and closing the Partnership's investments in Local Limited Partnership Interests, (ii) the acquisition or development of Properties for the Local Limited Partnerships, or (iii) property management services actually rendered by the General Partners or their Affiliates respecting the Properties owned by Local Limited Partnerships. The Partnership has completed its investment stage, so no compensation for the services in (i) or (ii) has been paid during the period covered by this report and none will be paid in the future. None of the services described in (iii) were rendered and no such compensation was payable for such services during the periods covered by this report. (b) Operating Expenses Reimbursement to a General Partner or any of its Affiliates of Operating Cash Expenses is subject to specific restrictions in Section 5.3.4 of the Partnership's Agreement of Limited Partnership (the "Agreement," incorporated as Exhibit 3.1 to this report). The Agreement defines "Operating Cash Expenses" as " . . . the amount of cash disbursed by the Partnership . . . in the ordinary course of business for the payment of its operating expenses, such as expenses for advertising and promotion, management, utilities, repair and maintenance, insurance, investor communications, legal, accounting, statistical and bookkeeping services, use of computing or 49
accounting equipment, travel and telephone expenses, salaries and direct expenses of Partnership employees while engaged in Partnership business, and any other operational and administrative expenses necessary for the prudent operation of the Partnership. Without limiting the generality of the foregoing, Operating Cash Expenses shall include fees paid by the Partnership to any General Partner or any Affiliate of a General Partner permitted by this Agreement and the actual cost of goods, materials and administrative services used for or by the Partnership, whether incurred by a General Partner, an Affiliate of a General Partner or a non-Affiliated Person in performing the foregoing functions. As used in the preceding sentence, actual cost of goods and materials means the actual cost of goods and materials used for or by the Partnership and obtained from entities not Affiliated with a General Partner, and actual cost of administrative services means the pro rata cost of personnel (as if such persons were employees of the Partnership) associated therewith, but in no event to exceed the Competitive amount." The Agreement provides that no such reimbursement shall be permitted for services for which a General Partner or any of its Affiliates is entitled to compensation by way of a separate fee. Furthermore, no such reimbursement is to be made for (a) rent or depreciation, utilities, capital equipment or other such administrative items, and (b) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any "controlling person" of a General Partner or any Affiliate of a General Partner. For the purposes of Section 5.3.4, "controlling person" includes, but is not limited to, any person, however titled, who performs functions for a General Partner or any Affiliate of a General Partner similar to those of: (1) chairman or member of the board of directors; (2) executive management, such as president, vice president or senior vice president, corporate secretary or treasurer; (3) senior management, such as the vice president of an operating division who reports directly to executive management; or (4) those holding 5% or more equity interest in such General Partner or any such Affiliate of a General Partner or a person having the power to direct or cause the direction of such General Partner or any such Affiliate of a General Partner, whether through the ownership of voting securities, by contract or otherwise. The unpaid operating expenses reimbursable to the General Partner or its affiliates were $28,619, $3,180 and $4,175 for the years ended March 31, 2008, 2007 and 2006, respectively. The Partnership reimbursed the General Partner or its affiliates for operating expenses of approximately $19,000, $22,000 and $35,000 of the years ended March 31, 2008, 2007 and 2006, respectively. (c) Interest in Partnership The General Partner receives 1% of the Partnership's allocated Low Income Housing Tax Credits, which approximated which approximated $0, $0 and $4,000 for the General Partner in the aggregate for the tax years (calendar years) ended December 31, 2007, 2006 and 2005, respectively. The General Partner is also entitled to receive 1% of the Partnershp's operating income or losses, gain or loss from the sale of property and operating cash distributions. There were no distributions of operating cash to the General Partner during the years ended March 31, 2008, 2007 and 2006. The General Partner has an interest in sale or refinancing proceeds as follows: after the Limited Partners have received a return of their capital plus a specified return on capital, General Partner may receive an amount equal to its capital contribution, less any prior distribution of such proceeds, then the General Partner may receive 10% and the Limited Partners 90% of any remaining proceeds. There were no such distributions to the General Partner during the years ended March 31, 2008, 2007 or 2006. 50
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters (a) Securities Authorized for Issuance Under Equity Compensation Plans ------------------------------------------------------------------ The Partnership has no compensation plans under which interests in the Partnership are authorized for issuance. (b) Security Ownership of Certain Beneficial Owners No person is known to own beneficially in excess of 5% of the outstanding Partnership Units. (c) Security Ownership of Management -------------------------------- Neither the General Partner, Associates, its affiliates, nor any of the officers or directors of the General Partner, Associates or its affiliates own directly or beneficially any Partnership Units. (d) Changes in Control ------------------ The management and control of the General Partner and of Associates and their affiliates may be changed at any time in accordance with their respective organizational documents, without the consent or approval of the Limited Partners. In addition, the Partnership Agreement provides for the admission of one or more additional and successor General Partners in certain circumstances. First, with the consent of any other General Partners and a majority-in-interest of the Limited Partners, any General Partners may designate one or more persons to be successor or additional General Partners. In addition, any General Partner may, without the consent of any other General Partner or the Limited Partners, (i) substitute in its stead as General Partner any entity which has, by merger, consolidation or otherwise, acquired substantially all of its assets, stock or other evidence of equity interest and continued its business, or (ii) cause to be admitted to the Partnership an additional General Partner or Partners if it deems such admission to be necessary or desirable so that the Partnership will be classified a partnership for Federal income tax purposes. Finally, a majority-in-interest of the Limited Partners may at any time remove the General Partners of the Partnership and elect a successor General Partner. Item 13. Certain Relationships and Related Transactions The General Partner manages all of the Partnership's affairs. The transactions with the General Partner are primarily in the form of fees paid by the Partnership for services rendered to the Partnership, reimbursement of expenses, and the General Partner's interests in the Partnership, as discussed in Item 11 and in the notes to the Partnership's financial statements. 51
Item 14. Principal Accountant Fees and Services The following is a summary of fees paid to the Partnership's principal independent registered public accounting firm for the years ended March 31: 2008 2007 --------------- --------------- Audit Fees $ 34,650 $ 12,083 Audit-related Fees - - Tax Fees 2,755 3,000 All Other Fees - - --------------- --------------- TOTAL $ 37,405 $ 15,083 =============== =============== The Partnership has no Audit Committee. All audit services and any permitted non-audit services performed by the Partnership's independent auditors are pre-approved by the General Partner. 52
PART IV. Item 15. Exhibits and Financial Statement Schedules (a)(1) List of Financial statements included in Part II hereof: -------------------------------------------------------- Balance Sheets, March 31, 2008 and 2007 Statements of Operations for the years ended March 31, 2008, 2007 and 2006 Statements of Partners' Equity (Deficit) for the years ended March 31, 2008, 2007 and 2006 Statements of Cash Flows for the years ended March 31, 2008, 2007 and 2006 Notes to Financial Statements (a)(2) List of Financial statement schedules included in Part IV hereof: ----------------------------------------------------------------- Schedule III - Real Estate Owned by Local Limited Partnerships (a)(3) Exhibits. --------- 3.1 Agreement of Limited Partnership dated October 5, 1992 was filed as Exhibit 28.1 to Form 10-K for the year ended December 31, 1994 is hereby incorporated herein by reference as Exhibit 3.1. 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) 32.1 Section 1350 Certification of the Chief Executive Officer. (filed herewith) 32.2 Section 1350 Certification of the Chief Financial Officer. (filed herewith) 99.1 Amended and Restated Agreement of Limited Partnership of Colonial Village Roseville (1) filed as exhibit 10.1 to Form 8-K/A Amendment No. 1 to Current Report dated December 27, 1993 is hereby incorporated herein by reference as exhibit 99.1. 99.2 Amended and Restated Agreement of Limited Partnership of Almond Garden Apartment Associates filed as exhibit 10.2 to Form 8-K/A Amendment No. 1 to Current Report dated December 27, 1993 is hereby incorporated herein by reference as exhibit 99.2. 99.3 Amended and Restated Agreement of Limited Partnership of Winters Investment Group filed as exhibit 10.3 to Form 8-K/A Amendment No. 1 to Current Report dated December 27, 1993 is hereby incorporated herein by reference as exhibit 99.3. 99.4 Third Amended and Restate Articles of Limited Partnership of Buccaneer Associates, Limited filed as exhibit 10.2 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 10.4. 99.5 Amended and Restated Agreement and Certificate of Limited Partnership of Dallas County Housing, Ltd. filed as exhibit 10.3 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 10.5. 99.6 Amended and Restated Agreement of Limited Partnership of La Paloma Del Sol Phase II Limited Partnership filed as exhibit 10.4 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.6. 53
99.7 Second Amended and Restated Agreement of Limited Partnership of Old Fort Limited Partnership filed as exhibit 10.5 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.7. 99.8 Amended and Restated Agreement of Limited Partnership of Orosi Apartments, Ltd. filed as exhibit 10.6 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.8. 99.9 Amended and Restated Agreement of Limited Partnership of Sun Manor, L.P. filed as exhibit 10.7 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.9. 99.10 Amended and Restated Agreement of Limited Partnership of Venus Retirement Village, Ltd. filed as exhibit 10.8 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.10. 99.11 Second Amended and Restated Agreement of Limited Partnership of Walnut-Pixley, L.P. filed as exhibit 10.9 to Post-Effective Amendment No. 2 to Form S-11 dated September 17, 1993 is hereby incorporated herein by reference as exhibit 99.11. 99.12 Amended and Restated Agreement of Limited Partnership of Almond View Apartments, Ltd. filed as exhibit 10.11 to Form 10K dated December 31, 1993 is hereby incorporated herein by reference as exhibit 99.12. 99.13 Amended and Restated Agreement of Limited Partnership of Candleridge Apartments of Perry, L.P. II filed as exhibit 10.1 to Form 8-K dated May 26, 1994 is hereby incorporated herein by reference as exhibit 99.13. 99.14 Second Amended and Restated Agreement of Limited Partnership of Parlier Garden Apts. filed as exhibit 10.2 to Form 8-K dated May 26, 1994 is hereby incorporated herein by reference as exhibit 10.14. 99.15 Agreement of Limited Partnership of Rosewood Apartments Limited Partnership filed as exhibit 10.3 to Form 8-K dated May 26, 1994 is hereby incorporated herein by reference as exhibit 99.15. 99.16 Agreement of Limited Partnership of Limited Partnership of Nueva Sierra Vista Associates filed as exhibit 10.4 to Form 8-K/A Amendment No. 1 to Current Report dated May 26, 1994 is hereby incorporated herein by reference as exhibit 99.16. 99.17 Amended and Restated Agreement of Limited Partnership of Memory Lane Limited Partnership filed as exhibit 10.1 to Form 8-K dated July 7, 1994 is hereby incorporated herein by reference as exhibit 99.17. 99.18 Second Amended and Restated Agreement of Limited Partnership of Tahoe Pines Apartments filed as exhibit 10.1 to Form 8-K dated July 27, 1994 is hereby incorporated herein by reference as exhibit 10.18. 99.19 Financial Statements of Colonial Village - Roseville, for the years ended December 31, 2007 and 2006 together with Independent Auditors' Report thereon; a significant subsidiary 54
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2008 -------------------------------- ---------------------------------------------------------------- As of March 31, 2008 As of December 31, 2007 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Almond Garden Apts. Delhi, $ 391,000 $ 391,000 $ 1,345,000 $ 93,000 $ 1,717,000 $ 885,000 $ 925,000 Assoc. California Almond View Apts., Stockton, 1,639,000 1,639,000 1,693,000 110,000 3,414,000 1,669,000 1,855,000 Ltd. California Buccaneer Assoc., Fernandia 365,000 365,000 1,428,000 60,000 2,158,000 783,000 1,435,000 Ltd. Beach, Florida Candleridge Apts. Perry, 126,000 126,000 667,000 50,000 888,000 445,000 493,000 of Perry Ltd. II Iowa Colonial Village Roseville, 2,811,000 2,811,000 1,799,000 315,000 5,052,000 2,442,000 2,925,000 Roseville California Dallas County Orrville, 130,000 130,000 595,000 35,000 764,000 319,000 480,000 Housing, Ltd. Alabama La Paloma del Sol Deming, 254,000 254,000 1,385,000 101,000 1,788,000 660,000 1,229,000 Ltd. New Mexico Memory Lane Ltd. Yankton, 151,000 151,000 657,000 25,000 893,000 546,000 372,000 South Dakota Nueva Sierra Vista Richgrove, 1,688,000 1,688,000 1,623,000 115,000 3,137,000 1,009,000 2,243,000 Assoc. California Old Fort Highway Hidalgo, 249,000 249,000 1,235,000 78,000 1,738,000 648,000 1,168,000 Ltd. Texas 55
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2008 -------------------------------- ---------------------------------------------------------------- As of March 31, 2008 As of December 31, 2007 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Orosi Apts., Ltd. Orosi, 461,000 461,000 1,826,000 100,000 2,395,000 678,000 1,817,000 California Parlier Garden Parlier, 453,000 453,000 1,656,000 138,000 2,070,000 741,000 1,467,000 Apts. California Rosewood Apts. Superior, 185,000 185,000 398,000 - 768,000 272,000 496,000 Ltd. (1) Wisconsin Sun Manor, L.P. Itta Bena, 230,000 230,000 1,026,000 40,000 1,334,000 661,000 713,000 Mississippi Tahoe Pines Apts. South Lake 1,633,000 1,633,000 1,566,000 87,000 3,236,000 1,587,000 1,736,000 Tahoe, California Venus Retirement Venus, 161,000 161,000 704,000 32,000 618,000 443,000 207,000 Village, Ltd. (1) Texas Walnut - Pixley, Orange, 1,078,000 1,078,000 1,553,000 690,000 2,078,000 907,000 1,861,000 Ltd. California Winters Investment Winters, 531,000 531,000 1,775,000 165,000 2,427,000 692,000 1,900,000 Group (1) California ------------ ----------- ----------- ---------- ------------ ---------- ---------- $ 12,536,000 $12,536,000 $22,930,000 $2,234,000 $ 36,475,000 $15,387,000 $ 22,322,000 ============ =========== =========== ========== ============ =========== ============ (1) Subsequent to March 31, 2008, the Partnership sold its Limited Partnership interest in these Local Limited Partnerships. 56
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2008 --------------------------------------------------------------- For the year ended December 31, 2007 --------------------------------------------------------------- Year Estimated Local Limited Net Income Investment Useful Life Partnership Name Rental Income (Loss) Acquired Status (Years) -------------------------------------------------------------------------------------------------- Almond Garden Apts Assoc. $ 199,000 (21,000) 1994 Completed 27.5 Almond View Apts., Ltd. 256,000 (259,000) 1994 Completed 27.5 Buccaneer Assoc. Ltd. 282,000 (12,000) 1994 Completed 40 Candleridge Apts. 154,000 5,000 1994 Completed 27.5 of Perry Ltd. II Colonial Village 554,000 (35,000) 1993 Completed 27.5 Roseville Dallas County Housing, 86,000 (10,000) 1993 Completed 40 Ltd. La Paloma del Sol 192,000 (18,000) 1993 Completed 40 L. P. Memory Lane L.P. 87,000 (10,000) 1994 Completed 25 Nueva Sierra Vista 176,000 (123,000) 1994 Completed 40 Assoc. Old Fort L.P. 232,000 (24,000) 1993 Completed 40 Orosi Apts., Ltd. 210,000 (39,000) 1993 Completed 50 Parlier Garden Apts. 287,000 (3,000) 1994 Completed 40 Rosewood Apts. Ltd. 100,000 3,000 1994 Completed 40 Sun Manor, L.P. 179,000 (36,000) 1993 Completed 27.5 Tahoe Pines Apts. 237,000 (119,000) 1994 Completed 27.5 Venus Retirement Village, 108,000 (16,000) 1993 Completed 25 Ltd. Walnut - Pixley, L.P. 193,000 12,000 1993 Completed 40 Winters Investment Group 276,000 (44,000) 1994 Completed 50 $3,808,000 $ (749,000) ========== =========== 57
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2007 -------------------------------- ---------------------------------------------------------------- As of March 31, 2007 As of December 31, 2006 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Almond Garden Apts. Delhi, $ 391,000 $ 391,000 $ 1,352,000 $ 93,000 $ 1,693,000 $ 823,000 $ 963,000 Assoc. California Almond View Apts., Stockton, 1,639,000 1,639,000 1,706,000 110,000 3,414,000 1,548,000 1,976,000 Ltd. California Buccaneer Assoc., Fernandia 365,000 365,000 1,436,000 60,000 2,158,000 730,000 1,488,000 Ltd. Beach, Florida Candleridge Apts. Perry, 126,000 126,000 672,000 50,000 884,000 412,000 522,000 of Perry Ltd. II Iowa Colonial Village Roseville, 2,811,000 2,811,000 1,850,000 315,000 5,042,000 2,263,000 3,094,000 Roseville California Dallas County Orrville, 130,000 130,000 599,000 35,000 764,000 298,000 501,000 Housing, Ltd. Alabama La Paloma del Sol Deming, 254,000 254,000 1,393,000 101,000 1,761,000 609,000 1,253,000 Ltd. New Mexico Memory Lane Ltd. Yankton, 151,000 151,000 662,000 25,000 893,000 516,000 402,000 South Dakota Nueva Sierra Vista Richgrove, 1,688,000 1,688,000 2,284,000 115,000 3,137,000 930,000 2,322,000 Assoc. California Old Fort Highway Hidalgo, 249,000 249,000 1,242,000 77,000 1,696,000 593,000 1,180,000 Ltd. Texas 58
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2007 -------------------------------- ---------------------------------------------------------------- As of March 31, 2007 As of December 31, 2006 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Orosi Apts., Ltd. Orosi, 461,000 461,000 1,846,000 100,000 2,397,000 629,000 1,868,000 California Parlier Garden Parlier, 453,000 453,000 1,664,000 138,000 2,070,000 689,000 1,519,000 Apts. California Rosewood Apts. Superior, 185,000 185,000 413,000 - 767,000 253,000 514,000 Ltd. (1) Wisconsin Sun Manor, L.P. Itta Bena, 230,000 230,000 1,031,000 40,000 1,325,000 609,000 756,000 Mississippi Tahoe Pines Apts. South Lake 1,633,000 1,633,000 1,587,000 87,000 3,237,000 1,471,000 1,853,000 Tahoe, California Venus Retirement Venus, 161,000 161,000 707,000 32,000 618,000 412,000 238,000 Village, Ltd. (1) Texas Walnut - Pixley, Orange, 1,078,000 1,078,000 900,000 690,000 2,078,000 853,000 1,915,000 Ltd. California Winters Investment Winters, 531,000 531,000 1,785,000 165,000 2,427,000 645,000 1,947,000 Group (1) California ------------ ------------ ------------ ----------- ----------- ---------- ----------- $ 12,536,000 $ 12,536,000 $ 23,129,000 $ 2,233,000 $36,361,000 $14,283,000 $24,311,000 ============ ============ ============ =========== =========== =========== =========== 59
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2007 --------------------------------------------------------------- For the year ended December 31, 2006 --------------------------------------------------------------- Year Estimated Local Limited Net Income Investment Useful Life Partnership Name Rental Income (Loss) Acquired Status (Years) -------------------------------------------------------------------------------------------------- Almond Garden Apts Assoc. $ 198,000 (30,000) 1994 Completed 27.5 Almond View Apts., Ltd. 245,000 (306,000) 1994 Completed 27.5 Buccaneer Assoc. Ltd. 257,000 (53,000) 1994 Completed 40 Candleridge Apts. 153,000 4,000 1994 Completed 27.5 of Perry Ltd. II Colonial Village 537,000 (30,000) 1993 Completed 27.5 Roseville Dallas County Housing, 78,000 (15,000) 1993 Completed 40 Ltd. La Paloma del Sol 193,000 (6,000) 1993 Completed 40 L. P. Memory Lane L.P. 81,000 (14,000) 1994 Completed 25 Nueva Sierra Vista 177,000 (121,000) 1994 Completed 40 Assoc. Old Fort L.P. 214,000 (42,000) 1993 Completed 40 Orosi Apts., Ltd. 230,000 (18,000) 1993 Completed 50 Parlier Garden Apts. 288,000 17,000 1994 Completed 40 Rosewood Apts. Ltd. 94,000 (1,000) 1994 Completed 40 Sun Manor, L.P. 170,000 (32,000) 1993 Completed 27.5 Tahoe Pines Apts. 225,000 (141,000) 1994 Completed 27.5 Venus Retirement Village, 103,000 (28,000) 1993 Completed 25 Ltd. Walnut - Pixley, L.P. 181,000 5,000 1993 Completed 40 Winters Investment Group 278,000 18,000 1994 Completed 50 ---------- ---------- $3,702,000 $ (793,000) ========== ========== 60
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2006 -------------------------------- ---------------------------------------------------------------- As of March 31, 2006 As of December 31, 2005 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Almond Garden Apts. Delhi, $ 391,000 $ 391,000 $ 1,359,000 $ 93,000 $ 1,693,000 $ 759,000 $ 1,027,000 Assoc. California Almond View Apts., Stockton, 1,639,000 1,639,000 1,718,000 110,000 3,415,000 1,428,000 2,096,000 Ltd. California Buccaneer Assoc., Fernandia 365,000 365,000 1,443,000 60,000 2,158,000 676,000 1,542,000 Ltd. Beach, Florida Candleridge Apts. Perry, 126,000 126,000 677,000 50,000 880,000 378,000 552,000 of Perry Ltd. II Iowa Colonial Village Roseville, 2,811,000 2,811,000 1,898,000 315,000 5,043,000 2,085,000 3,273,000 Roseville California Dallas County Orrville, 130,000 130,000 601,000 35,000 764,000 276,000 524,000 Housing, Ltd. Alabama La Paloma del Sol Deming, 254,000 254,000 1,400,000 101,000 1,756,000 559,000 1,297,000 Ltd. New Mexico Memory Lane Ltd. Yankton, 151,000 151,000 666,000 25,000 889,000 486,000 428,000 South Dakota Nueva Sierra Vista Richgrove, 1,688,000 1,688,000 1,623,000 115,000 3,137,000 850,000 2,402,000 Assoc. California Old Fort Highway Hidalgo, 249,000 249,000 1,248,000 77,000 77,000 543,000 1,195,000 Ltd. Texas 61
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2006 -------------------------------- ---------------------------------------------------------------- As of March 31, 2006 As of December 31, 2005 ------------------------------------------------------------------ ---------------------------------------------------------------- Total Investment Amount of Mortgage Balances Buildings Local Limited in Local Limited Investment of Local Limited and Accumulated Net Book Partnership Name Location Partnerships Paid to Date Partnerships Land Equipment Depreciation Value ------------------------------------------------------------------------------------------------------------------------------------ Orosi Apts., Ltd. Orosi, 461,000 461,000 1,865,000 100,000 2,391,000 572,000 1,919,000 California Parlier Garden Parlier, 453,000 453,000 1,673,000 138,000 2,070,000 637,000 1,571,000 Apts. California Rosewood Apts. Superior, 185,000 185,000 428,000 - 767,000 234,000 534,000 Ltd. (1) Wisconsin Sun Manor, L.P. Itta Bena, 230,000 230,000 1,036,000 40,000 1,319,000 559,000 800,000 Mississippi Tahoe Pines Apts. South Lake 1,633,000 1,633,000 1,607,000 87,000 3,236,000 1,356,000 1,967,000 Tahoe, California Venus Retirement Venus, 161,000 161,000 710,000 32,000 618,000 381,000 269,000 Village, Ltd. (1) Texas Walnut - Pixley, Orange, 1,078,000 1,078,000 927,000 690,000 2,078,000 798,000 1,970,000 Ltd. California Winters Investment Winters, 531,000 531,000 1,794,000 165,000 2,427,000 597,000 1,995,000 Group (1) California ------------ ------------ ------------ ----------- ----------- ---------- ----------- $ 12,536,000 $ 12,536,000 $ 22,673,000 $2,233,000 $36,302,000 $13,174,000 $25,361,000 ============ ============ ============ =========== =========== =========== =========== 62
WNC California Housing Tax Credits III, L.P. Schedule III Real Estate Owned by Local Limited Partnerships March 31, 2006 --------------------------------------------------------------- For the year ended December 31, 2005 --------------------------------------------------------------- Year Estimated Local Limited Net Income Investment Useful Life Partnership Name Rental Income (Loss) Acquired Status (Years) -------------------------------------------------------------------------------------------------- Almond Garden Apts Assoc. $ 190,000 $ (47,000) 1994 Completed 27.5 Almond View Apts., Ltd. 245,000 (238,000) 1994 Completed 27.5 Buccaneer Assoc. Ltd. 245,000 (33,000) 1994 Completed 40 Candleridge Apts. 151,000 (10,000) 1994 Completed 27.5 of Perry Ltd. II Colonial Village 541,000 (12,000) 1993 Completed 27.5 Roseville Dallas County Housing, 67,000 (29,000) 1993 Completed 40 Ltd. La Paloma del Sol 182,000 (3,000) 1993 Completed 40 L. P. Memory Lane L.P. 79,000 (13,000) 1994 Completed 25 Nueva Sierra Vista 168,000 (128,000) 1994 Completed 40 Assoc. Old Fort L.P. 203,000 (31,000) 1993 Completed 40 Orosi Apts., Ltd. 232,000 (10,000) 1993 Completed 50 Parlier Garden Apts. 293,000 16,000 1994 Completed 40 Rosewood Apts. Ltd. 89,000 (5,000) 1994 Completed 40 Sun Manor, L.P. 147,000 (60,000) 1993 Completed 27.5 Tahoe Pines Apts. 226,000 (140,000) 1994 Completed 27.5 Venus Retirement Village, 99,000 (27,000) 1993 Completed 25 Ltd. Walnut - Pixley, L.P. 168,000 (20,000) 1993 Completed 40 Winters Investment Group 278,000 24,000 1994 Completed 50 ---------- ---------- $3,603,000 $ (766,000) ========== ========== 63
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WNC CALIFORNIA HOUSING TAX CREDITS III, L.P. By: WNC & Associates, Inc., General Partner By: /s/ Wilfred N. Cooper, Jr. -------------------------- Wilfred N. Cooper, Jr., President of WNC & Associates, Inc. Date: October 9, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Wilfred N. Cooper, Jr. -------------------------- Wilfred N. Cooper, Jr., Chief Executive Officer, President and Director of WNC & Associates, Inc. (principal executive officer) Date: October 9, 2009 By: /s/ Melanie R. Wenk ------------------- Melanie R. Wenk, Vice-President - Chief Financial Officer of WNC & Associates, Inc. (principal financial officer and principal accounting officer) Date: October 9, 2009 By: /s/ Wilfred N. Cooper, Sr. -------------------------- Wilfred N. Cooper, Sr., Chairman of the Board of WNC & Associates, Inc. Date: October 9, 2009 By: /s/ Kay L. Cooper ----------------- Kay L. Cooper Director of WNC & Associates, Inc. Date: October 9, 2009 64